Small business owners may make the assumption that growth is a simple equation. Business growth is beyond merely spending money on marketing, getting more customers, and increasing revenue. In reality, the process doesn’t work like that. There’s a quiet factor that plays a huge role in your business growth. That factor is customer acquisition cost.
Customer acquisition cost (CAC) refers to the total amount of money your business spends to get a paying customer. It includes marketing costs, tools used, sales effort, as well as the time your team puts into closing a sale.
Here, we’ll discuss CAC, how to measure it and how it affects your business.
What Customer Acquisition Cost Really Measures
Customer acquisition cost answers one question: how much does it cost you to convince someone to trust your business enough to buy from you?
Many business owners underestimate this cost because they only look at obvious expenses like paid ads or promotions. In reality, CAC also includes sales salaries, commission, CRM software, marketing tools, agency fees, and even the cost of content creation.
Why CAC matters more than revenue growth
A business can grow its revenue hand in hand with losing money. This happens when the cost of getting new customers gets out of control and skyrockets faster than the value they actually bring to the table.
Picture a small ecommerce store spending R1,200 to bring on a customer who only spends R900 before ghosting them on their way out the door. On the surface, sales might look healthy enough, but the thing is, the business is burning cash on every new customer.
This is where a lot of small businesses lose their way. They just keep on pushing more into marketing without actually stopping to think if the numbers still add up on the cost per customer side of things. And before long, cash flow dries up, pressure starts to build & what was once exciting growth starts feeling stressful and out of control instead of being something you’re intentionally gunning for
How to Calculate Customer Acquisition Cost Properly
The basic calculation is simple. To calculate customer acquisition cost, do the following:
- Take the total amount of your marketing and sales costs over a specific period
- Divide that number by the total new customers gained during that same period.
The challenge lies in deciding which marketing and sales elements to include in the calculation:
Most CAC calculations include:
- Advertising spend
- Marketing tools and software
- Sales team costs
- Agency or consultant fees
- Content production costs
- Marketing-related overheads
For SMEs, it helps to calculate CAC monthly or quarterly. Annual numbers can hide spikes in spending or seasonal inefficiencies.
Another useful approach is to calculate CAC by looking at the marketing channels you use. Knowing the acquisition cost from paid search versus referrals or organic content gives clarity on where to double down and where to pull back.
CAC in a South African Context
Customer acquisition cost in South Africa behaves differently that in more mature markets. Buying power can vary, with trust taking longer to build, and decision cycles can stretch out.
For example, in township and informal markets, face-to-face trust and word of mouth play a bigger role than digital advertising. While CAC in these environments can cost less in monetary terms, you typically have to invest more time and effort.
Understanding your market reality helps prevent unrealistic benchmarks. So, businesses should remember to personalise their customer acquisition efforts based on location and consumer behaviour. This is because comparing CAC to a global average rarely tells the full story.
The Relationship Between CAC and Customer Lifetime Value
Customer acquisition cost only makes sense when compared to what a customer is worth over time. This is where customer lifetime value enters the picture.
A healthy business ensures that lifetime value is significantly higher than acquisition cost. If a customer brings in R10,000 over two years and costs R2,000 to acquire, the relationship works. If the numbers are too close, growth becomes risky.
Additionally, improving retention often reduces effective CAC. When customers stay longer, refer others, or buy more, the original acquisition cost spreads across more revenue.
Practical Ways Businesses Can Lower Customer Acquisition Cost
Lowering CAC does not always mean spending less on marketing. It often means spending smarter.
One tactic is improving conversion rates. Small changes to your website, checkout process, or enquiry forms can significantly increase the number of customers from the same traffic volume. When conversions improve, CAC drops without cutting spending.
Another hack is targeting. Many SMEs waste their budgets by marketing to audiences that are unlikely to buy. Narrowing your focus based on past customer data often produces better results than broad campaigns.
Referrals are another underused channel. Customers who come through referrals usually cost less to acquire and convert faster. A simple referral incentive can outperform paid advertising when implemented correctly.
Content also plays a long game. While it takes time, educational content builds trust before a customer ever speaks to your sales team. Over time, this lowers resistance and reduces acquisition effort.
Looking at CAC for Business Growth
Customer acquisition cost is not just a financial metric. It is a decision-making tool that helps give direction to business owners.
When CAC rises without providing benefit to your business, it signals a flaw in your funnel. When it falls, it usually reflects better alignment between your offer and your audience. Tracking it consistently helps you scale confidently.
For South African SMEs, mastering this metric creates and often serves as an indication that your business is headed in the right direction.
