Average CAC for Startups: 2023 Benchmarks
Customer Acquisition Cost (CAC) is, along with LTV and ROAS, an essential marketing metric for startups to understand. CAC refers to the amount spent to obtain each new customer, and may be calculated annually, quarterly, or per campaign. The formula for CAC is:
For example, if a company spends $2500 on a PPC campaign that generates 10 sales and pays the salesperson who closes them $500, the CAC for that campaign would be $300.
Using a combination of proprietary data and third party databases, our research team calculated the average CAC for startups across 29 industries, which we further subdivided into B2B and B2C companies.
Average CAC for Startups
|Aerospace & Defense||$722||N/A|
|Higher Education & College||$1,424||$116|
|IT & Managed Services||$583||$98|
|Oil & Gas||$857||$176|
|PCB Design & Manufacturing||$494||N/A|
|Transportation & Logistics||$584||$147|
The sections below outline the average CAC for startups, explaining why the metric matters, how it differs for smaller companies, and methods that startups can use to lower it.
The Value of CAC for Startups
Startups gain several benefits by understanding customer acquisition costs, including the ability to:
- Budget properly for customer acquisition across multiple channels and audiences
- Make data-driven compensation decisions when hiring sales representatives
- Build a solid case for the firm’s growth when pitching investors
CAC is often paired with Lifetime Customer Value (LTV) to calculate their CAC to LTV Ratio, which measures a company’s overall profitability during a given period. While this metric is ideal for companies with a mature sales cycle and scalable operations, startups often misuse it and calculate their ratio before it paints an accurate picture of the company.
For example, the ratio for a startup where the founder is active in the sales process will not reflect the performance or margins when the company grows and a sales team takes over. Similarly, a new company utilizing pre-existing relationships to acquire new customers will not reflect the company’s margins when those relationships have been exhausted and the sales team fully leans on the company’s marketing.
Lowering Startup CACs
When analyzing a company’s sales funnel, we note three distinct stages that lead to a closed sale:
- Lead Generation: Creating awareness of your brand or product in the market
- Lead Nurturing: Growing familiarity and interest in your product
- Sales: Converting leads into customers
These stages, along with the potential online locations of a prospect during each stage, are shown in the image below:
Within these stages, separately known as the marketing and sales funnels, startups have several options to lower their CAC, depending on where their analytics tools indicate inefficiencies. For example, poor keyword targeting on your website’s pages decreases your clickthrough rate. And a website form that doesn’t properly filter low-quality leads wastes your sales team’s time. Plugging those holes will allow a great number of target audience members to land on your website, connect with your sales team, and convert to customers for every dollar spent, thereby lowering your CAC.
The following sections outline the 3 most effective ways to improve your startup’s CACs.
Assess Your Target Audience
A company’s target audience significantly influences the cost to close a sale. Enterprises, for example, require a great deal of time and investment to close even a single sale. (However, the proportionally higher LTV justifies the marketing spend.) On the other hand, consumers are much easier to close than enterprises, yet generate far less LTV.
If the cost to close a sale when targeting a specific audience isn’t warranted by the LTV that audience brings in, your team should reconsider their target market and identify new problems and niches your product can solve. This requires:
- Reexamining your existing customer base to identify previously unknown customer types
- Creating detailed audience personas of those new customer segments, and identifying content types and channels relevant to them
- Reorienting your marketing and sales strategies to include these new markets
Invest in Low CAC Marketing Channels
If a company is spending too much time and money on lead generation, it can consider a lower-cost marketing channel. The table below outlines several options for both lead generation and lead nurturing:
Low-CAC Marketing Channels for Startups
|Channel||B2B CAC||B2C CAC||Pros||Cons|
|SEO||$647||$298||Highest ROI of any digital marketing channel
Generates leads as long as content ranks
High quality SEO content results in warmer leads
|Requires expertise to execute
Takes time for campaigns to grow
|$510||$287||Ideal lead nurturing channel
Easy to track progress
|Takes time to build a quality mailing list
Limited Use Case: Doesn’t work for lead generation
|Social Media||$658||$212||Ideal for reaching younger audiences
Encourages audience engagement
|Takes time to build traction on social media
Requires regular posting of different media types (e.g. video, photo)
|Webinars and Podcasts||$603||$251||Allows a company to showcase expertise in real-time
Builds intimate relationships with customers and fans
|Requires either an existing audience or time to build a listener base
Requires a charismatic host
Contrary to conventional wisdom, “lower cost” does not mean “less effective.” While SEO campaigns take time to build, they offer the greatest ROI of any marketing channel, turning company websites into organic lead-generation machines when done properly.
Create High Quality Content
Startups should periodically reexamine their content for opportunities to optimize its alignment with their target audience. While this approach will not lower CAC directly, it will increase the overall pipeline velocity and make marketing more profitable. Examples of these content improvements include:
- Provide social proof elements: Provide readers with examples of satisfied customers to reinforce your company’s pattern of success. A simple implementation of social proof elements could be achieved by highlighting partner or client logos on the company website. Alternatively, a company could choose to include full client testimonials with corresponding images and contact information to achieve a greater degree of trust.
- Create personalized sales content: In addition to creating content targeted at the customer’s search intent, personalized sales content is directly targeted to the individual customer. Building a more intimate relationship with customers makes them more likely to buy.
- Include opportunities for soft conversions: While some customers are not prepared for a sale initially, companies can nurture these customers with soft conversions (e.g. white paper downloads, email signups). These soft conversions should include actionable next steps to move the customer through a longer sales cycle even when readers are not yet ready to commit to a purchase.
It should be noted that switching marketing channels can also benefit the lead nurturing stage and directly affect CAC. Email drip campaigns that update leads on the latest company research and findings are especially effective at garnering the attention of otherwise difficult leads, bringing them one step closer to a closed sale.
Getting Help Lowering Your CACs
Hopefully, this article makes it clear how startups can lower their CACs. But any experienced marketer knows that execution is where the challenge lies, as a combination of experience, judgment, and intuition must be applied. It also takes time to measure results and make adjustments, which the rapid pace of a startup does not often allow for.
For these reasons, many startups choose to work with an experienced marketing agency to handle the heavy lifting. Our agency specializes in crafting strategy-driven thought leadership SEO content, enabling clients to transform their websites into lead-generation machines. Feel free to contact us to discuss a partnership.
Evan Bailyn is a bestselling author and award-winning speaker on the subjects of SEO and thought leadership. Contact Evan here.