Do You Know Your CAC?

Most accounting firms do not spend much in the way of marketing dollars to acquire new clients. This is because most clients are still acquired through referrals.  While it might cost a little to keep up referral relationships, the cost is still relatively low.

When you begin to add additional marketing channels, you need to know your CAC: client acquisition cost, or the average cost it takes to acquire one new client through marketing and selling expense and time.

Each marketing channel you use will have a different CAC.  For example, let’s say you acquire 6 new clients throughout the year from your website, earning you $1,000 per month each. Let’s say you acquired these six new clients steadily throughout the year, so that your annual revenue gained breaks down like this:

Client 1: $11,000 (11 months)

Client 2: $9,000 (9 months)

Client 3: $7,000 (7 months)

Client 4: $5,000 (5 months)

Client 5: $3,000 (3 months)

Client 6: $1,000 (1 month)

Total:  $36,000

The annual cost of your website is $1,800.  Your CAC for your website channel is $300 ($1,800 / 6).  You spent $300 per client to earn an average of $6,000  ($36,000 / 6) per new client, and that’s just in the first year.  When you keep the client multiple years, your CAC is actually lower than $300.

So now you know your website investment is a good deal.

Once you do that across all of your marketing channels, you can get a feel for which channels are good to keep and which ones you should get rid of.

In the New Clients Survey for Accounting and Tax Firms, we discovered a couple things about CAC:

  1. The larger the firm, the less they knew about what their CAC was.
  2. The older the firm, the more they are willing to spend to get clients. (I kind of think this is backwards….)
  3. One-third of respondents didn’t know their CAC.

If your CAC is very low, you’re probably leaving money on the table by not growing fast enough. If your CAC is too high, you need help building your marketing and sales skills so that you can become viable. It’s a valuable metric not just for your firm, but for those of you who do advisory work, to be able to calculate it and discuss it with your clients as well.

If you want to get into more marketing metrics, we have a self-study course with CPE on this topic.