Lecture Notes: Understanding Customer Acquisition Cost (CAC) in Marketing Campaigns
Key Concepts
Customer Acquisition Cost (CAC): The cost associated with acquiring a paying customer.
Funnel: The process of converting website visitors into paying customers.
Freemium Product: A product that starts as a free trial with the goal of converting users to paying customers.
Example Scenario: Google AdWords Campaign
Cost per Click (CPC): $0.50
Visitors Acquired: 10,000 people
Total Cost: $0.50 * 10,000 = $5,000*
Funnel Conversion Rates
Trial Activation:
5% of visitors take the trial
Resulting in 500 trial users
Paid Conversion:
10% of trial users convert to paying customers
Resulting in 50 paying customers
Calculating CAC
Formula: Total spend / Number of paying customers
Calculation: $5,000 / 50 = $100 per paying customer
Insights
Marketing Channels: The example is based on a web/mobile channel (PPC) but applies universally across different channels like direct mail, TV, or radio.
Importance of CAC: Understanding and optimizing the CAC is crucial for startups and businesses to ensure they are effectively acquiring customers without overspending.
Conclusion
Calculating and understanding customer acquisition cost is essential for any marketing strategy. It helps determine how much it costs to turn potential customers into actual paying customers, which is vital for the success and sustainability of a business.