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What is Customer Acquisition Cost, How to Calculate & Importance for Retailers

If you’re a small business owner, you’re familiar with the struggle of constantly trying to acquire new clients. Business owners will use strategies such as marketing and advertising to get new consumers walking through the door. But how do you measure the success of these efforts? How do you know how successful you were in garnering new customers and how much it cost you? This is known as customer acquisition cost (CAC) and is defined as how much money it costs a company to acquire new customers. Here we’ll go over all the need-to-know regarding CAC, including how to calculate this value and why it’s essential for your small business.

CAC Formula & How to Calculate

You can use the customer acquisition cost formula to determine your business’ CAC. To calculate CAC, you add all of the costs of acquiring new consumers, such as marketing and advertising, sales, etc., and divide this value by the number of new consumers you gained. You can do this for different periods to gain information for a financial quarter or calculate your annual CAC. The total will serve as useful data in determining how well your business is doing and how productive your efforts are in acquiring new consumers.

Customer Acquisition Cost vs. Lifetime Value

A useful factor that helps put customer acquisition costs into perspective is lifetime value. Lifetime value is when the profit a corporation makes from a single consumer over the course of their purchases. This is relevant to CAC because it determines how much the company must invest in acquiring a new consumer. Still, it determines how much profit the business will obtain in the long run for getting this new client. When determining the lifetime value, several factors must be considered, such as the average lifetime, the rate at which consumers return to your business, the profit gained per customer, and the average spending over their lifespan.

Average Customer Acquisition Cost

Average customer acquisition cost refers to the average amount of money a business must spend to acquire a new customer. For example, according to Hubspot.com, there is a formula every business owner should use in order to calculate the customer acquisition cost. The formula goes as follows: you calculate the cost by having the cost of sales and marketing divided by the new customers acquired. This metric has several costs, such as advertising, employee salaries, creating content, production cost, etc. “It’s only when you know how much it costs to bring in new customers that you can make informed business decisions and predict how profitable your company would be in the long run.” Keep in mind that the average cost can vary depending on your company’s industry. Research what your costs are and make sure you can allocate your resources better. Overall, the lower your average CAC is, the better it is for your business.

How to Keep Your CAC Low

A company’s CAC can be reduced in a variety of ways. Converting potential clients into loyal customers is the most fundamental method. This may be accomplished through marketing and advertising, which focuses on attracting new clients who have not yet been reached. On the other hand, if you want to keep your existing clients and raise their lifetime value, you’ll want to ensure they’re taken care of. This is done by making sure that your store has high-quality customer service to meet all of their needs. You may need to hire staff and train them to help assist clients with what they are looking for and what sales you are offering, and so forth.

Additionally you may need to consider when attempting to keep your CAC low is how effectively you run your business. Consumers will return to your store if they know their demands can be met, and consumers will not want to return to your store if it is disorganized and not operated efficiently. As a result, if consumers do not receive the assistance they require, they may view your facility as a disaster, which will lead to negative word of mouth and reviews that will grow regarding your site, lowering your income.

Another factor to consider is a reliable payment system integrated with your POS to keep consumers coming back to your store. NRS Pay credit card processing is an excellent option for convenient and straightforward payment acceptance. The system takes all major credit cards, mobile payments such as Apple Pay, and government assistance programs, providing an enjoyable checkout experience. For more info, check out https://nrsplus.com/credit-card/. When using the NRS POS system, there are built-in – plus some additional, optional – features that can help you track purchases and loyalty, like a CRM platform. The POS can help you identify sale trends and reward your loyal customers.

So if you want to get that return on your CAC investment and increase lifetime value, you need to ensure that your employees are knowledgeable professionals who have a positive attitude when dealing with consumers. Now that you have everything you need to know, you can get started on determining your CAC and improving your business. Good luck!

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