February 12, 2024

Customer Acquisition Cost (CAC)

Business / /

Customer Acquisition Cost, or CAC, measures how much an organization spends to acquire new customers. CAC – an important business metric – is the total cost of sales and marketing efforts, as well as property or equipment, needed to convince a customer to buy a product or service. What is Customer Acquisition Cost (CAC)? Customer acquisition cost (CAC) is the cost related to acquiring a new customer. In other words, CAC refers to the resources and costs incurred to acquire an additional customer. Customer acquisition cost is a key business metric that is commonly used alongside the customer lifetime value (LTV) metric to measure value generated by a new customer. Customer acquisition vs. customer satisfaction Customer acquisition and customer satisfaction may seem different, but they’re actually highly interconnected. Customer acquisition is the process of bringing new customers into your business, and it’s required for business expansion and generating revenue. However, focusing solely on customer acquisition without adequately considering customer satisfaction can lead to a high churn rate, which in turn increases your cost of customer acquisition (CAC). On the other hand, customer satisfaction speaks to how happy your existing customers are with your product or service. A high level of customer satisfaction can lead to increased customer retention, repeat purchases, and referrals, all of which can lower your CAC. In essence, driving customer acquisition is crucial, but maintaining customer satisfaction is equally important — if not more important —  for sustainable business growth.  Formula for Customer Acquisition Cost The formula for customer acquisition cost is as follows: Where: Sales and marketing expenses are the advertising and marketing spend, commissions and bonuses paid, salaries of marketers and sales managers, and overhead costs related to sales and marketing over the measurement period. Number of new customers is the total number of acquired customers over the measurement period. Factors affecting customer acquisition cost CAC is influenced by various factors, and understanding these factors can empower you to adjust your marketing and sales strategies more effectively. Let’s take a closer look at some elements that can impact your customer acquisition cost: Marketing channels: Different marketing channels come with different costs. Paid advertising, content marketing, social media marketing, and organic search will all have varying expense levels associated with them. The effectiveness of your chosen channels and the costs involved can greatly affect your overall CAC. Target audience: The demographics and preferences of your target audience play a significant role in determining your CAC. Certain audience segments may be more expensive to market to due to high competition, whereas others might be less expensive due to lower competition or a niche audience. Industry: Your sector can also influence your CAC. Companies in highly competitive industries might face stiffer competition, making it more challenging and expensive to acquire new customers. Competition: Higher competition can lead to businesses vying for the same customer base, which can result in escalating advertising expenses and overall acquisition costs. Product quality and offerings: A well-crafted, high-quality product or service, paired with competitive pricing, can help reduce CAC. Generally, a good product will require less convincing, reducing the effort required to get new customers on board. Geographic location: The geographic regions targeted by your marketing also contribute to CAC. Advertising rates and marketing costs will vary depending on the region, country, and sometimes even city. Customer acquisition cost by industry Just as businesses vary by nature, size, and operation, CAC also varies across industries. It’s important to consider these variations when setting your expectations and crafting your strategies. Here’s an overview of how CAC can change based on different industries: Tech/digital services Tech and digital service companies typically have high CAC due to the technology and skill investments they require. However, their high potential customer lifetime value (CLV) often offsets this cost, making this high CAC more manageable. Ecommerce With competition high and margins often low, ecommerce businesses often have a challenging CAC scenario. These businesses must pay close attention to their CAC and constantly innovate to maintain their balance of value. Healthcare In the healthcare industry, the cost to acquire new customers can often be high due to a heavy emphasis on trust and quality of care, which can lead to higher marketing and sales costs. Education Educational institutions often have a lower CAC since they mostly rely on referrals, reputation, and direct inquiries. However, ed-tech companies may face higher CAC due to the competitive market and cost of technology. Knowing where your business stands in relation to the industry standard can offer helpful perspective and ground your CAC goals in reality. Remember, the key is not necessarily to lower your CAC but to optimize it in harmony with your customer lifetime value (CLV). So while studying your industry’s norms, keep your focus on the bigger picture. How to improve CAC Aim for high-quality leads: Not all leads are created equal. Some will engage more, convert into paying customers, and likely stick around longer. High-quality leads not only help lower the CAC but also increase CLV. Optimize your marketing channels: Some channels might work better than others for your business. When you find a marketing channel that offers a high return on investment, focus more of your budget and effort there. Improve conversion rates: Optimizing your website for conversions can reduce your CAC. Test different elements of your website, like headings, calls to action, site speed, and navigation to reduce friction in the user experience. Customer retention strategies: It’s often cheaper to retain existing customers than to research, market to, and attract new ones. Look for ways to increase customer loyalty through excellent service and adding value wherever possible. Referral programs: Happy customers are your best advocates. Implementing a referral program can not only attract new customers at a lower cost but also help in increasing engagement and loyalty of your existing customers. Superior customer support: Customer support plays a crucial role in retaining existing customers and winning over new ones. Customer acquisition cost FAQs What is CAC? Customer acquisition cost (CAC)

