Understanding your Customer Acquisition Cost (CAC) is the difference between a business that grows and one that drains cash. In the competitive Australian landscape, knowing exactly how many dollars you must spend to win a single new customer allows you to scale your marketing with confidence and protect your profit margins.
Why CAC Matters for Your Business
If you don’t know your CAC, you are essentially flying blind. You might be celebrating a record month of sales, but if those customers cost more to acquire than they spend with you, your business is technically losing value with every new lead. Calculating this metric accurately ensures your marketing budget is an investment, not an expense.
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Prerequisites: What You’ll Need Before Starting
Before you dive into the calculations, gather the following data for a specific period (e.g., the last quarter or the last financial year):
- Total Marketing Spend: Ad spend (Google, Meta), agency fees, and software costs.
- Sales Costs: Commissions, salaries of sales staff, and CRM costs.
- Access to your accounts: Xero or MYOB for expense tracking and your Google Ads/Meta Business Suite for ad spend data.
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Step 1: Define Your Reporting Period
To get an accurate figure, you must align your costs with the customers acquired during the same timeframe. Most Brisbane small businesses find that a monthly or quarterly review works best.
What you should see: A clear start and end date on your calendar. For example, July 1st to September 30th (Q1 for the Australian financial year).Step 2: Aggregate Your Total Ad Spend
Log into your advertising platforms and pull the total spend for your defined period. This includes Google Ads, Facebook/Instagram Ads, LinkedIn, and even local print media or physical signage if applicable.
Pro Tip: Don't forget the GST. While you may claim it back, it's important to be consistent with whether you use GST-inclusive or exclusive figures across all your data points.
Step 3: Include Agency and Freelancer Fees
Many business owners make the mistake of only counting "clicks." If you pay an agency like Local Marketing Group or a freelance specialist to manage your campaigns, their management fee must be included in the CAC.
Step 4: Account for Content and Creative Costs
Did you hire a photographer for a shoot in Fortitude Valley? Did you pay a copywriter to write your landing pages? These creative costs are essential components of your acquisition strategy and must be added to the total spend pool.
Step 5: Factor in Sales Team Salaries and Commissions
If you have a dedicated salesperson or a team member who spends 50% of their time closing new leads, a portion of their salary must be included.
What you should see: In your payroll software (like Xero), look at the gross wages plus superannuation for staff involved in the sales process.Step 6: Include Software and Tooling Expenses
Your CRM (HubSpot, Salesforce, Pipedrive), email marketing tools (Mailchimp, Klaviyo), and any tracking software are overheads that contribute to winning customers. Total these monthly subscriptions for the period.
Step 7: Identify the Number of New Customers
Export a list from your POS or CRM of all customers who made their first purchase during your chosen timeframe.
Common Mistake: Do not include repeat purchases from existing customers. CAC is strictly about acquisition, not retention.Step 8: Apply the Standard CAC Formula
The basic formula is:
CAC = Total Cost of Sales & Marketing / Number of New Customers Acquired Example: If you spent $5,000 on ads, $2,000 on an agency, and $3,000 on sales wages ($10,000 total) and gained 50 customers, your CAC is $200.Step 9: Compare CAC to Customer Lifetime Value (LTV)
CAC doesn't mean much in a vacuum. You need to compare it to your LTV (how much a customer spends with you over their lifetime). A healthy ratio for a growing business is typically 3:1. If your CAC is $200, you want that customer to be worth at least $600 to your business over time.
Step 10: Segment CAC by Channel
To make this data actionable, calculate the CAC for Google Ads vs. Facebook Ads separately. This helps you identify which platforms are the most efficient.
What you should see: A spreadsheet with columns for each channel, allowing you to see that while Google might have a higher cost per click, it might actually have a lower CAC because the leads are higher quality.Step 11: Set a Benchmark and Review
Record your final number. This is your baseline. Your goal for the next quarter is to either maintain this CAC while increasing volume or reduce the CAC through better conversion rate optimisation (CRO).
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Common Mistakes to Avoid
- Ignoring the "Marketing Flywheel": Some brand awareness activities don't lead to immediate sales but lower your CAC over time. Don't cut brand spend just because the immediate CAC looks high.
- Underestimating Sales Time: If you, as the business owner, are the primary salesperson, your time has a value. Don't value it at $0 when calculating CAC.
- Mismatched Timeframes: Be careful with long sales cycles. If it takes 6 months to close a client, your January marketing spend should be compared to your June acquisitions.
Troubleshooting Common Issues
- "My CAC is higher than my product price!" - This is common in subscription businesses or industries with high repeat purchases (like cafes or hairdressers). In this case, focus on your LTV. If they buy once a month for three years, a high initial CAC is acceptable.
- "I can't track where customers come from." - Use UTM parameters on all your links and ask "How did you hear about us?" at the point of sale. Without attribution, your channel-specific CAC will always be an estimate.
- "The data in Google Ads doesn't match my CRM." - This is usually due to privacy settings or cookie blocking. Always trust your bank account and CRM as the "source of truth" for final customer counts.
Next Steps
Now that you know your Customer Acquisition Cost, the next step is to improve it. You can do this by optimising your website's conversion rate or refining your ad targeting to reach higher-intent AUD audiences.
If your CAC is looking a little high and you aren't sure how to bring it down, the team at Local Marketing Group can help. We specialise in auditing marketing funnels to find where money is being leaked. Contact us today for a strategy session.