Why Slow CAC Payback Kills Inbound Marketing Solutions

Do you know the Customer Acquisition Cost (CAC) for each of your Inbound Marketing Solutions? How about the Time to payback CAC? In order for your marketing programs to have credibility and in order to truly understand their effectiveness – or lack thereof – it’s important that you move the needle on both numbers for the better. If you don’t know how long it takes to make a customer profitable or how much money you’re even spending to achieve that goal, you don’t know your worth as a marketer – and neither does your boss.

Customer Acquisition Cost (CAC) 

What is it? The Customer Acquisition Cost (CAC) is a metric used to determine the total average cost your company spends to acquire a new customer.

How do I calculate it? Take your Sales and Marketing Cost and divide it by how many New Customers you gained in the same time period.  

To figure out your Sales and Marketing Cost, simply add together:

+Program and ad spend 

+ salaries 

+ commissions and bonuses 

+ monthly overhead 

Why is it important? CAC illustrates how much your company is spending per new customer acquired. You want a low average CAC. An increase in CAC means that you are spending comparatively more for each new customer, which can imply there is a problem with your sales or marketing efficiency.

Time to Payback CAC

What is it? The Time to Payback CAC shows you the number of months it takes for your company to earn back the CAC it spent acquiring new customers.

How do I calculate it? You calculate the Time to Payback CAC by taking your CAC and dividing by your margin-adjusted revenue per month for your average new customer.

To figure our your Margin-Adjusted Revenue, simply find out the average your customers pay per month. 

Why is it important? In industries where your customers pay a monthly or annual fee, you normally want your Payback Time to be under 12 months. Otherwise, you’re not making that time count. The less time it takes to payback your CAC, the sooner you can start making money off of your new customers. Generally, most businesses aim to make each new customer profitable in less than a year.

To learn more on how to calculate critical marketing metrics and to prove the effectiveness of each of your inbound marketing solutions, download this free ebook cheat sheet below.