What is an Acquisition Cost?

Malcolm Tatum
Malcolm Tatum

Acquisition costs refer to the overall costs of purchasing an asset. Along with the actual purchase price, the acquisition cost factors in considerations such as delivery charges, closing costs, or any expenditures that are incurred as part of the purchasing activity. Recognition of the actual cost of acquisition is a common element when individuals and businesses consider any type of purchase.

Freight costs could be included in acquisition costs.
Freight costs could be included in acquisition costs.

A good example of customer acquisition costs is found with the purchase of real estate. When an individual chooses to buy a home, the purchase price serves as the foundation for all the associated costs, but is far from the total acquisition cost. There are normally various fees that go along with securing the financing, annual interest charges associated with the mortgage, and closing costs that are paid to the realtor. If the property required professional evaluation for the wiring, plumbing or the structural integrity, those costs must also be considered of the total amount that is paid in order to complete the deal.

Advertising is another profession that is concerned with acquisition cost. Essentially, advertisers will look at the costs of marketing products and services in order to increase the number of units sold. In this application, the acquisition in question is the new customer who will hopefully become a repeat customer, continuing to purchase new goods and services from the vendor as a result of their marketing efforts. By breaking down the customer acquisition cost as it relates to earning new clients, it is possible to set budgets for marketing and advertising as well as package design and other important aspects of the sales process.

The same is true with vendors who offer ongoing subscriber services. In order to determine the cost per acquisition, all aspects of the service delivery are taken into account. For example, a telecommunications provider will normally set a monthly subscription fee that covers the cost of operating equipment to deliver the service, personnel to operate the equipment, billing costs, and every other expenditure necessary to make it possible to deliver the service. Properly evaluating subscriber acquisition costs will poise the company to earn enough profit to continue providing those services to current and future customers.

Depending on the nature of the business, other factors can also be considered part of the acquisition cost. Insurance costs, replacement of manufacturing equipment, freight costs, raw materials, and any element that goes into the creation of the good or service has to be considered when determining the true cost of acquiring new assets such as property or even new customers. While the specific elements change from one instance to the next, focusing on the acquisition or true cost is ultimately much more important than simply knowing the basic purchase price.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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