Most food truck owners back into their marketing budgets. They estimate total sales, subtract fixed and variable costs, and then decide based on whatever is left what they can afford to spend on marketing and advertising. You should almost always spend more to acquire new customers than you think, especially if you can land the right customers. Customer acquisition cost (CAC) is a metric that has been growing in use in the mobile food industry.
Customer acquisition cost is the cost of convincing a prospective customer to make a purchase from your food truck. Acquiring new customers is how you will grow your business. But have you taken into account how much it will cost you to acquire those new customers.
The key to growing your food truck is to approach customer acquisition cost like you would any other business investment. Today we will explain the CAC metric in more detail, how you can measure it, and what steps vendors can take to improve their customer acquisition cost.
Customer Acquisition Cost: Why Food Truck Vendors Need To Track It
The simple method for calculating customer acquisition cost
Basically, the CAC can be calculated by simply dividing all the costs spent on acquiring more customers (marketing expenses) by the number of customers acquired in the period the money was spent.
CAC = MCC/CA
- CAC = Customer acquisition cost.
- MCC = Total marketing campaign costs related to acquisition.
- CA = Total customers acquired
Ideally you will want to determine how many new customers buy from you during a specific timeframe such as a month or a quarter.
Why CAC matters
So now that you know what customer acquisition costs is, why should you care? You want to make sure that your costs to acquire new customers aren’t higher than what you can afford or can expect to make from the customer over their lifetime of being a customer.
If your average ticket is $10 and your CAC calculates to $20 means you’re going to have to sell to them twice before you can break even on that cost. If you’re not confident that will happen, you might need to rethink your marketing strategy to see if there are ways to lower those acquisition costs or increase the customer lifetime value.
On the flip side, if your customers average order is $15 and your CAC is $10 then the cost to acquire each customer is made up the minute they pay for their order.
How You Can Improve CAC
There are a few ways to reduce the customer acquisition cost and turn them into a profitable customer right up front.
- Write better advertisements.
- Create better headlines.
- Create better (more compelling) offers.
- Improve your targeting by making sure you only advertise in media that reaches your target market.
From there you should be able to get a much better response from prospective customers. By making these changes you can see upwards of doubled or tripled marketing responses with just a few simple changes.
The Bottom Line
Calculating your customer acquisition cost is the first step to understanding it. Understanding CAC is a key part of eventually controlling it. Whether it’s lifetime, per period, or for an individual campaign, brands stand to gain a lot from a working knowledge of how much it costs to bring on a new customer. You can’t manage what you don’t measure.