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Prerna Marketing Scheme

Government Schemes / /

The National Trust has been implementing various schemes for the development and welfare of Persons with Disability (PwD). Prerna, launched by this organization, is a marketing scheme that assists PwDs to sell their products and services. In this article, let us take a brief look at the scheme. Objective The scheme creates viable and widespread channels for sale of products and services that are produced by PwDs who are covered under the National Trust Act. Prerna marketing scheme provides funds to participate in events like exhibitions, melas, fairs etc. and grants incentives to the Registered Organization (RO) depending on the sales turnover of the products that are made by PwDs. Support for Participation in Events The National Trust provides funds to RO to participate in national, regional, state and district level events such as melas, fairs, exhibitions, etc. to sell their products and services. At least 51% of employees from these work centres have to be PwDs with disabilities that have to be covered under the National Trust Act. RO has to submit a proposal for every event that needs to participate in any of the events. This scheme does not include any permanent stalls that are allocated to the National Trust. The National Trust also funds up to INR 10,000 in a year if the organization prepares and distributes brochures in any event. Incentives for Sales Turnover The National Trust provides an incentive to RO against the sale of products and services that are prepared by PwDs on an annual basis after it is verified by the District Magistrate (DM) or District Collector (DC) or Local Level Committee (LLC) or Social Welfare officer. RO has to distribute a major part of the incentive to the PwDs or utilize it for the enhancement of PwD. Funding Pattern There are two categories whereby the National Trust provides funding to the RO for Prerna scheme. They are Support for participation in events Incentives for Sales Turnover Support for Participation in Events This is a one-time payment that is provided to ROs to take part in national, regional, state and district level events. The payment is provided based on the level of the event in which RO participates. The National Trust sponsors up to a maximum of four events in a year for each RO of any category. The funds under the scheme are provided only for the exhibition and do not cover other expenses like travelling, setting up etc. If the RO is allowed a free stall by any National, State, District, Central or any other Government Department, Ministry or Organization, the funds provided would be reduced by 25%. The scheme does not include any permanent stall that is allocated to the National Trust. Incentives for Sales Turnover A one-time incentive would be provided towards the end of the year, against the sale turnover of the products and services that are offered by the PwDs. Sales turnover of products and services is applicable for work centres where at least a minimum of 51% of employees are PwDs with National Trust disabilities. Incentives can be claimed only on products and services of work centres that are managed by the RO or work centre that are run by any other RO of the National Trust. Reimbursement If an RO designs and prints a new brochure, it can claim for the expenses, on the condition that In the brochure, the RO has to mention special credits to the National Trust for the brochure and other supports that are provided. Reimbursement would be provided only if the brochure has been designed and printed in the current Financial Year. Brochure expenses will be refunded if RO has participated in at least one event that is sponsored by the National Trust in that particular financial year. The amount has to be reimbursed only once in any financial year. RO can submit the request for reimbursement anytime within the financial year or two months from the end of the respective year. Eligibility Criteria There are certain eligibility standards that have to be met by both work centres and RO to avail the benefits of the scheme. Work Centres Products and services of work centres where at least 51% of the employees are PwDs. PwDs employed in the work centre has to be above 14 years. Work centres have to be run by RO of the National Trust. Registered Organization The applicant has to be registered with the National Trust. RO has to have a minimum of two years of experience with the PwD and one year experience in any one of the four disabilities as per the National Trust Act. RO must not be blacklisted by the National Trust of any other Government Organization on the date of submission of the scheme enrolment form. RO must be registered under the PwD Act on the date of submission of the scheme enrolment form. Documents Required These are the required documents that have to be possessed by an RO to enrol for this scheme. Valid registration certificate as per the National Trust Act Declaration by the RO detailing the work Declaration by the RO Registration proof/certificate Enrolment Process Step 1: The RO has to login to the National Trust website. Step 2: The RO has to submit an online application form with the application fee of Rs. 1000. Step 3: The Prerna application form has to be filled online, and the required documents have to the scanned and uploaded. Step 4: The application has to be submitted in the National Trust Portal. Step 5: After submitting the form, a hardcopy of the application form and the supporting documents have to be sent to the National Trust. Step 6: Once the application form is received by the National Trust, the documents would be verified. If there is any information/document missing or wrongly submitted, the RO has to resubmit it within 15 days. Step 7: The final decision on the application/proposal would be taken into consideration after completing all the required formalities and processes. Communication to RO by the National Trust would be

