To count the price of a one moving lead, firstly, we have to understand what is CAC (Customer acquisition cost)

Customer acquisition cost (CAC) is the total amount spent on attracting one new customer.

Why do you need to calculate CAC

  1. Understand whether efforts to attract customers will be paid off. САС will help you find out how effectively your marketing budget is used.
  2. Calculate how efficient a business is. САС helps to understand how productive a company is.
  3. Optimize marketing activities. Expensive customers are a signal to review advertising expenses and reduce their costs.

How to calculate Customer acquisition cost

To calculate the CAC using the following formula:

САС = Sum of all expenses / number of customers managed

CAC formula

Technically, the formula is correct. However, most marketers use the advanced formula to calculate CAC:

To get the most accurate result, calculate CAC separately for each sale channel. This makes it possible to understand which of the channels has the lowest CAC and where specifically it is worth increasing marketing investments: the more of the budget you allocate to the channels with a low cost of customer acquisition, the more users will be acquired without increasing the total cost.

Example of CAC calculation for Moving Company

To see how the full formula works, we apply it on the example of a local Boston moving company

We accept 0.3(30%) as a coefficient of a successful lead converting to a confirmed customer

To begin, we write down all the initial approximate data for the calculation (for 1 month):

Traffic from search advertising 100 clicks
The price per click is 15 dollars
Salary to the PPC specialist 300$/m
Organic Search (SEO) traffic 200 clicks
Salary to SEO specialist 600$/m
Software for Moving Company 200$/m
Visitor to customer conversion (ads + SEO) 30%
New customer out of ads 100 * 0.3 = 30
New customer from organic search 100 * 0.3 = 30
Repeat customers 5
Total moving requests 65

 

When the list is completed we are able to count the approximate price of the moving lead in Boston using our CAC formula:

Marketing Expenses = 100*$15 (Ads) + $0 (SEO) = $1500

Salaries = $300 (Ads) + $600 (SEO) = $900

MovingCRM = $200

Total expenses = $2600

We always have some overhead expenses, so we are adding extra 10% = $2600 + 10% = $2860

Then we want to count CAC separately by channel:

Expenses on Moving CRM we are going to count equally spreading to each channel

 

Search Advertising:

Traffic from search advertising 100 clicks
The price per click is 15 dollars
Salary to the PPC specialist 300$/m
Software for Moving Company 66$/m
New customer out of ads 100 * 0.3 = 30

CAC (100*15+300+66) / 30 = $62.2

 

SEO:

Organic Search (SEO) traffic 200 clicks
Salary to SEO specialist 600$/m
Software for Moving Company 66$/m
New customer from organic search 100 * 0.3 = 30

CAC 666 / 30 = $22.2

 

Lead Generation on Yelp, Thumbtack, HomeAdvisor, and etc.:

Purchase Leads 100 leads
Price per Lead (average) $20
Salary to the PPC specialist 100$/m
Software for Moving Company 66$/m
New customer out of ads 100 * 0.4 = 40

CAC (100*20+100+66) / 40 = $54.1

 

Summary

Each new moving customer costs the moving company $62.2 through the search advertising, $22.2 from organic search, and $54.1 using aggregate resources such as Yelp, Thumbtack, etc..

Once this data is in your hands, you can think about how to reduce CAC. To do this, you can optimize the sales funnel, increase the effectiveness of marketing in general, develop inbound marketing, and more. 

 

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