The customer acquisition cost evaluates the total sales and marketing cost regarding new customers obtained. The customer acquisition cost uses a particular time period during calculations. Customer acquisition costs are commonly abbreviated as CAC. Businesses that know CAC have an advantage over those that do not. The CAC metric reflects the health of everything from digital marketing to customer service strategies.
Unsurprisingly, different industries have different customer acquisition costs. Travel industries have an average customer acquisition cost of $7. Contrarily, the average customer acquisition cost for software companies is $395. Acquisition costs for real estate industry businesses average out to $213. A marketing agency business average customer acquisition cost is $141. The average customer acquisition cost for the retail industry is $10.
Important Customer Acquisition Cost by Industry Terms
To know customer acquisition is important also necessitates gaining an understanding of other terms. The customer lifetime value should be considered when evaluating customer acquisition costs. The customer lifetime value is the estimated revenue customers generate throughout their entire relationship with a company.
It is also important to know customer average purchase value and average purchase frequency. The average purchase value is calculated by dividing total revenue by total number of purchases in a specific time period. The specific time period used to calculate the average purchase value is generally a single year. The average purchase frequency is calculated by dividing the number of purchases by the number of new customers making purchases. Both the average purchase value and purchase frequency use a specific time period for measurements.
Average customer lifespan and customer value are also commonly considered alongside CAC. The customer value is calculated by multiplying the average purchase value and average purchase frequency. The average customer lifespan is the number of years a customer continually purchases from a business.
To calculate lifetime value businesses multiply customer value by the average customer lifespan. The lifetime value represents the average customer revenue generation expected. The LTV CAC ratio represents customer value relative to acquisition cost expended.
Influential Factors of Customer Acquisition Cost by Industry
There are many factors that influence customer acquisition cost including the sales cycle length and company maturity. Purchase value and purchase frequency also influence the customer acquisition cost by industry. Advertisement spending is a significant customer acquisition cost variation. However, businesses must know customer wants and needs in order to effectively utilize advertisements.
A marketing agency and real estate company will likely have different publishing and production costs. Production costs are the costs associated with physical content creation. For digital marketing initiatives like social media video production, production costs would include cameras and sets. Money spent on production costs also includes marketing team editing. Publishing costs are the costs associated with releasing marketing campaigns. Common publishing cost examples include newspaper and social media advertisements.
Creative costs are the costs associated with content creation. Creative costs could include when a business must acquire new third party talent for advertisements. A lunch meeting with the sales team and content marketing team would also be considered a creative cost. Technical costs are the costs associated with the technology used by marketing and sales team professionals. Examples of technical costs include lead generation and search engine optimization software.
Employee salary is a very important factor to calculate customer acquisition costs. Considering that employee salaries vary so greatly by industry, it makes sense the CAC metric does too. The cost per employee in certain industries often depends on expertise and education. Technology is a great way to mitigate high employee salaries. For example, lead generation or inbound marketing tools can increase employee efficiency.
Key Takeaways for Customer Acquisition Cost by Industry
Different industries have different customer acquisition costs.
Reasons for different customer acquisition costs range from employee salary to production costs.