How Your Flight School Can Benefit from CAC Analysis
By Tammy Hargrove, Content Writer for 2MQ
Your flight school, Too Fly Flight Academy, has set out to reach its ideal audience within an aggressive 60-day window. The expectation is to gain three new students for your recently launched career pilot program. Not only do you succeed, you’ll knock your goal out of the park.
Now, in a meeting with your colleagues and staff, the exciting news is delivered. The announcement takes everyone by surprise and one extremely inquisitive (and at times overzealous) team member inquiries about how this feat was achieved. The puzzled look on your face vividly informs your audience that you didn’t do your homework, leaving you unable to provide a solid answer. Flushed, you tell the team member that you’ll need to get back to him. You leave the meeting feeling excited about the accomplishment and perplexed that you hadn’t considered how this goal was realized.
We know that the key to survival for any thriving business is obtaining the right customers and clients. What may not be known is how and that’s where CAC comes in. CAC, or customer acquisition cost, is the exact amount of money it costs a company to acquire or gain a customer. Customer Acquisition Cost is a critical metric used to determine marketing campaign success. When used properly, this extremely useful tool provides insight into what is working (or not), so that you can stop doing what doesn’t work and save time and money in the end.
What is Customer Acquisition Cost (CAC)? The formula for Simple CAC is as follows:
SIMPLE CAC
(TOTAL MARKETING & SALES COSTS) ÷ (# OF ACQUIRED CUSTOMERS)
CAC is very important for small businesses, organizations, and institutions where every dollar counts. Learning how your school obtained a student makes it easier to duplicate the process (vs. having to recreate it) to attract even more business.
Sales and marketing costs can often be underestimated and yet, are very important because every penny used in your sales and marketing budgets count.
These costs include:
• Salaries
• Tools/software
• Travel expenses
• Advertising spend
• Freelancers
How Sales Cycles and CAC work to determine sales
Customer Acquisition Cost does not stand on its own. It’s one of many moving parts of marketing that create a recipe for success. As a pilot, you understand there are levels to becoming successful in flight. The educational track for a recreational pilot is going to be shorter than that of a career pilot. Different programs require different sales cycles.
Knowing the timing of your sales cycles also helps during the planning phase for each of the programs you offer. Better understanding of sales cycles means stronger planning, which will lead to larger profits. Let’s look at how proper planning and sales cycles can determine your bottom line:
Your school offers the following programs:
1. Recreational
This program was designed for those wanting to learn more about flying for leisure. While the student is serious, the time commitment is the lowest of all programs offered. The sales cycle for this track 30 days, which is the shortest of the three.
2. Private
This program is the next level of training offered by your flight school. It has a pay-as-you-go option with sales cycles that run 30 to 60 days.
3. Career
This program is for pilots looking to fly as a career. Your school charges $80,000 per student with a training completion time of eight to twelve months. The ideal student is a serious learner, a scholar of flight. Of all the options you offer, this one has the biggest time and financial commitment.
Prospective career students have to be given adequate time to gather resources. These students may have to move funds, take out loans, and even secure or rearrange schedules for the duration of the program, etc. The career program has the highest costs and will have a 60-90 day sales cycle.
What value does CAC Analysis provide?
EXAMPLE: For your most recent campaign, your focus was solely on the Career Pilot Program. The program has a 60-day cycle on average, according to your sales team.
You will receive new aircraft in May that will allow you to increase your capacity for your Career Pilot Program. The marketing team will launch its marketing campaign in March that they began in February.
You use the following equation:
Time-Based CAC
(MARKETING & SALES EXPENSES FROM 2 MONTHS AGO) ÷ (TOT. No NEW PAYING CUSTOMERS IN CURRENT MONTH)
| Simple vs Time-Based CAC | ||||||
| Jan | Feb | Mar | Apr | May | Jun | |
| Marketing & Sales Expenses | $10,000 | $15,000 | $16,000 | $18,500 | $15,000 | $17,000 |
| New Customers Acquired | 10 | 12 | 11 | 15 | 20 | 17 |
| Simple CAC | $1,000 | $1,250 | $1,455 | $1,233 | $750 | $1,000 |
| Time-Based CAC | n/a | n/a | $909 | $1,000 | $800 | $1,088 |
A simple CAC calculation. The marketing and sales expenses include salaries (based on monthly payout), tools/software, travel expenses,
advertising spend, and freelancers.
As the name suggests, the Time-Based CAC formula takes time into consideration, which will give you a much more accurate customer acquisition cost if you have a long sales cycle.
Using a 2-month cycle, the CAC has increased from a simple formula but at $800 it’s still well below average. For this campaign, that would be considered a success. Using this formula, there may not be a noticeable difference, but when there are increased expenses, it will normalize your CAC, providing an
accurate number to determine marketing performance. The goal is to find the ‘sweet spot’ between CAC vs CLV (Customer Life-time Value). A 3:1 ratio would be considered desirable.
This is a simple measurement of prospective student engagement over the course of a sales cycle. Over the course of time, engagement increases leading to the ideal student, showing the value of strategic planning to reach your flight student population.
In conclusion, understanding the cost of gaining new students is a necessary process for any school wanting to grow its pilot program. Focusing on customer acquisition costs leave you with more time and money and provide critical insight into what your customers need and the best way to reach them. You will be able to see what channels, and types of campaigns capture your ‘ideal customer or buyer persona.’ Planning ahead is a crucial component.