10. Cost To Acquire A Customer CAC | $100M Lost Chapters Audiobook

Cost to acquire a customer = CAC How much does it cost you to make money? Every business owner always wants a new low-cost way to get new customers. Because the lower your cost to get a customer, the better your ratio is between what you spend and what you make. If you spend $10 to make $1000, it seems a hell of a lot cooler than spending $900 to make $1000. This is how crazy wealth gets made. Here's the problem. Most entrepreneurs have never calculated their actual CAC. They report on how much to ad spend it costs them to get a customer, or they think that their content leads are free. Or they're out on team, they don't consider only the commissions, etc. Then they're surprised at the end of the month when they're not making any money. That $1000 sale you thought cost you $200 to make really cost $500. And as small of a difference as that may seem, in some businesses that can be the difference between $1 million per month and $10 million a month, it's that important. So let's talk about how to know for sure. Unlike LTGP, CAC is a hard science. You can and should know exactly what it costs you to get a customer each month, by channel. If you don't and you were looking for a sign to start tracking, here's your sign. So let's do three examples. Cost of acquiring a customer, CAC. The cost to get a new customer. Advertising dollars, payroll to a media buyer, creative team, software, sales commissions and salaries, etc. A. Outreach example. You use $200 per month of email software. You pay someone $3000 a month to cold email prospects for you. Sales become appointments that turn into eight sales per month. You pay your salesperson $100 per sale. What's CAC? Total cost for eight sales equals $3000 emailer, $200 software and eight people at $100 each, which is $800 of commissions. In total, that's $4000. Now divide that number by the number of new customers. CAC equals $4000 cost divided by a new customer equals $500 each. B. Concept marketing example. You have two people on your media team that you pay $5000 per month each. They help you make, edit and distribute content across all platforms. That content turns into email messages and opt-ins on your site. Those leads turn into 10 new customers. You also pay $100 of commission per sale. So what's CAC? Total cost for 10 new customers equals media payroll, so $5000 times two, so $10,000. You've got commissions for 10 sales at $100 each, which is $1000, so you got $10,000 in total media payroll and $1000 of commissions, which is $11,000 in total. So the cost to acquire a new customer is $11,000 divided by 10 customers, which is $1100, per. C. Paid ads example. You pay a media buyer $4000 a month. You spend $20,000 in media, aka buying ads. You spend $1000 in commission per sale. You spend $1000 in software for tracking and following up with leads that come in. So let's say you get 10 new customers, what's CAC? Total cost for 10 new customers, media payroll, which is $4,000, media spend, $20,000, software cost, $1000, commissions, 10 times $1000, which is $10,000 in total. So you got $4,000 plus $20,000 plus $10,000, which is $35,000 in total. So your CAC is $35,000 in total divided by 10 customers, which is $3,500 each. CAC action step. Calculate your CAC for your business for the past few months, and if you advertise in multiple ways or multiple platforms, figure out how much it costs on each. The results may surprise you. Hint. One of the first things we do when we invest in a company is run a full diagnostic on acquisition. Half the time we find a channel or platform that's doing significantly better than others. And guess what we do next? We do more of the one that gets us the best cost customers. Now we understand what CAC is, and how to calculate it, independent of advertising method. Hooray. Next step, if we can't lower our CAC anymore, our next big lever is to increase how much we can pay compared to our competition, which we can do by increasing our lifetime gross profit per customer. AKA, LTGP.