Calculating Customer Acquisition Cost (CAC)
Before You’ve Made a Sale
Customer Acquisition Cost (CAC) is a vital metric for businesses of all sizes. It reveals how much it costs to acquire a new customer, which is crucial for assessing the effectiveness of marketing and sales efforts. Typically, CAC is calculated by dividing total sales and marketing expenses by the number of customers acquired.
CAC = Total Sales and Marketing Expenses / Number of Customers Acquired
But what happens when you’re in the pre-revenue stage and haven’t acquired any customers yet?
The Challenge of Pre-Sales CAC Calculation
Calculating CAC before making any sales presents a unique challenge. The traditional formula becomes unusable since the denominator (number of customers acquired) is zero. This results in an undefined value, rendering the calculation meaningless.
However, entrepreneurs and marketers still need a way to estimate CAC even in the early stages of their ventures. This estimation helps gauge the potential cost-effectiveness of their current customer acquisition strategies and make informed decisions about resource allocation.
