CAC is the cost of convincing a potential customer to buy a product or service. here we will explain the CAC metric in more detail how you can measure it
Customer Acquisition Cost (CAC) is the total cost of sales and marketing efforts required to acquire a customer. This is one of the determining factors of whether your SaaS company has a viable business model that can generate revenue by maintaining low acquisition costs as it scales.
The goal of your company should be a steady decline in CAC, not only because it leads to an increase in revenue, but also because it is a sign of good health for your marketers,sales and customer service departments.
Many web companies can participate in targeted campaigns and track consumers as they move from interested customers to loyal customers. In this environment, the CAC indicator is used by both companies and investors.
Calculate the cost of purchasing your client
Calculating your CAC is as easy as taking the total costs your business spends on the total amount of customers.
CAC is the amount of money spent on advertising to create a sale. For example, if you spend $ 2,000 on advertising on Facebook and receive ten sales from them, your CAC will be $ 200.
How to calculate CAC?
CAC is calculated by summing the marketing & sales spend for a given period and dividing that by the number of customers gained during that given period.
What forms the total sales and marketing spend? It's any cost that you incur in acquiring a customer. It could be money spent on ad campaigns, events,cost of PPC campaigns, SEO, content marketing etc.
Facebook now lets you organize your customers in order of customer lifetime value (LTV) – or in other words, how much they spend at your business.
If you have a successful business model, your CAC will be significantly lower than LTV. If your CAC is higher than LTV, do not panic. As can be seen in the figure above, CAC is a swing that may experience some ups and downs. With the information and steps that we are going to show you, you can certainly get your SaaS business at the right end of the swing.
Configure the Advertising Manager dashboard to calculate CAC
Open the Facebook Ads Manager dashboard and make sure you verify the correct data, log in and sort your conversions based on the last 7 days. This is crucial because the last 7 days of data will give you a fair perspective on how your campaigns have been performing.
Now you have to, select Performance and Clicks from the Columns drop-down menu. to make sure you’re looking at the right metrics
Click the Cost per Result column header to sort your ad sets based on cost per result. So, the highest cost per result is shown at the top.
Now you can see which ad sets have high customer acquisition costs. Pause any ad sets with a cost per result that’s at least double your expected costs.
Scale Your Budget Successfully
One of the common mistakes that Facebook advertisers make upon seeing impressive initial results is to increase their daily advertising budgets too much.
To keep your cost per result, consider rising your budget by 20% to 30% daily. So, you can efficiently scale your ads while still gaining subscribers at optimum costs.
When looking for improving certain metrics, such as conversion, A/B testing is a great strategy. In cycles, you'll gradually start making changes to the layout, mostly, and see what drives better results. This can be the color of a button, the position of an image, a certain icon.
It’s a good idea to split test your landing pages. Remember, you only have about 8 seconds to grab your audience’s attention after they click on your ad. To scale with the lowest possible customer acquisition costs, you need to find the combination of landing page elements that deliver the most conversions.
For your experiment results to be relevant, you need to collect at least 100 conversions per variation before making any conclusions. Even better if you can wait until you have 300 or 500 conversions per variation. When working with small advertising budgets, waiting for so long can be pretty frustrating.
Target New Audience Segments With Lookalikes
Create a Lookalike Audience window, select your website custom audience, a location, and audience size. The audience size represents how closely the lookalike resembles your website custom audience. A lookalike audience of 1% means they’ll most closely match with your source.
To uncover your top-performing ad placements, log in to Facebook Ads Manager and use the Breakdown menu to break down your campaigns by Placement.
Determine your Creative/Copy
Now that we have our audiences taken care of, we can move on to focusing on the actual content of the ads. You want to be testing at least three different variations of your ad at this point to determine the effectiveness of each.
Because you’re working with cold audiences you want to have creative/copy that will entice people to engage with your content.
Without advertising copy , your ad will be very confused. Users will not know what to do with it. Users will not have any reason why they should stop and pay attention.
Understand Your Targeting
You can see one of the targeting sets we created in the screenshot above. The ideal customer is a busy professional, so we targeted based on publications and other media (such as morning radio stations) this ideal consumes, as well as products they use.
You can target your competitor’s fans, if the competitor has a large enough page, or target based on behaviors. For example, if you are going after small business owners, you could tell Facebook to show your ads to people marked as admins of business pages:
Take advantage of content creation
You may have heard of this quotation: “Content is king!”. As an organic marketing effort, content marketing simply allows you to generate potential customers without spending any money.
All you have to do is create content that includes long keywords. By the way, you need to determine your keywords based on the character of your buyer. These efforts will help you increase your organic traffic over time at no additional cost. And organic traffic means greater brand awareness.
We have reached the end of the content! Summing up, while at the growth stages it is acceptable to have a relatively high CAC to take a place in the market (and, consequently, to reap greater benefits later), the cheaper you acquire each customer, the faster you will grow.