This customer acquisition cost calculator can be used by a business to estimate the amount it costs to acquire a new customer, the lifetime value of the customer, and a number of useful financial ratios including the LTV / CAC ratio.
Our post on customer acquisition costs (CAC), discusses in more detail how the cost can be calculated and its relationship to lifetime value (LTV).
Using the Customer Acquisition Cost Calculator
By entering details relating to the sales and marketing expenses, the number of new customers acquired, customer subscription, gross margin %, and churn rate the customer acquisition cost calculator can be used to estimate the following.
- Customer acquisition cost (CAC)
- Customer gross margin
- Lifetime value (LTV)
- LTV/CAC ratio
- CAC Payback period
- CAC Payback period with churn
The customer acquisition cost calculator is used as follows.
Customer Acquisition Cost (CAC)
1. Enter the Sales and Marketing Expenses
Enter the sales and marketing expenses for the period. It is important that the period used is sufficiently long to include at least one sales cycle. Sales cycles vary from business to business but the period must include all the activities and associated costs related to the acquisition of a new customer (prospecting, contacting, presenting, closing etc).
The costs to include will primarily be those relating to sales and marketing expenses. The costs should exclude those relating to current customers, such as the costs of providing customer support services, but should include other significant costs of acquiring new customers not necessarily included under the heading of sales and marketing.
2. Enter the Number of New Customers Acquired
Enter the number of new customers acquired during the same period used in Step #1 above.
The customer cost calculator calculates the average acquisition cost (CAC) for a customer for the period.
Customer Gross Margin
3. Enter the Subscription
Enter the customer subscription. The subscription is the regular periodic amount paid by a customer for the service. The period can be for any length of time (week, month year etc.) and does not have to be the same period as used to calculate the CAC in Step #2 above. Typically the customer will pay a monthly subscription.
4. Enter the Gross Margin Percentage
Enter the gross margin percentage. The gross margin percentage is the amount earned from the customer after deducting all of the costs to service the customer. For example if the customer subscription is 20 each month and it costs 6 to provide the service to the customer then the gross margin is calculated as follows.
Subscription revenue = 20 Cost to service the customer = 6 Gross margin = Revenue - Cost to service = 20 - 6 = 14 Gross margin % = Gross margin / Revenue Gross margin % = 14 / 20 = 70%
The customer acquisition cost calculator calculates the gross margin earned from the customer for each subscription paid.
Lifetime Value (LTV)
5. Enter the Customer Churn Rate
Enter the customer churn rate %. The churn rate is the rate at which customers are lost each period. The rate should be for the same length of time as used when entering the customer subscription in Step #3 above. For example, if the customer pays a monthly subscription the churn rate % entered must be a monthly churn rate.
The calculator works out the undiscounted lifetime value of the customer.
The customer acquisition cost (CAC) must be looked at relative to the lifetime value (LTV) of the customer acquired, and the time it takes to recover the costs, known as the payback period.
The calculator calculates three CAC ratios. The ratios which are listed below, are useful indicators allowing a business to monitor its progress and performance.
- LTV / CAC ratio
- CAC Payback period
- CAC Payback period allowing for churn
The calculation and use of these ratios is more fully discussed in our customer acquisition cost post.
Customer Acquisition Cost Calculator Download
The customer acquisition cost calculator is available for download in Excel format by following the link below.
Users use this customer acquisition cost calculator at their own risk. We make no warranty or representation as to its accuracy and we are covered by the terms of our legal disclaimer, which you are deemed to have read. This is an example of a calculator that you might use when estimating how to calculate customer acquisition costs for a business financial projection. It is purely illustrative of an Excel customer cost calculator. This is not intended to reflect general standards or targets for any particular company or sector. If you do spot a mistake in the customer acquisition cost LTV calculator, please let us know and we will try to fix it.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.