Entrepreneurship and Small Business (ESB) V2 Certification Practice Exam

How is the Customer Acquisition Cost (CAC) calculated?

1. Sales expenses / number of customers

2. (Marketing expenses + Sales expenses) / number of new customers in the period

3. Marketing expenses / total expenses

4. Total revenue / new customers

The correct answer is: (Marketing expenses + Sales expenses) / number of new customers in the period

Customer Acquisition Cost (CAC) is a crucial metric for businesses as it reflects the total cost associated with acquiring a new customer, which is essential for understanding the efficiency of marketing and sales efforts. The correct calculation takes into account both marketing and sales expenses because they collectively contribute to the process of attracting and converting potential customers. The formula given in the correct choice, which is the sum of marketing expenses and sales expenses divided by the number of new customers acquired during a specific period, provides a comprehensive view of the investments made to secure those customers. This approach ensures that all relevant costs are captured, not just the marketing aspect or sales aspect in isolation. This is important for businesses to evaluate their performance and make informed decisions about budget allocations and strategy adjustments. In contrast, some of the other options focus only on one component or use a different basis for calculation. For instance, calculating CAC using only sales expenses or separating marketing expenses from the sales expenses would provide an incomplete picture of the total cost incurred to acquire new customers. Similarly, using total revenue divided by new customers does not accurately reflect the costs associated with acquiring customers, but rather looks at revenue generation, which is not directly tied to acquisition costs. Thus, the correct understanding of CAC emphasizes the importance of evaluating combined