I’m sure you know that your customer acquisition cost (CAC) is the price you pay to convert a lead into a customer. And for most companies, that’s a pretty huge expense. According to a 2017 CMO survey, businesses spend over 11% of their total company revenue on marketing. The CAC metric is important to two parties: companies and investors. The first party includes outside, early-stage investors who use it to analyse the scalability of new Internet technology companies. They can determine a company’s profitability by looking at the difference between how much money can be extracted from customers and the costs of extracting it.
The other party interested in the metric is an internal operations or marketing specialist. They use it to optimize the return on their advertising investments. In other words, if the costs to extract money from customers can be reduced, the company’s profit margin improves and it makes a larger profit. In this article, you will get to know about some CAC benchmarks for different industries.
How to Calculate your Customer Acquisition Cost?
Customer Acquisition Costs by Industry
Cost per Acquisition on Google ads
Cost per Acquisition for Facebook Marketing
Cost per Lead for B2B Marketing Channels
How to Calculate your Customer Acquisition Cost?
Basically, the CAC can be calculated by simply dividing all the costs spent on acquiring more customers (marketing expenses) by the number of customers acquired in the period the money was spent. Consider a SaaS company that spent $125,000 on sales and marketing in a month, including salaries, commissions, ad spend and trial support. 50 new customers were signed up during the same month. In this case: CAC = $125,000/50 = $2,500.
Congratulations! You’ve calculated your CAC.
But here’s the thing: knowing your customer acquisition cost is fairly meaningless if you’re not comparing it to the lifetime value. You want to see a LTV three times higher than your CAC.
A higher ratio than 3x means you could actually be growing faster if you invested in the right channels. Anything lower than 3x means you need to be exploring these options for either growing your LTV or lowering your CAC.
Customer Acquisition Costs by Industry
Customer acquisition cost varies across industries due to a number of different factors — including, but not limited, to: Length of sales cycle, Purchase value, Purchase frequency, Customer lifespan, and Company maturity.
Here's a rundown of average customer acquisition cost by industry:
- Travel: $7
- Retail: $10
- Consumer Goods: $22
- Manufacturing: $83
- Transportation: $98
- Marketing Agency: $141
- Financial: $175
- Technology (Hardware): $182
- Real Estate: $213
- Banking/Insurance: $303
- Telecom: $315
- Technology (Software): $395.
Rishabh Rathi
Cost per Acquisition on Google ads
To many, Google Ads is still the most effective ingredients in their digital marketing mix, allowing you to widen your reach and promote your product to millions of users. In terms of averages, CPA is lowest in the auto industry, which acquires new customers at only $33.52 a head, while the tech industry spends a whopping average of $133.52.
Cost per Acquisition for Facebook Marketing
In marketing circles, Facebook is considered the most important platform for both B2C and B2B businesses. In fact, the social platform already has 80 million business pages online – and numbers don’t seem to be slowing down. There are more stats, of course. 78% of Americans discover new products through Facebook and 30% of marketers believe it has the highest ROI of all digital ads. As for average cost per acquisition numbers, education gets a big bang for its buck by paying only $7.85 per customer, in contrast, of course with tech’s $55.21.
Rishabh Rathi
Cost per Lead for B2B Marketing Channels
One of the most common B2B lead generation channels is email marketing. On average, a lead from email marketing costs $53. On the high end, a lead can cost around $72, and on the low end, around $33.
If you’re a B2B business that targets medium to enterprise-level clients, LinkedIn advertising can be incredibly effective. On average, a lead from paid LinkedIn advertisements costs $75. On the high end, a lead can cost around $99, and on the low end, around $51.
Manav Makhija
Conclusion
A Good Customer Acquisition Cost varies by the industry and tactics used. But a good way to benchmark your CAC is by comparing it to Customer Lifetime Value (also known as LTV). It is said that an ideal LTV to CAC ratio is 3:1. We hope these cost per acquisition averages assist you in making better marketing decisions in 2020.
FAQs
What CAC means?
Customer acquisition cost (CAC) is the cost incurred to acquire a new customer.
What is considered a good CAC?
A ratio of LTV/CAC greater than 3 is considered good.
How do you predict CAC?
CAC is calculated by dividing marketing expenses by the number of customers acquired in the period the money was spent.
What is average customer acquisition cost by industry?
Average customer acquisition based on industries are:
- Travel: $7
- Retail: $10
- Consumer Goods: $22
- Manufacturing: $83
- Transportation: $98
- Marketing Agency: $141
- Financial: $175
- Technology (Hardware): $182
- Real Estate: $213
- Banking/Insurance: $303
- Telecom: $315
- Technology (Software): $395