How hard is it to reach your target market?  Do you have to search for customers or will they find you?  The average dollar amount spent to land a new paying customer is called the Customer Acquisition Cost (CAC).  If you hire a salesperson that costs $1,600 each week and she lands four customers per week on average, your customer acquisition cost is $400.  On the web, if you pay for Google Adwords at $2 a click and it takes 30 clicks to get a user to sign up, your cost is $60.  Different market segments vary widely in how challenging they are for companies to reach.  Some audiences are impossible to find, whereas others have obvious and cost-effective channels.  The harder it is to reach potential customers, the higher your costs will be.  As a startup with limited resources, you have to plan your initial targeting carefully because a high acquisition cost can quickly break the bank.  Underestimating the CAC bankrupted eToys, a dot-com company valued at one point in excess of $4 billion.  Try to estimate your CAC up front to see if it makes financial sense.  If you find that the CAC is too high, experiment by either targeting different channels or different segments.  The CAC is a vital startup metric for you to analyze and monitor continuously.

Matt Sand

Author Matt Sand

Passionate about making a difference through innovation and entrepreneurship.

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