Understanding your Customer Acquisition Cost (CAC) is the difference between guessing if your marketing works and knowing it does. For many Brisbane business owners, it’s the 'aha!' moment where you realise that a $50 lead isn't actually expensive if the customer spends $500.
In this guide, we’re going to strip away the jargon and show you exactly how to calculate your CAC. This will help you decide whether that next Google Ads campaign or local sponsorship is actually worth your hard-earned dollars.
Why this matters
If you don't know your CAC, you're essentially flying blind. You might be growing your revenue while accidentally shrinking your profit margins. Knowing this number allows you to scale with confidence, knowing that for every dollar you put into the 'marketing machine', you’re getting a predictable return.---
Prerequisites: What you’ll need
Before we dive in, grab a coffee and have these numbers handy for a specific period (usually the last month or the last quarter):- Total Marketing Spend: Every cent spent on ads, agencies, and tools.
- Total Sales Spend: Salaries, commissions, and software for anyone closing deals.
- A Calculator: Or a simple Excel/Google Sheet.
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Step 1: Define your timeframe
First things first: you need to pick a window of time to analyse. Most Australian small businesses find that a calendar month or a financial quarter works best. Pro tip: If you have a long sales cycle (like a kitchen renovation business in Chermside where it takes 3 months from first click to signed contract), a monthly view might be misleading. In that case, look at a 6-month or 12-month average to smooth out the bumps.Step 2: Total your 'Direct' Marketing costs
This is usually the easiest part to track. Look at your bank statements or accounting software (Xero or MYOB are the local favourites) and add up:- Ad Spend: Google Ads, Facebook/Instagram Ads, LinkedIn, etc.
- Traditional Media: Local newspaper ads, flyers, or signage.
- Event Costs: If you ran a stall at a local Brisbane market or trade show.
Step 3: Include your 'Indirect' Marketing costs
This is where most people get stuck, and honestly, the interface of most accounting tools doesn't help because these costs are often hidden in 'General Expenses'. You must include:- Software Subscriptions: Your CRM (HubSpot, Pipedrive), email marketing (Mailchimp), and SEO tools.
- Content Creation: What did you pay that freelancer to write those blogs or take those professional photos?
Step 4: Add your Sales expenses
CAC isn't just about marketing; it’s about the cost of the whole journey. If you have a salesperson or even a receptionist who spends 50% of their time following up leads, a portion of their salary belongs here. Note for Sole Traders: If you are doing all the sales and marketing yourself, you might choose to exclude your own 'salary' to keep it simple, but remember that your time isn't free! At the very least, include the costs of any sales software or commissions you paid out.Step 5: Count your NEW customers only
Go to your sales records and count how many new customers signed up or purchased during your chosen timeframe. Common Mistake: Do not include returning customers or contract renewals. CAC is strictly about the cost of acquisition (winning someone new), not retention (keeping someone you already have). If a regular comes back to your cafe, that’s great, but they shouldn't be in this calculation.Step 6: The Big Calculation
Now, let's put it all together. The formula is simple: Total Sales & Marketing Costs / Number of New Customers = CAC Example:- Marketing Spend: $2,000 (Ads + Agency)
- Sales Costs: $500 (Software + Commissions)
- New Customers: 50
- Calculation: $2,500 / 50 = $50 CAC
This means it costs you $50 to get one new person through the door.
Step 7: Compare CAC to Customer Lifetime Value (LTV)
Calculating CAC is only half the battle. Now you need to know if that $50 is 'good'.As a general rule of thumb, you want your LTV to be at least 3x your CAC. If a customer spends $150 with you over their lifetime, and it costs you $50 to get them, you're in a healthy spot. If they only spend $60, you're barely breaking even after you factor in your product costs and rent.
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Pro Tips from the Field
- Don't panic if your CAC is high initially: When you start a new campaign (like a fresh Google Ads setup), your CAC will always look scary in the first 30 days. Give the algorithms time to learn.
- Segment by channel: Once you're comfortable with the total CAC, try calculating it just for Facebook vs. just for Google. You'll often find one is significantly cheaper than the other.
- Watch for 'Seasonality': In Brisbane, some industries go quiet in January while others explode. Don't make permanent business changes based on one weird month.
Troubleshooting Common Issues
"My CAC is higher than my product price!" Don't worry, this happens more often than you'd think. It usually means one of two things: either your marketing is inefficient (wrong audience), or you're a 'subscription' or 'repeat' business where the profit comes from the second or third purchase. If you're a plumber, the first job might have a high CAC, but the goal is to be their 'plumber for life'. "I can't tell which customers came from which ads." This is the 'attribution' nightmare. If you can't perfectly track them, stick to the 'Total CAC' method first. It’s better to have a slightly blurry total picture than no picture at all. "What about my ABN and Tax?" When calculating costs, use the 'Net' amount (excluding GST) so you are comparing apples with apples across your revenue and expenses.Next Steps
- Audit your last 3 months: Run the numbers for the previous quarter to get a baseline.
- Set a target: Decide what you want your CAC to be based on your profit margins.
- Optimise: If the CAC is too high, look at your 'conversion rate'—maybe your website is scaring people off after they click the ad?
If these numbers are looking a bit frightening or you're not sure how to lower them, we can help. Feel free to reach out to the team at https://lmgroup.au/contact and we can take a look at your current marketing efficiency together. You've got this!