Analyze changes in customer acquisition cost faster

Get ahead of the factors increasing CAC to make profitability a proactive conversation.

Analytics Challenge

Business Challenge

KPI Impact

Analytics Challenge

In theory, calculating customer acquisition cost (CAC) is straightforward. Sum all your sales and marketing costs in a period, and divide by the number of customers acquired.

But on that one-off quarterly or yearly cadence, best case, you’re making future decisions based on (out of date) past performance.

What’s far more useful is answering which factors in sales and marketing, or even the types of customers you are acquiring, are causing your CAC to increase or decrease, as you invest in new programs. With those insights, you could attribute individual marketing channels, campaigns, promotions, sales discounts, field marketing and event costs, and more to get an accurate sum of where in the marketing funnel you should intervene to reduce CAC.

CAC

Customer acquisition cost (CAC) is the total cost of your sales and marketing efforts needed to acquire a customer.

CAC = Total cost of sales & marketing / # of customers acquired

Analytics Challenge

In theory, calculating customer acquisition cost (CAC) is straightforward. Sum all your sales and marketing costs in a period, and divide by the number of customers acquired.

But on that one-off quarterly or yearly cadence, best case, you’re making future decisions based on (out of date) past performance.

What’s far more useful is answering which factors in sales and marketing, or even the types of customers you are acquiring, are causing your CAC to increase or decrease, as you invest in new programs. With those insights, you could attribute individual marketing channels, campaigns, promotions, sales discounts, field marketing and event costs, and more to get an accurate sum of where in the marketing funnel you should intervene to reduce CAC.

Business Challenge

Whether you’re in hypergrowth or testing new strategies, keeping a pulse on CAC is critical to assess both the short-term ROI of your marketing investments and the long-term sustainability of your business.

Unfortunately, not only is CAC a trailing metric, most teams can only measure CAC infrequently — even the best reassess acquisition costs at the close of a quarter because of the complexity of the cost side of the equation. But that’s an oversimplification. By looking at CAC only at the macro level, you miss the hidden opportunities for profitable growth at a smaller scale. While most companies have the cost data to do the analysis, the sheer complexity of the task forces them to take the simple, brute-force route.

If a company can continuously monitor and act on small fluctuations in these costs — at a customer segment, cohort, or program level — they’ll get a better picture of not only their operating costs but more specific insights into payback periods. With a more granular analysis of these critical ROI metrics, you can make fast, critical decisions about the types of leads you’re acquiring and how to target them more efficiently.

KPI Impact

CAC is a backward-looking metric, one that answers, “How did we do last month or last quarter?” But when you move it to a real-time metric that answers, “How much did it cost to acquire these customers, this week?” you’ll obtain a more precise and reliable understanding of how your business is growing. Equipped with the facts, the company can adjust its targeting and acquisition strategies, optimize CLV, and ultimately increase profits.

As an analyst, analyzing this metric continuously, rather than periodically, you’re gathering the data you need for long-term calculations, and saving countless hours of manual analysis.

Designing datasets to analyze changes in CAC

Track your data at the customer or account level to see the driving factors behind your customer acquisition cost. Each row should represent a unique customer.

To diagnose the driving factors behind CAC, make your dataset as wide as possible. Start with the recommended fields below and add as many descriptive variables as you can to augment your analysis.

Schema Blueprint:

  • One row per customer
  • Metric column =
    Acquisition Cost

Recommended

Account ID

Acquisition Channel

Account Creation Date

First Touch Attribution

Last Touch Attribution

Calendar Month

Customer Tenure (Days)

New Customer (T/F)

Reactivated (T/F)

Optional

Customer Tier

Last Activity

Product SKU(s)

Product Usage

Product Category

Product Sub-Category

Account Spend

Ad Seen

Ad Converted

Time to Value

Fixed marketing costs

Program marketing costs

Cost to onboard

Schema Blueprint:
  • One row per customer
  • Metric column =
    Acquisition Cost
Recommended

Account ID

Acquisition Channel

Account Creation Date

First Touch Attribution

Last Touch Attribution

Calendar Month

Customer Tenure (Days)

New Customer (T/F)

Reactivated (T/F)

Optional

Customer Tier

Last Activity

Product SKU(s)

Product Usage

Product Category

Product Sub-Category

Account Spend

Ad Seen

Ad Converted

Time to Value

Fixed marketing costs

Program marketing costs

Cost to onboard

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