Running a successful Sub Zero franchise involves more than just serving delicious ice cream; it also requires effective marketing and a clear understanding of the customer acquisition costs (“CAC”).  CAC is a vital metric that helps store owners determine the expenses associated with acquiring new customers.  In this column, I will delve into the formula and mathematics behind calculating CAC for your ice cream store.

Formula for Calculating CAC:

CAC can be calculated using a straightforward formula:

CAC = (Marketing Costs) / Number of New Customers Acquired

To break down the formula further:

1. Marketing Costs: This includes all expenses related to marketing your restaurant. It encompasses expenses like advertising, social media campaigns, print materials, and any other promotional activities.

2. Number of New Customers Acquired: This represents the total number of new customers who purchased at your restaurant as a result of your marketing and sales efforts.

Example Calculation:

Let's consider an example to illustrate how to calculate CAC.

Suppose your store's marketing expenses for a specific month amount to $500. During that month you acquired 50 new customers.

CAC = $500 / 50 = $10.00 per new customer

In this example, it cost you approximately $10.00 to acquire each new customer for your store during that month.

Interpreting CAC:

The CAC value represents the average cost associated with bringing in a single new customer. It provides valuable insights into the effectiveness of your marketing and sales strategies. A lower CAC indicates that your efforts are cost-efficient in acquiring new customers, while a higher CAC may suggest that your strategies need to be reevaluated.

The trick, then, is to retain that customer and earn repeat business from them during the year, and beyond.  A $10 CAC of a returning customer @ 4 times per year, spending an average of $10 per visit, is a 4X return on CAC.  8X if similar spending the next year.  And so forth.  (More on ‘customer retention’ and ‘on-going advertising’ in another column)

Using CAC to Make Informed Decisions:

Understanding your CAC is essential for making informed decisions regarding your restaurant's marketing budget and strategies. Here are a few ways in which you can use this data:

1. Budget Allocation: Knowing your CAC helps you allocate your marketing budget more effectively. You can invest more in strategies that yield a lower CAC and adjust or eliminate those with a high CAC.

2. Campaign Optimization: By tracking CAC over time, you can assess the performance of specific marketing campaigns. If a particular campaign consistently results in a lower CAC, you can replicate its success.

3. Pricing Adjustments: CAC can also guide pricing decisions. If you have a high CAC, you might need to reevaluate your pricing strategy to ensure that each customer's value justifies the acquisition cost.

Conclusion:

Calculating the cost of customer acquisition for your restaurant is a crucial step in managing your business effectively. By using the CAC formula, you can quantify your marketing and sales efforts, make data-driven decisions, and continually improve your strategies to attract and retain customers while maximizing your profitability.

Tip - How to determine ‘new’ customers:

Determining the number of new customers acquired is a crucial part of calculating the cost of customer acquisition (CAC) for your store. Here's how you can accurately determine the number of new customers:

1. POS System Data: Your Point of Sale (POS) system is a valuable source of information. It can track transactions and customer data. To identify new customers, you can analyze your POS data by looking for customers who have not made a purchase at your restaurant before. This method is particularly useful for tracking in-person transactions.

2. Online Ordering and Reservations: If your restaurant offers online ordering or reservation services, your website or app can track new customers. You can identify them by checking for unique email addresses or phone numbers that haven't been used before to place orders or make reservations.

3. Customer Sign-Up and Loyalty Programs: Implementing a customer sign-up or loyalty program allows you to track and categorize customers. New customers are those who have recently registered or joined your program. This method also provides an opportunity to collect valuable customer data.

Remember that the accuracy of determining new customers can vary depending on your data collection methods and systems in place. It's essential to maintain consistency in your approach and periodically reconcile this data to refine your CAC calculations and track customer acquisition trends over time.