Cost of acquisition is a term used across business and accounting to describe the total costs incurred when signing a new client, purchasing and installing a new asset or acquiring a new item for the business.
Cost of acquisition can be a business sales term referring to the expense required to attain a customer or a sale. In setting a marketing and sales strategy, a company must decide what the maximum cost of acquisition will be, which effectively determines the highest amount the company is willing to spend to attain each customer.
Breaking Down Cost Of Acquisition
As an accounting term, cost of acquisition refers to all of the costs incurred when buying a new business asset such as equipment or inventory. It includes the purchase price of the item, costs to ship it to its point of use and costs for installing it and getting it into working (in the case of equipment) or saleable (in the case of inventory) condition.
As a business sales term, the cost of acquisition is tied to marketing and sales campaigns because the more streamlined those campaigns become, the lower the customer cost of acquisition will be. Conversely, in a high-budget marketing and sales campaign, the acquisition cost may be relatively high depending on how many sales or customers the campaign draws in. Since these costs can be quite high, it is a standard rule of thumb in business that it costs more to sign a new client than to retain a current client.