A Guide to Customer Acquisition Cost

Learn how to calculate this crucial metric, measure against benchmarks, and use CTV performance tools to drive sustainable growth

Every business wants to grow — the hard part is managing costs while you do it. If you don’t know how much money you’re spending on new sales leads, you may get customers, but still lose money in the long run.

Every performance marketer needs to know how to calculate and optimize customer acquisition cost (CAC). This crucial metric is the lifeblood of growth marketing — understanding which channels to focus on and how much to spend can exponentially increase your revenue. This guide will walk you through how to calculate your customer acquisition costs and compare them against average industry benchmarks, as well as how to leverage connected television (CTV) channels to maximize your return on ad spend (ROAS).

What Is Customer Acquisition Cost? 

Customer acquisition cost (or CAC as it is commonly known) is a formula performance marketers use to determine how much money they have spent to bring in one new customer. 

Customer acquisition is crucial for any business looking to generate sustainable growth. If your organization brings in more customers than it loses, it can grow and generate more revenue. 

Bringing new customers on board isn’t free, however. Customer acquisition is a multi-step funnel, which involves generating awareness across multiple channels, finding and pursuing sales leads, and nurturing potential high-value leads until they convert into a paying customer. Keeping CAC costs low while maximizing the customer’s lifetime value (CLTV) ensures your business makes more than it spends on generating growth.

Additionally, while CAC values may overlap with return on ad spend, they are not always the same. CAC includes all costs related to acquiring new customers, which may or may not include advertising. Meanwhile, ROAS relates to the dollar amount generated by spending money on ads, which may or may not include customer acquisition.

When optimizing customer acquisition costs, examining all available channels at your disposal is essential. Connected television is rapidly becoming a premiere destination for performance marketers thanks to its wide availability and ability to command attention within the household. Of the 86% of consumers who subscribe to more than one streaming TV service, over 90% of those viewers watch at least one ad-supported channel. Find more key CTV user statistics and discover why you should make CTV the focal point of your next CAC campaign by downloading our free report today.

How to Calculate Customer Acquisition Cost

The customer acquisition cost formula is relatively simple to compute and applies across various industries and channels, including CTV.

First, determine the period you’d like to calculate for. This value could be monthly, quarterly, bi-annually, annually, or any other value relevant to your reporting needs.

Next, you add the total cost of marketing (such as advertising displayed on CTV channels) and the total cost of sales (such as the salaries of your sales team). Then, divide this total by the total number of customers you’ve acquired during this period. This value is your average customer acquisition cost.

Customer Acquisition Cost Benchmarks

Many factors determine the average cost per customer acquisition and will differ for every organization. The type of industry your business is in, how long it’s been in operation, the cost of your product or service, purchase volume and frequency, the length of the sales cycle, the type of advertising channel, and more all influence customer acquisition costs. 

For example, mobile games tend to work with large populations of players; the more people you have playing your game, the more money you can make. As such, customer acquisition costs tend to be lower than in most other industries — for example, the average cost per install of a casual game is around $1 per player. However, this value can fluctuate based on the game genre and even the type of mobile device the player uses.

Industries that operate in specific niches target fewer customers but charge more for their products or services. As such, the cost per customer acquisition can be far higher. Values also differ depending on whether the user was acquired through organic traffic or paid marketing. First Page Sage offers a breakdown of average CAC values across several industries, including the following:

How to Optimize Customer Acquisition Costs With CTV

Measuring customer acquisition costs against lifetime value is the best way to determine whether your customers are generating more money than you spend on acquiring them. While every industry is different, generally speaking, a good CLV to CAC ratio is 3:1. To put it another way, you should be generating three times as much revenue per customer compared to the cost of acquiring them.

So how do you reduce your cost per customer acquisition? Every marketing channel has its own quirks, but CTV performance channels are especially good at helping you hone your messaging through enhanced targeting and incrementality. CTV platforms like tvScientific can help with the following:

• Audience targeting: When audience sizes are as large and varied as CTV’s, marketers are genuinely spoiled for choice. CTV enables marketers to choose from a broad subset of cohorts grouped by age, gender, family size, income level, geographic location, and more. Then, they can target a general or specific subset of those audiences, ensuring your message reaches people most likely to convert. 
• Incrementality testing: Every aspect of your ad — colors, images, and even word choice — can impact an individual’s chance of taking action. CTV allows you to create multiple variations of your ad creative and test the waters to determine which option performs the best. Through incrementality, you can continue to make adjustments and re-test numerous times during a campaign to further hone in on the aspects of your ad that work.
• Retargeting: Thanks to the internet-forward nature of CTV, you can detect whether viewers have previously been exposed to your brand. Then, you can show specific video ads to those viewers with powerful retargeting tools to increase your chances of acquiring that user.

Power Sustainable Growth Through tvScientific

CTV is a powerful tool for unlocking your organization’s growth potential — and tvScientific is the perfect partner to help. tvScientific offers access to an enormous, diverse, and engaged audience with brand-safe inventory. We also provide the tools you need to test and optimize ad performance with live 24/7 measurement and reporting. To discover what CTV can do to maximize your KPIs, request a free demo today.