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# Customer Acquisition Cost (CAC): Definition, Formula & Examples

## How Do You Determine Customer Acquisition Cost?

To understand how to calculate acquisition cost, let’s discuss what goes into the calculation of the cost of acquiring a customer.

Let’s say XYZ Beverages is a soft drink company with a significant market share in India. Their marketing expenses for the year 2021-2022 include advertisements, pay-per-click expenses, marketing department salaries and commissions.

All these costs are represented by the term “Marketing Expenses.”

The company's total number of customers acquired each quarter is termed "New Customers Acquired." The CAC sheet for one financial year, which is divided into four quarters, would look something like this.

 Financial Quarter Marketing Expenses New Customer Acquired 1st Quarter (April 2021- June 2021) ₹ 50, 000 3000 2nd Quarter (July 2021- September 2021) ₹ 30, 000 3000 3rd Quarter (October 2021-December 2021) ₹ 70, 000 10000 4th Quarter (January 2022- March 2022) ₹ 50, 000 4000 Total ₹ 2, 00, 000 20000
In this case, CAC = 2, 00, 000 / 20000 = ₹ 10. Hence, cost of acquisition of XYZ Beverages for 2021-2022 is ₹ 10 per customer.

## How to Reduce Customer Acquisition Cost?

One important point that you should keep in mind is that a certain amount of CTC can be high for a company but low for another company, depending on their product type and services. Here’s an example to illustrate this point further:

Let’s say ABC Company is a luxury electronics brand. Here are its particulars.

 Customer acquisition cost for 2021-2022 ₹ 1000/customer Minimum product price ₹20,000 New customers acquired 2000 Gross profit excluding the Cost of Acquistion ₹19,000

On the other hand, XYZ Beverages is a soft drink brand. Here are its particulars.

 Customer acquisition cost for 2021-2022 ₹10/customer Minimum product price ₹50 New customers acquired 20,000 Gross profit excluding the Cost of Acquistion ₹40

So, in case of ABC Company, if it is assumed that each customer bought the minimum priced product, i.e. ₹20,000, their gross profit per item excluding the CAC is ₹ 19,000. This is a low cost of acquisition compared to their business volume.

However, in case of XYZ Beverages, if each customer buys their minimum priced item, i.e. ₹50, its gross profit, excluding the cost of acquisition, is ₹40. Therefore, in this case, the acquisition cost is comparatively high.