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Full Fledged Money Changer (FFMC)

Business / /

Authorised Money Changers/ AMCs are entities who are authorised by the Reserve Bank of India as per Section 10 of the Foreign Exchange Management Act of 1999. Accordingly, an AMC may either be a Restricted Money Changer (RMC) or a Full Fledged Money Changer (FFMC). As defined by the Act, an Authorised Person essentially means an authorised dealer, money changer, off-shore banking unit or any other individual for the time being authorised under sub-section (1) of Section 10 to involve in foreign securities or foreign exchange. A license is required by FFMCs to purchase foreign exchange from residents and non-residents visiting India and to sell foreign exchange for specifically approved purposes. Full Fledged Money Changer (FFMC) A Full Fledged Money Changer (FFMC) is an authorized entity who may purchase foreign exchange from non-residents and residents of India and sell the same for private and business travel purposes only to the people visiting abroad. As Section 10 of the Foreign Exchange Management Act, 1999 prescribes, authorized money changers are the only entities in the country that can deal in money changing activities and offer necessary foreign exchange services. For the purpose of removing the obstacles faced by foreign visitors and tourists, particular firms and hotels have also been offered the registration to deal in foreign currency notes, coins and traveller’s cheques under the directions issued by the RBI frequently. No individual is permitted to carry on or advertise that they carry on money changing business unless they own a valid money changer’s license issued by the RBI. Any individual found undertaking any sort of money changing business without a valid license is liable to be penalised under the Act. Activities of FFMCs An FFMC may enter into a franchise agreement at their convenience for the purpose of carrying on the Restricted Money Changing business which basically involves the conversion of foreign currency notes, coins or travellers’ cheques into Indian Rupees (INR). An FFMC or its franchisees may freely purchase any foreign currency notes, coins or traveller’s cheques from the residents as well as the non-residents of India. An FFMC may sell Indian Rupees (INR) to foreign tourists or visitors against International Debit Cards/ International Credit Cards and take prompt actions in order to obtain reimbursements through normal banking channels. FFMCs may choose to sell foreign exchange for the following purposes. Business Visits Private Visits Forex Pre-Paid Cards Types of FFMC License Authorised Dealer Category-I Banks (AD Category–I Banks) Authorised Dealers Category-II (ADs Category–II) Full Fledged Money Changers (FFMCs) Eligibility to obtain FFMC License The Entity that wishes to apply for a Full Fledged Money Changer License must be registered under the Companies Act of 2013. The Entity must have a minimum net-owned fund of INR 25 Lakhs in order to apply for a single-branch license and INR 50 Lakhs for a multiple-branch license. The object clause of the Memorandum must reflect the activity of money changing that is to be undertaken by the Entity. There must not be civil or criminal cases pending against the Entity with the enforcement of the Department of Revenue Intelligence. After obtaining the FFMC License, the Entity must carry out its business activity within 6 months from the date of issuance of the Forex License and should, without fail, intimate the RBI. Documents Required for FFMC License A copy of the Certificate of Incorporation of the Entity. The Memorandum and Articles of Association comprising of a provision for undertaking money changing businesses or an appropriate amendment with the same effect. A copy of the latest audited accounts of the Entity with a certificate from Statutory Auditors certifying the Net-Owned Funds as on the Date of Application for the License. Several copies of the audited Balance Sheet and, Profit and Loss Account of the Entity for the immediate three years prior to the Date of Application for the License, wherever applicable. A Confidential Report from the banker of the Applicant in a sealed manner. Information concerning the sister or associated concerns operating in the financial sector such as NBFCs. A certified copy of Board Resolution to undertake money changing business. Process of Obtaining FFMC License The process of obtaining an FFMC License is concerned with the Reserve Bank of India. A complete and detailed application for the FFMC License is submitted to the concerned regional office of the Reserve Bank of India. The Director of the applicant Entity would be reviewed under the “fit and proper” criteria by the RBI. If everything is in line with the satisfaction of the RBI, then the Full Fledged Money Changer (FFMC) License would be issued within a period or 2 to 3 months. Clearance by the Empowered Committee is a necessity and the Reserve Bank’s decision in the subject of granting approval or not would be final and binding. Note: The Entity will not be considered as eligible to obtain an FFMC License if ay case by any law-enforcing authorities is initiated or is pending against the Entity or any its Directors. Post Approval Requirements by FFMCs The following conditions are required to be upheld by the Full Fledged Money Changer (FFMC) after obtaining the license to be so. A copy of the registration under the Shops and Establishment Act or any other documentary evidence such as a rent receipt or a copy of the lease agreement must be submitted to the Regional Office directed by the Reserve Bank before the commencement of any business activity. New Full Fledged Money Changers (FFMC) must carry out their activities according to the instructions specified by the Reserve Bank often. FFMCs must, at each of its business places, display a copy of the money changing license issued by the RBI. FFMCs must have a system of Concurrent Audit of all the transactions undertaken by them. It is essential that all FFMCs submit their annual audited balance sheets to the respective Regional Office of the RBI. Records and Registers by FFMC Daily Summary and Balance book of the Foreign currency notes/ coins in form

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Procedure of converting debentures into shares

