Cost of Acquisition
What Is the Cost of Acquisition?
The cost of acquisition is the total expense incurred by a business in securing another client or purchasing an asset. An accountant will list a company's cost of acquisition as the total after any discounts are added and any closing costs are deducted. Nonetheless, any sales tax paid is excluded from this detail.
The term cost of acquisition is utilized for accounting and in business sales.
Grasping the Cost of Acquisition
As an accounting term, the cost of acquisition incorporates all upfront costs incurred while purchasing a business asset like equipment or inventory. The figure incorporates the following:
- Purchase price of the thing
- Costs to ship it to its point of purpose
- Costs to introduce the thing
- Costs to make it ready (on account of equipment) or ready available to be purchased (on account of inventory) condition
The business ordinarily includes different expenses like closing costs, customs and fees, testing, and other miscellaneous expenses while computing the cost of acquisition. Any discounts are reflected in this detail. Be that as it may, taxes are excluded.
Cost of Acquisition in Sales
As a business sales term, the cost of acquisition incorporates expenses connected with marketing like promotional materials, travel by salespeople, and sales commissions. The cost is tied to marketing and sales on the grounds that the more streamlined those missions become, the lower the cost of acquisition will be for every customer.
In sales, the average cost of acquisition per sale might be generally high. It is a standard rule of thumb in business that it costs more to sign another client than to hold a current one.
Special Considerations
Knowing the costs of acquisition is significant for a company in measuring the outcome of an initiative or another product. That is the reason the figure is complete in including every connected expense (aside from sales taxes).
Certain industries, for example, cable and telecommunications generally have high costs of acquisition.
The figure is additionally used to assist companies with planning for what's in store. The costs are viewed as in determining whether to send off a sales promotion or different incentives for new customers. They are additionally used to plan spending plans and determine how to dispense money.
How Investors Use Cost of Acquisition
Investors who read financial statements might take a great interest in a company's cost of acquisition, especially assuming that that number is uncommonly high or low.
Cable and telecommunications companies, for instance, generally have high costs of acquisition. They need to spend truckload of cash on marketing and promotions to gain new customers. This is especially true in competitive markets where consumers have a decision.
Contract buyouts from contending cable companies and offers of family plans for remote customers are among the promotions that companies in this industry use to draw in new customers. These are costly instances of costs of acquisition.
Highlights
- Cost of acquisition is the total of expenses incurred when a business gets another client or another asset.
- In accounting, the cost of acquisition is a detail that incorporates all expenses connected with buying and sending an asset with the exception of any sales taxes.
- In sales and marketing, the cost of acquisition incorporates every one of the costs of procuring new customers.
