How to Calculate Customer Acquisition Cost for Restaurants
With a million restaurants in the United States alone, the ability to acquire new customers is essential. Customer acquisition costs are commonly abbreviated as CAC and are an important metric. A customer acquisition cost includes all money spent and costs associated with marketing used for new customers acquired. The most widely accepted CAC formula is marketing expenses divided by total new customers acquired.
It is crucial to remember that different industries have different customer acquisition costs. As such, there is no one universal customer acquisition cost formula used. Calculating customer acquisition costs can be challenging even for seasoned business professionals. Restaurant professionals should consider the following when calculating customer acquisition costs-
1. Marketing Channels
Determining a CAC ratio accurately is incredibly difficult when there are many marketing channels and marketing campaigns are considered. As such, experts recommend that customer acquisition costs are determined by evaluating marketing campaigns and marketing channels individually. Social media marketing efforts will likely have a different CAC ratio than landing page lead generation will.
Individual marketing channels and marketing campaigns evaluated also helps businesses decide how best to acquire new customers. If specific marketing channels or marketing campaigns are more successful at acquiring new customers then investments can increase. The CAC ratio of different marketing efforts determines how marketing expenses are best invested. As such, marketing team and sales team professionals should always consider marketing channels individually. Ultimately, the goal should be to improve the CAC ratio and make sure money spent and costs associated are worthwhile.
A significant difficulty that many business professionals experience during customer acquisition cost calculations is existing and new customer differentiation. Without proper technological tools available, correctly distinguishing between new customers and existing customers is unlikely. A customer database is a common technological solution to the differentiation issue.
A circumstance where differentiation is not an issue is when a new restaurant is opening. When a new restaurant opens, the CAC ratio incorporates all money spent and costs associated with opening marketing activities. Many restaurant owners find it helpful to reference an example of a new restaurant CAC ratio calculation.
Let's say a restaurant owner purchases a mailing list of local residents for $400. She then prints out copies of her menu for a total cost of $100 and mails them for $500. Additionally, the new restaurant owner invests in social media marketing campaigns to acquire new customers. With $2,000 of money spent on social media marketing campaigns, her total marketing spend was $3,000.
The new restaurant owner then checks new customers acquired at the end of a time period that was preestablished. She achieved 600 new customers as a result of her content marketing and social media marketing efforts! She divides her marketing spend of $3,000 by the 600 new customers acquired to get her CAC ratio. The new restaurant owner concludes that she spent $5 per customer acquired.
3. Customer Discounts
Incentives like discounts are commonplace in the restaurant business. Discounts can be used to increase everything from conversion rate to customer lifetime value. However, it is crucial that restaurants consider the amount of money discounted during a promotion. Without factoring in all applied customer discounts the CAC calculation will not be accurate. An inaccurate CAC calculation can negatively impact the marketing spend and customer success overall.
Let's say a marketing team allocates $1,000 of money spent on a social media advertisement. This marketing team launches social media marketing campaigns that always incorporate a 10% new customer discount code. The discount that a new customer receives must be accounted for as it decreases revenue. Social media marketing efforts resulted in new customers receiving 10% off orders of $20 or more. If 20 new customers spent $20 for a total of $400 spent then the total amount discounted would equal $40.
In the above situation, the social media account marketing efforts cost $1000. Adding the $40 of discounts to the $1,000 posits total marketing expenses at $1,040. Then the business owner can use the CAC formula of marketing expenses divided by total new customers acquired. With 20 new customers acquired, $52 per customer is the CAC formula result. In conclusion, the business spent $52 per customer acquired through that specific social media marketing campaign.
Key Takeaways for How to Calculate Customer Acquisition Cost
There is no one universal CAC formula as each business is different.
When calculating customer acquisition costs it is crucial to consider discounts and differentiation.