Benchmarks to be aware of when calculating customer acquisition cost (CAC)

With $10,000 in funding, how many users could you get for your mobile app? Alternatively, what percentage of your earnings would you have to put back into your app in order to add 100 new users each month? Put more simply, how does your app handle unit economics?

Add the analysis of customer acquisition costs (CAC). One important marketing indicator for user acquisition is customer acquisition cost, also known as the price of acquiring a mobile app user. You can find out exactly how much money you spend on app user acquisition by analyzing your CAC. Although the majority of the time, CAC is determined at the user level (for instance, an install of your app counts as an acquisition), it's also common practice to compute CAC for specific user actions, such as purchases and in-app transactions like registrations. In 2018–19, for instance, the average cost of acquisition (CAC) to obtain installs in both app stores was $1.75 ($3.6 for iOS and $1.22 for Android, respectively). But $3.52 ($7.55 for iOS and $2.17 for Android) was the CAC to register.

Additionally, securing an in-app purchase cost an astounding $86.61 (86.72 for Android and 77.45 for iOS). In a moment, we will go into more detail about these. For now, however, keep in mind that determining the cost necessary to acquire a user or persuade a user to take a particular action can assist you in establishing reasonable targets for your app's user and revenue growth.

Let's examine the definition of CAC, its various calculation methods, and the range of levels at which it can be determined. We'll also look at the relationship between CAC and LTV and why maintaining the CAC-LTV ratio is essential to app growth. Lastly, we will discuss what a CAC payback period is and why mobile apps must compute it.

What is CAC?

Spending money on a variety of marketing and sales operations that address the various phases of the mobile app conversion funnel is necessary to acquire users for your app. You must spend during the discovery phase on channels like PR or advertisements. PR articles or advertisements require a substantial initial outlay of funds.

You must invest in your on-page optimization once users find your app store listings. Among other things, you need to invest money in producing price analyses, attractive copy, and high-quality graphics.

You must invest in user engagement when they download your app in order to get them to complete a trial, buy in-app purchases, or, if it's a subscription app, continue to subscribe. This entails spending money on things like in-app messaging and onboarding solutions.

Put another way: It costs a lot of money to acquire a mobile app user. Crucially, acquiring a user is not the end of the acquisition cost. Until a user completes a desired in-app action, such as making an in-app purchase, it frequently accumulates. Let's concentrate on all the expenses leading up to the install for the time being. More on this in a moment.

You cannot determine the value that a user adds to your business until you know how much money you need to acquire them (across all of these sales and marketing activities and more).

This is what the CAC metric aids in illuminating. The entire cost of acquiring an app user is known as the CAC. This price includes all of the costs associated with sales and marketing in order to obtain them.

You can see a clear financial picture of your user acquisition stage with CAC. Now let's look at how to figure out your mobile app's CAC and why it matters so much.

How to calculate customer acquisition cost

The conventional CAC calculation

The simplest formula for figuring out CAC is this one. Here, you take the budget or spend for sales and marketing for a given period of time and divide it by the total number of new customers you brought on board during that time.

For instance, your CAC would be $10 if you invested $1000 in user acquisition sales and marketing in January and brought on 100 new users. You therefore invested $10 in every new user.

The paid CAC formula

You should be aware of which paid marketing campaign performed the best for you before making an investment. In these situations, your campaign-level CAC would be determined.

Here, the paid CAC formula is helpful. Thus, if you invested $500 in an App Store advertising campaign and brought in 50 users, your paid CAC is equal to 500/50, or $10.

The fully loaded CAC formula

The standard formula for calculating CAC only takes spending or budgets into account. But the actual expenditure is frequently far more. In addition to direct marketing and sales expenses, it also includes overheads like employee salaries and tool purchases, among other things.

For instance, if you look at the paid CAC calculation from before, you'll see that it only took the $500 real ad spend into account. It omitted:

Costs associated with the researching, copywriting, and designing that went into building the campaigns (in terms of employee salaries)

• Costs associated with tools used for running the campaigns or any other solutions you use in your mobile app sales/marketing tech stack

• Costs associated with any consultations/ that went into the campaigns

You understand the gist.

You won't know your precise and "real" cost of acquiring a user until you factor all of these into your CAC calculations. All of these are factored in by the fully loaded CAC formula, which provides you with an accurate estimate that represents your direct and indirect user acquisition costs.