August 04, 2022 in Strategy by

A recent survey of B2B marketing executives showed that B2B marketers desire to show their departments’ impact on pipeline and revenue, and they want to do that by diving deeper into specific metrics.

A majority of respondents (62%) said that wanting to prove marketing’s impact was the motivation behind making taking a closer look at metrics a priority. Additionally, more than half of the marketers asked (54%) wanted to pay more attention to showing ROI from marketing spending.

When looking at the metrics that B2B marketers want to explore better, 68% said they would like to measure the cost of customer acquisition (CAC), and 58% said that ROI by channel was most important. In descending order of importance, the other metrics cited were ABM metrics, closed-won deal analysis, cross-channel engagement, customer lifetime value, and cross-channel attribution.

Here’s a look at what customer acquisition cost is, why it’s important, and some tips to help you keep it under control.

What is Customer Acquisition Cost?

Customer acquisition cost is just what it sounds like – the average total cost of acquiring a new customer. It’s how much you spend to get a customer to buy your product or service. To calculate CAC, you simply divide how much is spent on sales and marketing efforts by the number of customers you’ve acquired over the time period. The formula looks like this:

               (Sales Spend + Marketing Spend) / # of New Customers = Customer Acquisition Cost

So, if you have spent $50,000 on sales and marketing for the year and you’ve acquired 50 new customers, the CAC for the year is $1,000. Be sure to include all costs in the sales and marketing spend figure. For example, it should include sales and marketing salaries, tech subscriptions, paid channels costs, etc.)

Why is CAC Important?

The CAC metric is important because it provides you with a way to view your progress in gaining new customers. Paying attention to CAC is essential for the long-term success of your marketing efforts.

Here are a few of the reasons you should be calculating and tracking CAC:

Making Better Business Decisions

You can gain valuable insights from knowing your CAC, which allows you to make more sound business decisions going forward. The information you glean will help you understand what is working and what isn’t regarding your marketing efforts, which will help you optimize your spending and save money. Knowing this metric will allow you to make good decisions about how to bring in customers at the lowest possible expense to your business.

Having a Better Understanding of Sales and Marketing Effectiveness

Knowing your CAC allows you to better understand the health of your marketing and sales departments. If you are not budgeting enough for marketing and sales, you could be missing out on acquiring new customers who need a product or service like yours. Conversely, if you overspend on sales and marketing, you won’t turn much of a profit. Calculating the cost of customer acquisition highlights these situations, so you’re able to spend budget dollars more effectively.

Seeing the Bigger Picture

Calculating your CAC may not seem like it provides a whole lot of information. However, when you look at it alongside other key metrics, you’ll see the bigger picture. Perhaps the most important metric to compare with the CAC is the customer lifetime value (LTV).  

When you compare LTV to CAC, you are able to determine customer profitability. The LTV/CAC ratio indicates how much revenue you need from a customer to make up the investment you made to acquire that customer. It can take some time to recover your costs and start making a profit, especially if your business is a SaaS. Finding the right balance will help you get the highest ROI from your efforts.

Final Thoughts

You can see why the customer acquisition cost is a key metric to calculate and watch for your B2B business. When used correctly and combined with other metrics like LTV, it creates a foundation for effective marketing strategies, business growth, and increased income.

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David spoke at WordCamp Europe in 2021 about international keyword research.

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