These two words CPA & CAC are becoming ever so important in the business world. Even though these words originated in the the startup world but now the business world has embraced them full.
CPA : Cost Per Acquisition
CAC : Customer Acquisition Cost
What is it?
So in short, Cost for acquiring a customer or cost of convincing a customer to buy a product.
How can you calculate CAC & CPA ?
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. For example, if a company spent $100 on marketing in a year and acquired 100 customers in the same year, their CAC is $1.00.
Why is it important?
Knowing how much you can spend to acquire a customer is highly valuable. This gives you an ability to maximise your growth potential while keeping a close eye on profitability.
Customer acquisition is not CPA
Let’s address a common myth. Customer acquisition cost (CAC) and cost per acquisition (CPA) are commonly conflated, and yet in reality they’re completely different metrics. Understanding the difference is the start to understanding CAC in depth.
CAC specifically measures the cost to acquire a customer. Conversely, CPA (Cost Per Acquisition) measures the cost to acquire something that is not a customer — for example, a registration, activated user, trial, or a lead. The two are related because CPA is usually used to measure the cost of things that are leading indicators to CAC.
Here are some other things that you should look into –
- Detailed CAC Calculations
- Single Product Profitability
- What should your CAC be when you are starting your business?
- Is brand awareness part of your CAC calculations?