Calculating The Cost of Getting New Clients

How to calculate what your marketing dollars are doing for your business

Do you ever find yourself wondering what your marketing dollars are actually doing for your business? A lot of business owners struggle to justify marketing spend, but only because they don’t fully understand its value. 

So, it’s time to demystify the world of marketing spend and put some fears to rest. In order to do that, we have to gain an understanding of two metrics: Client Acquisition Costs (CAC) and Customer Lifetime Value (CLV).

Calculating Acquisition Costs for Service-Based Businesses

Alright, Customer Acquisition Cost may seem like a fancy term, but the formula is actually pretty straightforward.

You take all your marketing and sales expenses for a specific period, say a month, and divide that by the number of new customers you snagged during the same time.

By working this out, you can put a dollar value on each new customer to your business.

CAC = 

Total Marketing and Sales Expenses

Number of New Customers Acquired

So, how much does each client cost for your business to acquire? 

For example, if you spent $10,000 on marketing and sales efforts in a month and acquired 100 new customers during that same month, your CAC would be $100 per customer.

CAC = Total Marketing & Sales Expense / Number of New Customers Acquired

CAC = $10,000 / 100 = $100 per new customer

How does this CAC stack up against what each client is worth to you? Let’s find out by calculating the CLV…

Calculating Acquisition value for service-based businesses

Now you know how much each client costs to acquire, it’s time to work out how much value they will bring to your business over your entire relationship. This calculation works out the Customer Lifetime Value, and it’s where you start to understand the real ROI in marketing.

Here’s a basic formula to calculate CLV:

CLV =

Average Purchase Value X Purchase Frequency X Customer Lifespan

Customer Churn Rate

What do these terms mean?

Marketing has a lot of jargon! So we are on the same page, here are a few key definitions that we will discuss in this article:

  • Average Purchase Value: The average amount of money a customer spends per transaction.
  • Purchase Frequency: The average number of purchases a customer makes within a certain time frame (e.g., per month, per year).
  • Customer Lifespan: The average length of time a customer continues to do business with your company.
  • Customer Churn Rate: The rate at which customers stop doing business with your company (expressed as a percentage).

Putting the data to work

Armed with CAC and CLV data, you can start to make informed decisions regarding your marketing strategies.

You can use this information to contextualise and justify other costs in your business, like additional marketing costs, lead generation strategies, paid advertising, extra resourcing and extra staffing.

Tools and Resources for CAC Analysis

Fortunately, you don’t have to manually do all these calculations. Many customer relationship management systems and analytics platforms have built in tools and resources for CAC and CLV analysis.

Plus, there are a heap of great (and free) calculators online that will help you easily calculate CAC and CLV

By calculating the costs vs the value of your customers, you can gain a better understanding of the financial dynamics of acquiring new customers and their long-term value. 

Armed with this knowledge, you can optimise your marketing strategies, allocate resources effectively, and drive sustainable business growth.

Want more tips?
Subscribe To Our Monthly Newsletter

Get the latest marketing updates, trends and tips sent straight to your inbox.

Most Popular Articles

Why do people work with you?​

No one just makes a purchasing decision out of the blue. Something must prompt it to happen at some point. This article helps you discover what triggers a client to work with you, buy your products or services.

Read More »

A Crash Course In Hashtags

Using hashtags in your social media content is a great way to connect your message to an online conversation. Here is an overview of hashtags, and how you can use them to grow your social media reach.

Read More »

The Power of Local SEO

Are you a business owner looking out ways to get your business getting online recognition? Here are some tips to boost your online presence through Local SEO.

Read More »

Podcast Terms Glossary

Podcasting marketing can be a very technical endeavour. There is a TONNE of jargon and industry-specific terminology that comes along with it. That’s why we’ve created this Podcast Terms Glossary.

Read More »