What is Acquisition Cost or Cost of Acquisition?

Acquisition Cost (AC) is the total amount of money (all-in cost) a company or a business spends on acquiring assets, getting new clients, or overtaking a new company. It is also referred to as the cost of acquisition and most companies and investors refer to as a key business metric. It's also regarded as the total price that business records for property or equipment after accounting for discounts, closing costs and other necessary expenses.

Acquisition cost is fixed and listed before the sales tax is applied. However, companies usually sum up all the expenses like buying, transporting, installing, repairing, and maintaining the items and other related costs. All of this is generally handled by the company's accounts person, certified chartered accountants, or accounting firms.

AC is a very important accounting metric as this gives information about the customer acquisition cost (CAC), which is crucial for a business to run and make profits. CAC is nothing but how much a company spends to gain a customer or client in terms of total cost on its books. And this is calculated by dividing the total acquisition costs by the total new customers made in a set time frame. AC also gives an idea of how much profit a company earns through a customer or a fixed asset.

Here's an example to understand AC better. If a company spent $10,000 to promote its business and got around 100 customers a year, then the acquisition cost is $100 for the same year.