- Content
Customer acquisition is essentially a numbers game. You invest money in advertising, promotions, invite an influencer, and then see if these costs have paid off. But here’s the question: how much exactly does each new visitor cost you? And doesn’t it turn out that you spend more than they bring in?
If you’re still evaluating your marketing effectiveness only by Instagram likes or ad impressions, we have bad news for you: it’s not enough. The restaurant business is about real money, not just pretty statistics in an advertising office. To understand how much a real guest who comes, eats, and leaves money costs, you should use the Customer Acquisition Cost (CAC) metric, or the cost of customer acquisition.
Customer Acquisition Cost in simple words
Customer Acquisition Cost is an indicator that reflects how much money and resources a restaurant spends to attract one new guest. It is usually analyzed together with Lifetime Value (LTV) to estimate how profitable each new customer is for the business.
To put it as simply as possible: it’s all marketing and advertising costs divided by the number of new guests who came thanks to these investments.
It may seem like just a nice term from business literature. But it is! If a restaurant owner or marketer doesn’t know the CAC of an establishment, they are actually playing roulette: maybe your advertising is working, or maybe you are just losing money.
CAC is directly affected by:
- advertising costs (targeting, context, offline promotion)
- bonuses and discounts for new guests;
- cooperation with partners, aggregators, and bloggers;
- expenses on personnel engaged in marketing and communications.
CAC is often confused with CPA (Cost Per Action), but they are different. CPA is the cost of any user action (click on an advertisement, booking a table, etc.). CAC shows the global picture: how much you actually pay for each guest who comes to the restaurant and leaves money.
With advertising costs of 5000 UAH and a thousand visits to the website, your company’s CPA is equal to 5 UAH. But if only 50 out of these thousand people actually come to the restaurant and place an order, your CAC is 100 UAH.
If you want to develop your restaurant, open new locations, or simply stop wasting your budget, CAC is the first indicator you need to learn how to calculate.
Simple and complex calculation of the cost of customer acquisition
There are different ways to calculate the cost of customer acquisition. You can take a calculator, estimate the advertising budget, and divide it by the number of new visitors. Or you can delve into the numbers, take into account all the hidden costs and understand the real price of each guest.
The basic formula looks like this:
? CAC = Total marketing costs in the selected period / Number of new customers during the campaign period
For example, if a restaurant spent 30,000 UAH on advertising (including the cost of a SMM specialist), and there were 35 new guests during this period, then
30,000 UAH ÷ 35 ≈ 860 UAH per customer.
This is a quick approach that helps to understand the overall picture. But there’s a caveat: it doesn’t take into account a lot of costs that affect the business. Let’s imagine that you calculate CAC only for the advertising budget. But in reality, there is more:
- marketer’s salary,
- services of a targeting specialist or copywriter,
- subscriptions to analytics services,
- expenses for photo and video shooting,
- commissions for advertising on various platforms.
To find out the exact figure, you need to count everything:
? CAC = (Advertising costs + Salaries of marketers + Service costs + Other marketing costs) / Number of new customers
For example, if you add to the same 30,000 UAH:
- 15 000 UAH for the salary of a marketer,
- 2,000 UAH for a copywriter,
- 2,475 UAH for a subscription to a marketing service,
we will get:
(30,000 + 15,000 + 2,000 + 2,475) ÷ 35 ≈ 1,415 UAH per client.(30,000 + 15,000 + 2,000 + 2,475) ÷ 35 ≈ 1,415 UAH per client.
The difference is noticeable, right?
You need to calculate CAC separately for each marketing channel because they require different specialists, tools, and services. Therefore, a more accurate analysis requires an extended formula that takes into account all the costs associated with customer acquisition.
What CAC is considered good for a restaurant
CAC itself is just a number. But to understand how adequate it is, you need to compare it with other indicators. The main one is Lifetime Value (LTV), i.e. the total amount that a customer brings to a restaurant over time.
There is a general rule: CAC should be 3-5 times less than LTV. If a customer brings you 5000 UAH of profit for the entire period, and it cost 1000 UAH to attract them, everything is fine. But if CAC and LTV are almost equal, or even worse, CAC is higher, the restaurant is in the red.
In conclusion
Understanding and controlling CAC helps a restaurant to allocate its budget efficiently and avoid unnecessary expenses. But calculating this indicator once is not enough. To use it correctly, you should follow a few simple steps:
- Record all costs of customer acquisition.
- Calculate CAC separately for each marketing channel.
- Compare CAC with LTV.
- View indicators in dynamics.
The better you understand your CAC, the less money you waste on ineffective marketing and the more you get from each new guest.
Understanding and controlling the CAC helps a restaurant to allocate its budget efficiently and avoid unnecessary expenses.