Newsletter #015
The Data Dive
Acquisitions, Salaries, and Your Best Possible Life
Hello and welcome to the revamped newsletter!
I’ve been hearing some feedback on what was expected from the newsletter, and I took the feedback to heart. I’m hearing that my subscribers want more knowledge gain and less “here’s what I found around data”.
I’m hearing you loud and clear!
To make that shift the format of the newsletter will be changing starting today (hence why this newsletter is a week behind, sorry).
Since I still like doing things in threes, the newsletter will still be in threes;
Data Minded: A section about a data, stats, or analysis topic that I will expand on and explain
Number of the Week: I will pick a number from the news that I will expand on.
One More Thing: And lastly, just one interesting find that is data related that I think ya’ll will find interesting.
I hope this format works better and gives you more of what you’re looking for.
Data Minded
Customer Acquisition Cost (CAC)
Customers, acquisitions, and its cost. It’s something we’ve dealt with in some capacity or another, but let’s take a closer look at what makes up this metric, why it’s important, and how to utilize it to make from this industry spanning metric.
The What
Simply put, CAC is;
(Marketing Expense + Sales Expense)/(Total Number of Customers Acquired)
Or, the total cost of marketing and sales expense over the total number of customers acquired. Let’s break this down a bit more;
Marketing Expense: Money spent on bringing your customers in by attempting to reach your audience. This can be google ads, youtube sponsorships, billboards, etc.
Sales Expense: Money spent on activities directly related to making a sale. This one might be a little tricky. Does rent of your store count? Your domain cost? The way I usually like to look at this is by answering a single question: would the expense exist if the sale didn’t happen? If yes, then I wouldn’t consider it a sales expense. Think shipping costs, transaction fees for collecting payment, packaging costs, raw materials, etc.
Customers Acquired: Total number of paying customers obtained through the marketing and sales activities.
The Why
CAC is a great fundamental metric that any business should gain a handle over. It’s the compass that should be used to determine what business decisions are driving your costs.
What months have a higher CAC? What expense is the driving source of your costs? Who’s your most expensive customer demographic?
With CAC we can answer all of these and more! That’s why we want to understand our CAC.
The How
Alright, we’ve been pealing and squeezing the juice, now it’s time to drink it. That was a great metaphor and you love it.
Here’s how we can further slice your CAC to get more meaning out of it, and therefore help us make better decisions.
Time; perform the same calculation we discussed above, but time gate your expenses and customer acquisition by months (or years). Now you can perform a time analysis of when you have higher and lower CAC throughout the year.
Demographic; when you break out your expense by region, and divide it by customers acquired by those regions, do you see different CAC amounts? Are acquiring customers in retail more expensive than online? When you split your CAC by demographic you can not only determine which customers are more costly to your business, but also the factors and type of expenses required to acquire that customer. This can lead to a lot of interesting insights.
Expense; we can also just use the expense itself as a way to split CAC. Which expense contributed the most to our CAC? If we can track from which ad campaigns our customers are coming from then we can also see which campaigns cost the most from a per customer perspective.
To help visualize this, I made a nifty calculator in Google Sheets.
There’s a lot more that can be done with CAC, which we’ll go into in future newsletters. One additional way to look at CAC is a combination of the above. What does the expense breakdown for CAC look overtime? Expense by demographic?
CAC is a powerful metric that, in my opinion, should be tracked early on. Keeping records of where your expenses are going and who’s buying will help you build a strong historical CAC that you can leverage to make the best business decisions.
Number of the Week
21.8%
This newsletter was brought to you by the number 21.8, as in the percentage of American’s who had their credit application declined.
This is an across the board raise for all lines of credit as the Federal Reserve rate hikes are making lenders more cautious on who they are lending to, and keeping more cash back as a reserve.
One More Thing
Best Possible Life More Common with Age
A great short article about a survey done among a group of people asking them to rate their life from 0 to 10. Great study, and the data looks promising for us all :)
I hope this new format is more helpful and appealing to ya’ll. As always I welcome all feedback. If you have thoughts just reply to this email.
If you haven’t seen the past newsletters click the button below to see them all.
If you or your business could use help with your organizations data, feel free to book a free consultation session with me using the button below.
Thank you and be good,
Irfan - Founder
