A future acquirer will ask, let's make sure you know the answer
When you go to sell your business one day, there will of course be a litany of questions asked by the potential acquirer(s). One such question could be what is your CAC, or Customer Acquisition Cost.
Let’s start with why they want to know this. It’s simply to help them understand the business today and how it might scale. If your company has built a model of finding and drawing in customers at what is considered a low acquisition cost, this bodes well for the valuation they might place on your business. If they believe the CAC is higher than they’d expect, this will have them probing further during their due diligence to understand more of the why and what steps they believe they could take to improve this if they owned the business.
Your CAC is simply your Total Sales and Marketing Expenses divided by Number of New Customers acquired. Let’s say your sales and marketing expense in the month was $100,000 and you brought in 10 new paying customers, then your CAC is $10,000 each. Whether this number is high or low will depend on several factors including your particular industry.
Sit with your sales and marketing team, include your CFO or controller and discuss this strategic metric for your business. Determining what your CAC is today and how it benchmarks within your industry can help facilitate very healthy strategic thinking and dialog. Don’t wait until you’re asked the question by a future acquirer, help your business today by knowing now.