Companies Act 2013 / /

The term Conversion of Debentures into Shares denotes a process under which a Debenture Holder decides to become a Shareholder of the company by converting his/ her Debentures into Shares. Further, after becoming a Shareholder in the company, the said person will get the Right to Vote. Concept of Debentures he term “Debenture” denotes a Long Term Security having a Fixed Interest Rate, issued by a Limited Company against the Assets. In other words, Debentures denotes a Certificate Loan issued by a company at a Fixed Rate of Interest. Further, Section 2(30) of the Companies Act 2013 defines the term “Debenture” as a Debenture Stock, bond, or any other instrument issued by the company for evidencing a debt. Moreover, Section 71 of the Companies Act 2013 and Rule 18 of the Companies (Share Capital and Debenture) Rules 2020 acts as the Regulatory Framework for the Issue of Debentures. Introduction convertible debenture A convertible debenture is a kind of long-term debt which can be transformed into stock after a specific period of time. A convertible debenture is usually an unsecured bond or a loan as in there is no primary collateral interlinked to the debt. They are long-term debt securities that pay interest returns to the bondholder. A unique feature of convertible debentures is that they can be converted into stock at specified times. It gives the bondholder some security that may put down some of the risks involved with investing in unsecured debt. Usually, companies issue debt in the form of bonds or equity in the form of shares of stock in order to raise capital. Some companies may use more debt than equity to raise capital for funding operations or vice versa. A convertible debenture can be transformed into equity shares after a specific period. The option of converting debentures into equity shares lies with the holder. A convertible debenture will provide regular interest income via coupon payments and repayment of the principal amount at maturity. Concept of Equity Shares The Equity Shares are the primary source of finance for the Company. The Equity Shares give investors the right to vote, profit sharing, and claim on the assets. They are also called the Ordinary Shares in the Company. No preference is given to these shares regarding the payment of Dividend and while repayment of Capital. The Equity Shareholders are real owners of the Company. Section 43 (a) of Companies Act, 2013 talks about Equity Shares and states: With voting rights; or With the right to Dividend, as prescribed by the rules of the Act. Conditions of conversion of Debentures into equity shares As per the Rule, 18 of Companies Act, 2013, for debentures following conditions need to be met before issuing Secured Debentures. Also, it should be noted that Rule 18 is applied only on secured debentures.   