{"id":17110,"date":"2021-10-08T09:00:01","date_gmt":"2021-10-08T13:00:01","guid":{"rendered":"https:\/\/www.wellnessliving.com\/blog\/?p=17110"},"modified":"2024-11-15T18:50:04","modified_gmt":"2024-11-15T23:50:04","slug":"ultimate-guide-customer-acquisition-cost","status":"publish","type":"post","link":"https:\/\/www.wellnessliving.com\/blog\/ultimate-guide-customer-acquisition-cost\/","title":{"rendered":"Your Ultimate Guide to Customer Acquisition Cost"},"content":{"rendered":"

Do you know how much it costs to acquire a client? According to ProfitWell<\/a>, the cost of acquiring new customers has increased by 60% in the last six years. This is due to the increased marketing costs for nurturing leads.<\/p>\n

Now, in the middle of a global pandemic, attracting new clients while continuing to generate profit needs to be the focus for fitness studios and gym owners. With a saturated fitness market, it\u2019s important to know how much money is required to earn a client for your business.<\/p>\n

This is where Customer Acquisition Cost (or CAC) comes in. This metric is used to determine whether a business is profitable by measuring the total sales, advertising, and marketing costs needed to convert a potential lead into a paying customer over a specific timeframe.<\/p>\n

Simply put, CAC is an important metric for fitness business owners to gain insight\u00a0<\/span>on pricing, customer success, and retention rates.\u00a0<\/span>Despite the importance of CAC, surveys show<\/a> that only half of all gym owners actually know their CAC. Some reports suggest<\/a> that the average CAC for fitness centers in the US is about $118 per client. How does your CAC compare? Let\u2019s look at how to calculate your CAC…<\/p>\n

What is your customer acquisition cost?<\/h2>\n

Basically, your customer acquisition cost represents how much money you collectively spend on sales, marketing, and advertising activities to acquire one new customer.<\/p>\n

To measure CAC, you can use the following equation:<\/p>\n

CAC = (Cost of Sales + Cost of Marketing) \/ New Customers Acquired<\/em><\/p>\n

You can apply this to your overall operations or to a specific campaign to assess its value. For example, if you have a marketing budget of $2,000 per month, and you draw in 15 new clients each month, then your CAC is $133. If, on the other hand, you implement a specific marketing campaign that costs $1,500, and you acquire 15 customers through that campaign, your CAC for that campaign is $100.<\/p>\n

Your goal should be to keep your CAC as low as possible. To do that, you must understand the relationship between CAC and another useful metric: the Customer Lifetime Value (CLTV)<\/a>.<\/p>\n

What is your customer lifetime value?<\/h2>\n

The CLTV of your gym or fitness studio is the amount of profit a customer is expected to bring in over the course of their entire relationship with your business. Together CAC and CLTV help a business work out the Return on Investment (ROI).<\/p>\n

To calculate your CLTV, you can use this formula:<\/p>\n

Lifetime Value= Average Sale Price x Frequency of Transactions x Retention <\/em><\/p>\n

You can choose whether to measure frequency and retention period in months or years, but you must use the same units for both. For example, if your gym offers on-demand fitness subscriptions for an average of $30 per month, and your customers subscribe for an average of 11 months, your CLTV is $30 x 1 (per month) x 11 (months) = $330.<\/p>\n

How do CAC and CLTV work together?<\/strong><\/h2>\n

Now that we have these two important business metrics in our hands, the next question is how to use them. And the best way is to look at them not as individual numbers, but as a ratio:<\/p>\n