Entrepreneurship and Small Business (ESB) Certification Practice Exam

The formula for determining customer acquisition costs includes which of the following?

1. Fixed expenses divided by new customers

2. Marketing expenses plus sales expenses divided by new customers

3. Revenue generated divided by new customers

4. Total expenses divided by current customers

The correct answer is: Marketing expenses plus sales expenses divided by new customers

The formula for determining customer acquisition costs (CAC) is integral to understanding how much a business invests to attract and acquire new customers. The correct choice involves adding marketing expenses and sales expenses together and then dividing that total by the number of new customers acquired during a specific period. This method accurately reflects the total cost associated with gaining each new customer by considering both the promotional efforts (marketing) and the personnel or activities directly involved in selling to customers (sales). This approach allows businesses to gauge the effectiveness and efficiency of their customer acquisition strategies. By knowing the CAC, businesses can assess whether their spending aligns with their customer lifetime value (LTV), enabling informed decisions about budgeting and investment in marketing and sales efforts. Other options do not provide a comprehensive view of customer acquisition costs. For example, dividing fixed expenses by new customers does not account for marketing and sales activities that directly contribute to acquiring customers. Similarly, revenue generated divided by new customers reflects profitability rather than the cost incurred to acquire customers. Lastly, total expenses divided by current customers focuses on existing customer engagement rather than the acquisition of new ones, which is not relevant for calculating CAC.