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Customer acquisition is one of the most important functions for any business. Attracting new customers is the lifeblood of any successful venture. However, in order to be profitable, companies need to limit the amount of money they spend to onboard new clients. They must be efficient, because if marketing costs outpace the spending of those customers, there’s no benefit to acquiring them.

With the advent of big data, businesses are able to track and analyze information more closely than ever before. Customer acquisition cost is something that many companies are starting to think about more. Originally, CAC was something that investors were interested in. By looking at how much work startups had to put into marketing, they felt they could understand how successful a company would be. Today, analysts and businesspeople from all industries have realized this is an important statistic for any venture of any size.

Obviously, every line of business is a little bit different. Grocery stores and airlines have fairly thin margins. Their efforts to acquire new customers will have to be inexpensive if they’re going to prosper. On the other hand, software generally has a large margin. That means that as a category, software companies can safely spend more on courting new customers. Their business can withstand a little more expenditure.

This can be explained, at least in part, by the nature of solutions these businesses provide. Software packages generally solve large pain points for buyers. Each program has to be the right design for the end user. On the other hand, people can buy potato chips at any retailer. Software companies can compete on value. Grocery stores are more likely to resort to competing on price.

In general, the idea is that healthy businesses spend only 25% of their margin on CAC. So if a business has a 12% margin, they will want to spend just 3% or less on CAC. For businesses like software, where margins are closer to 20%, companies can safely spend up to 5% on CAC. For consultants and others working purely in the idea economy, margins can be as high as 50%. This means they can afford to spend a lot more time and effort cultivating new contacts before converting them into customers.