Acquisition Cost

What Is an Acquisition Cost?

An acquisition cost, likewise alluded to as the cost of acquisition, is the total cost that a company perceives on its books for property or equipment in the wake of adjusting for discounts, incentives, closing costs and other important expenditures, however before sales taxes. An acquisition cost may likewise involve the amount expected to assume control over one more firm or purchase an existing business unit from another company. Moreover, an acquisition cost can portray the costs incurred by a business comparable to the efforts engaged with procuring another customer.

Understanding Acquisition Costs

Acquisition costs give an impression of the true amount paid for fixed assets before sales tax is applied, for expenses connected with the acquisition of another customer, or for the takeover of different firms. Acquisition costs are helpful in light of the fact that they perceive a more realistic cost on a company's financial statements than utilizing different measures. For example, the acquisition cost of property, plant, and equipment (PP&E) perceives any discounts or extra costs that the company will experience and is frequently alluded to as the original book value of the asset being referred to.

Acquisition Costs for Fixed Assets

Other than the price paid for the asset itself, extra costs may likewise be viewed as part of acquisition when these costs are straightforwardly tied to the acquisition interaction. For instance, in the event that the asset being referred to needs legal help to complete the transaction, legal and regulatory fees are likewise included. Commissions associated with the purchase may likewise be incorporated, for example, those paid to a real estate agent while dealing with a property transaction, to a staffing company for putting an employee, to a marketing firm for procuring customers, or to an investment bank for brokering a merger.

Concerning manufacturing or production equipment, any costs associated with carrying the equipment to an operational state may likewise be remembered for the cost of acquisition. This incorporates the cost of transportation and getting, general establishment, mounting, and alignment.

Acquisition Costs for Customers

Customer acquisition costs are those funds that are utilized to acquaint new customers with the company's products and services in order to gain the customer's business. The customer acquisition cost is calculated by partitioning total acquisition costs by total new customers over a set period.

Understanding customer acquisition costs is useful in planning future capital allocations for marketing [budgets](/financial plan) and sales discounts. Costs generally associated with customer acquisition incorporate marketing and advertising, incentives and discounts, the staff associated with those business areas, and different sales staff or contracts with outside advertising firms. Incentives might be communicated in different configurations, for example, get one-get-one-free arrangements, getting another product free with purchase, updated service at no extra cost to the customer, gift cards, or bill credits.

One business sector with a high occurrence of advancements directed at new customers is the remote and cell industry. Remote companies frequently stretch out arrangements to new customers, for example, increased data bundles, extra family telephone lines for free, and discounts on the most current mobile phones. The purpose of these offerings is to tempt customers to pick their business over their rivals.

Highlights

• It is helpful in distinguishing the full cost of fixed assets since it incorporates things, for example, legal fees and commissions and eliminates discounts and closing costs.
• Acquisition cost alludes to an amount paid for fixed assets, for expenses connected with the acquisition of another customer, or for the takeover of a contender.
• Acquisition costs are likewise helpful to decide the full expense incurred in alluring new customers, and it very well may be utilized to compare to the revenue new customers create.