Startup customer acquisition costs – what do you need to know, and how can you tell that you’re on the right track? In this article, we’ll investigate startup CAC metrics, what the startup’s average CAC is, and how to keep your startup customer acquisition costs nice and low.
You’re getting ready to launch your minimum viable product (or MVP), and you’ve got a sales and marketing campaign prepared to bring in new customers.
The question is… how can you tell that your campaign is going to plan?
Customer acquisition cost often referred to as CAC, is a useful metric you can use to see how much it costs to win new customers for your business. If you’re not using it already in your startup, we definitely recommend it!
Not sure how to measure the startup customer acquisition costs in your MVP? Don’t worry, this guide will show you how. Together, we’ll look at what CAC is, how to calculate it, and what you can do to keep your customer acquisition costs low.
And of course, if you need some additional help and support to keep your CAC down, we’re only an email or video call away!
- What is the startup customer acquisition costs?
- Why is CAC so important to startups?
- How do you work out customer acquisition costs?
- What’s the average CAC for startups?
- Customer acquisition cost for startups: how to keep it low
- Identify your target audience
- Look at the cost per acquisition for each marketing channel you use
- Consider a referral or affiliate program
- Optimize the sales process
- Keep checking, testing, and getting feedback
- In summary: managing your startup CAC should be simple!
What are the startup customer acquisition costs?
Customer acquisition cost is the amount of money a company spends to bring a new customer on board.
It’s often referred to as CAC.
Why is startup CAC so important?
CAC lets you see how your sales and marketing are doing and if there are any potential issues ahead.
If your CAC is too high and you’re spending too much on new customers, you can take action before you become unprofitable.
You can also use these metrics when pitching for investment to show your profitability and how easy it will be for you to scale successfully.
How do you work out startup customer acquisition costs?
Working out the customer acquisition cost for your startup is easy. You take your sales and marketing costs over a set period of time and divide them by the number of new customers you bring on board.
By sales and marketing cost, we mean everything that contributes to sales and marketing when it comes to acquiring new customers. This includes, but isn’t limited, to:
- SaaS platforms and other technologies you use to manage your sales and marketing
- Advertising (both online and offline)
- Agency, third-party and freelancer costs
- Payment processing fees
- Equipment needed to carry out jobs, for example, laptops and mobile phones
- Staff salaries and commission. If certain team members work multiple roles (for example, account management and business development), only include the part of the salary involved in new customer acquisition
This might increase your CAC substantially, but it’s essential to take everything into account to ensure your customer acquisition cost is as accurate as possible!
For example, let’s say you spent $25,000 on sales and marketing in a year and brought in 5,000 new customers as a result. Your CAC would be $5.
Is this a good customer acquisition rate or not? Let’s read on and find out!
What’s the startup average CAC?
It depends on what you’re selling. Typically the more affordable your product is, the lower your CAC should be. A CAC of $100 is fantastic for a real estate vendor or car dealer, but not so much for a startup selling low-value items!
If you’re looking for a benchmark, HubSpot has put together a list of average CACS for startup businesses. However, you should definitely take these benchmarks with a pinch of salt.
Customer acquisition costs can vary greatly depending on your average order value, the size of your business, and the competitiveness of your niche. Use them as a rough guide but don’t stress too much if your startup’s CAC doesn’t match up.
We believe the best business to benchmark against is yourself. Monitor your startup’s CAC on a regular basis, and you’ll be in a better position to make changes if your metrics move up or down.
Your customer acquisition cost is likely to fluctuate month-to-month, for example, if you invest in training for your sales team or a new piece of software for your marketing team. However, you’ll still be able to identify any increases or decreases that are out of the ordinary.
The relationship between LTV and CAC
Measuring your CAC against your customer’s lifetime value (LTV) shows how much it costs to acquire a customer against how much they spend with you. If you’re bringing in loyal customers that spend a lot with your business, it can make a higher CAC feel more justifiable.
We’ll talk about customer lifetime value in a future article, but a good LTV: CAC ratio is 3:1. This means a customer is spending three times more with you than the money you spent to acquire them. Anything more than that, and your startup has got a lot of sales potential.
Anything less than that, and you might be in trouble.
Startup customer acquisition costs: how to keep it low
A low CAC or an LTV: CAC ratio above 3:1 is a positive sign that your startup is doing well, and that the sales and marketing you are carrying out is leading to lots of new customers.
