What is acquisition cost in Accounting vs Marketing?
Acquisition cost has different meanings depending on whether you are talking about accounting or marketing. In both cases, it refers to the price of getting something, but the details differ.
Acquisition Cost in Accounting
In accounting, acquisition cost is the total price of purchasing an asset, such as a building, equipment, or inventory. It includes the purchase price plus all the extra costs associated with buying and setting up the asset before it can be used.
For example, a factory buys new manufacturing equipment for $100,000. But to get it up and running, they must pay $5,000 in sales tax, $2,000 for delivery, and $3,000 for installation and testing. The book acquisition cost isn’t just the $100,000 sticker price. It’s a total of $110,000.
Why does this matter? A few big reasons:
- It’s the official cost recorded for that asset in the financial statements. This starting amount is crucial because it’s the basis for depreciation over the asset’s life.
- For tax reasons, you can often deduct the total acquisition cost as a business expense in the year you acquire the asset. But you need to know the total, not just the purchase price, to get the full deduction.
- It gives you the complete picture of how much an asset costs to acquire. Knowing the actual price tag of something is essential for budgeting and decision-making.
In summary, for accounting, think of the comprehensive, all-in costs of buying an asset and getting it ready for use in the business. That’s your acquisition cost.
Acquisition Cost in Marketing
When we switch gears to marketing, acquisition cost means something entirely different. Here, it’s all about the cost of acquiring a new customer.
Marketing teams monitor customer acquisition costs, or CAC for short. This critical metric measures the total marketing and sales costs to land a new buyer.
The simple formula is CAC = Total acquisition costs / Number of new customers.
Acquisition costs include all marketing and sales expenses, such as advertising, salaries, commissions, bonuses, overhead, etc. ” New customers ” mean those acquired in a set period, usually a month or a quarter.
For example, a software company spent $300,000 last quarter on digital ad campaigns, events, and sales rep salaries. They closed deals with 100 new customers in that period. The math is easy:
CAC = $300,000 / 100 = $3,000 per new customer
Why does the marketing team care so much about this number? A few critical reasons:
- It directly measures the efficiency of the company’s marketing and sales spending. Lower CAC means it costs less to acquire each new customer, which is a good thing.
- You must know CAC to determine whether acquiring a new customer is profitable. If the CAC is higher than the lifetime value (LTV) you expect from a customer, you’re losing money—not good.
- When combined with LTV, it tells you roughly how long it takes to recoup the acquisition cost and start making a profit on each customer. The LTV: CAC ratio is a vital health metric for the business.
- Tracking CAC over time shows whether your go-to-market is becoming more or less efficient and productive. An increasing CAC is a red flag that something’s wrong with your marketing or sales process.
In summary, consider CAC’s total cost to acquire one new customer for marketing. The goal is to keep it low and maximize the LTV: CAC ratio.
Comparing the Two
To wrap up, let’s review the key differences between acquisition cost in accounting versus marketing:
- In accounting, it refers to the total upfront costs to purchase and start using an asset. In marketing, it’s the cost to acquire a new customer.
- Accounting focuses on long-term assets for the business, while marketing focuses on the ongoing flow of new customers.
- The purpose of accounting is to record the cost basis of an asset for things like depreciation, taxes, and significant purchase decisions. In marketing, the purpose is to track the efficiency and effectiveness of customer acquisition efforts.
- In accounting, accountants record costs as assets on the balance sheet. In marketing, costs are typically expensed in the period they are incurred.
So, while the phrase “acquisition cost” appears in both contexts, its meaning and implications are quite different.
One fundamental similarity is that the metric forces you to consider the total loaded costs of acquiring something in both cases. Whether that something is a piece of equipment or a new customer, the comprehensive cost matters, not just the sticker price.