The secured debentures will be only be issued by the company if the redemption date is less than or equal to 10 years. Only companies dealing in infrastructure projects, non-Banking Financial Companies, Infrastructure Debt Fund and companies permitted by central Government or Ministry or RBI can issue secured debentures for more than 10 years and less than 30 years. The debentures are secured by charge creation that has the payment value of debenture and interest in it. The creation of charge will be in name of debenture trustee The role of the trustee of the debenture and required qualification should be mentioned clearly. The Debenture Trust Deed should be per Form Sh-12 or as near to it as possible The company aspiring to create DRR will invest or deposit a sum which is approximately 15% of the debenture amount that is to be matured on 31st March of next year, before April 30th. The rule does not apply on any amount received against commercial paper issuance by the company or any other instrument of related variables that are per the notification, guidelines, or regulations issued by RBI. This rule is not applicable to the Foreign Currency Convertible bond issued as per the directions or regulations of RBI or foreign currency convertible Bonds and Ordinary Shares Scheme, 1993. Advantages of Compulsorily Convertible Debentures Security Debt- investors are encouraged to put money in CCD as it comes with the promise of conversion to equity shares at the specified time. Also, the conversion of debentures to equity shares is seen in co-relation with the performance of the company by many investors. It Implies that the company only converts the CCD to shares if it has achieved the undertaken growth. If the investors do not observe the achievement of milestone then they can either exercise the put option subject or increase the stake as agreed between parties. Discount and Pricing- thanks to the CCD issuance the need for straight away fixing the portfolio evaluation has been eliminated. As the investor’s investment is at a nascent stage of Portfolio Company, they are offered a discount to the valuation of the next round of investment on the issued CCD at the issuance time, by the company. Rate of Interest- the rate of interest paid by the company is lower than the rate of interest paid on the Non-convertible Debentures because issued CCD’s were offered at a discount price. Also with CCD comes tax benefit as at the time of Portfolio Company’s income tax computation, the interest paid to the CCD holder is deducted from income. Preferential Payment- Preferential right to payment over shareholders goes to CCD holder because of them being the form of debt and not equity as long as they are not converted into equity shares. Cap Table- if compared to the investment made by the Portfolio Company’s existing shareholders and promoters in the traditional equity shares, investment through CCD is much more lasting, as promoters and shareholders face immediate dilution on receiving the due investment whereas in the case of CCD dilution in the cap table is deferred until their conversion to equity shares. Debenture Reserve- as per the Companies Act, 2013, for secure payment to be made for Non-Convertible Debenture redemption, Debenture Redemption Reserve, appointing a trustee for Debenture, Debenture Trust Deed, etc. is put in place. However, no such conditions are needed for CCD issuance by the portfolio Company. The Foreign Direct Investment-FDI has observed a shift in the investment behavior of the investors for the past decade from equity investment to investment through the convertible instrument, for which CCDs can be given a credit

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