However, increasing CAC can be a challenge to all businesses. In a recent survey, 57% of marketers said they were concerned that rising customer acquisition costs would have an impact on their annual sales goals.
Here are our top five tips for making sure your CAC stays as low as possible.
1. Identify your target audience
We say it a lot here at You are launched, but one of the first things you should do at your startup is to understand your target customer.
When you know your target audience, you’ll be able to identify the right sales and marketing channels to appeal to them. For example, if your target customer is older people, spending money cultivating a TikTok social media account may not lead to a good customer acquisition cost for your startup.
Ask yourself the following questions when it comes to your target audience:
- How old are they?
- Where do they live?
- What level of education do they have?
- Where do they work?
- Do they have children or pets?
- What are their hobbies and interests?
- What are their goals in life?
2. Look at the startup acquisition cost for each marketing channel you use
Some marketing channels are more effective than others. Analyzing the unique CAC for each of them will let you see which are working and which aren’t as efficient as they should be.
To do this, identify how much money you have spent on each marketing channel and how many customers each one brought in. The lower the CAC, the better the channel is performing.
It’s important to choose the right attribution model, so you can see which marketing channel is bringing in the sales. For example, let’s say a customer visits your social media channel, then sees a Google Ad, and buys your product. Do you attribute the sale to social media, PPC advertising, or split it between the two?
Focusing your efforts on organic marketing, at least in the beginning, can be a good strategy when it comes to lowering your CAC. Social media, SEO, and email marketing cost less than PPC, social media advertising, and event sponsorship.
3. Consider a referral or affiliate program
Referral and affiliate programs are great ways to bring new customers into your business without spending a lot of money.
A referral program is when a customer refers a potential customer to you, often in exchange for a small incentive.
Referral schemes work well as you’ve got loyal customers advocating on your behalf – and 92% of people trust referrals from friends. Even if you offer a small reward, this move can still help lower your CAC.
Similarly, an affiliate marketing program can work well too. This is when you partner up with someone who promotes your business on your behalf, receiving a commission if they make a sale. As they are doing the marketing and are only paid if they bring you a new customer, this strategy is effective at lowering CAC.
4. Optimise the sales process
Optimizing your marketing channels is important when it comes to startup customer acquisition costs, but it’s important to look at the sales process too. Take the time to look at your sales funnel and where you might be missing out on leads. A good customer relationship management (CRM) system can help you here.
Some ways you can improve the procedures you use include:
- Shortening the sales process and removing any barriers to entry
- Automating basic sales tasks so your sales team can focus on finding new customers
- Training staff to convert more leads and answer any objections
- Nurturing and engaging with existing customers to reduce the churn rate
- Reviewing your prices. While lowering your prices might not be the right solution, offering a tiered pricing model can help you appeal to more people. Alternatively, you might be able lower sales and marketing costs
5. Keep checking, testing, and getting feedback
Even small tweaks to your sales and marketing strategy can have a significant impact on the number of customers you bring in.
Regularly monitor and make changes to your sales and marketing channels and assets, whether that’s the landing pages on your website or the battle cards your sales team use. That way, you can make sure your marketing is as efficient as possible.
Similarly, encourage customer feedback. Your customers will be happy to tell you what sales and marketing channels are working for them, as well as how you can make your MVP better and add more value. If your MVP is optimized toward your customers’ needs, they’re more likely to buy it.
In summary: managing startup Customer Acquisition Costs should be simple!
Monitoring how your sales and marketing are doing means you can make sure you’re spending your budget efficiently. Customer acquisition cost is by far the best way to do this, and combined with other metrics can provide a lot of useful insight into how your business is performing.
This is the second in a series of blogs about metrics you can utilize to see how your startup and MVP are doing. We’ve already taken a look at churn and retention rates and in future articles, we’ll look at other valuable measurements too. You’ll be analyzing your business like a pro in no time at all!
You are launched: helping startups to succeed
Over the past three years, we’ve helped over 20 fantastic startups get launched, everything from pregnancy yoga to personal finance. Will your startup be next?
Our team of startup specialists will work with you to create your mobile app or software to ensure your cost per acquisition is as healthy as possible.
Contact us today, and let’s get your business launched!