The Cost of Customer Acquisition (CAC) is calculated by dividing all the costs spent on acquiring new customers (marketing expenses) by the number of new clients acquired in a specific time frame. If you spent $8000 on marketing in September and acquired 40 customers in this time frame, your CAC is $200.

The Cost of Customer Acquisition should always be measured together with the Customer Lifetime Value. If a new client is worth the average of $1400 to you, acquiring them for $200 is a reasonable deal.

How to calculate:
The easiest way to calculate the average Customer Lifetime Value is to multiply the average value of a sale by the number of repeat transactions and the average retention time in months for a typical customer.

Calculating the CLV depends on your product specifics – are you selling on a monthly basis, is it a big one-time transaction, or do people return to make repeat purchases? Here’s a great infographic by Kissmetrics, explaining the CLV in-depth.

How to improve:
Evaluating the Customer Lifetime Value of various client segments can help you understand which segments bring in a higher profit. Let go of clients who are decreasing your net profit and difficult to convert, and focus on the most rewarding audience.