Customer Acquisition Cost (CAC) is the total cost a business incurs to acquire a new user for its mobile application. This cost includes all the expenses associated with marketing, advertising, promotions, and other efforts to attract users to download and use the app.

CAC formula

The formula for determining Customer Acquisition Cost is:

CAC = Total expenses to attract app users / Number of new users acquired

In simpler terms, it’s the total amount spent on acquiring new users divided by the number of new users gained during a specific time period.

For example, if a company was able to attract 5,000 users to its new app and had to spend a total of $100,000 on advertising, promotions, freebies, etc, then its CAC is $20 per user acquired. 

The goal of any app business is to lower the CAC as much as possible by ensuring that all advertising and marketing campaigns are effective enough to reel in as many users as possible.

Customer acquisition cost must be considered alongside other metrics like conversion rates to make this measurement useful in assessing an app’s financial sustainability. 

Measuring the customer acquisition cost is important for several reasons, including:

• Better marketing strategies. Knowing the CAC helps businesses optimize their marketing and advertising strategies based on what is most cost-effective and works better in getting more users onboard.
• Improved ROI calculation. CAC is crucial for calculating marketing efforts’ Return on Investment (ROI). Businesses can compare the cost of acquiring a user to the lifetime value of that user to assess the overall benefit of marketing campaigns.
• Business sustainability. Sustainable growth relies on acquiring customers at a cost that allows for long-term and profitable operations. Understanding CAC helps businesses assess the feasibility of their growth strategies.