The concept of acquisition cost is used by businesses for assessing expenses associated with a specific action such as the purchase of a new product, the taking of a new customer, or the buyout of a rival company. Acquisition cost is often included in a company’s income statement to accurately capture the total outlay of funds in terms of resources and efforts to pick up a new asset or customer.

The acquisition cost for fixed assets includes all costs associated with the purchase of tangible items such as office furniture, machinery, equipment, and material. Such costs can include the purchase price of the asset, any sales taxes and duties applied, closing & legal fees, transportation fees, and/or installation & commissioning fees. In addition, the costs of surveying, ordering, insuring and processing may also be considered part of the acquisition cost of fixed assets.

For customer acquisition costs, businesses use the amount they’ve paid in order to persuade a customer to sign on the dotted line. Such costs include advertising, marketing, and sales commissions costs. In addition, many companies also include allowance for time & efforts invested by employees in negotiating and closing a sale, conducting market research, setting up demonstrations and exhibitions, or anything else reasonably related to the acquisition of that customer. Such costs may not be taken into account when assessing the revenue generated from a customer as they are considered to be capitalized or “sunk costs”.

Lastly, the acquisition cost for taking over of a competitor or existing business includes all costs associated with the absorption of the competitor’s business into the acquiring company’s or merger costs. This includes direct costs (such as costs of purchase of stock or assets from the acquired company) as well as indirect costs (such as costs of litigation, appraisal fees and costs incurred while working out the details of merger).

Overall, acquisition cost is an important consideration when calculating the overall cost of an asset, the expenses associated with attracting new customers, and the costs involved in a major business transaction. Knowing the total costs incurred enables businesses to have a more accurate sense of the return-on-investment of their marketing, sales, and acquisition activities across the board.