Acquisition Cost

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Expense of soliciting and placing new insurance business on a company’s books. It includes agent’s commissions, underwriting expenses, medical and credit report fees, and marketing support services. Because of competition, significant efforts are made by insurance companies to lower acquisition costs. Traditional captive agent companies have often turned to brokerage as additional distribution or sole distribution channels for this reason.

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The price and all fees required to obtain a property.


Example: Abel purchases property for $90,000 plus $5,000 in clos - ing costs (attorney’s fees, loan fees, appraisal costs, title insurance , and loan discount points). Abel’s acquisition cost is $95,000.

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1. The cost that a company recognizes on its books for property or equipment after adjusting for discounts, incentives, closing costs and other necessary expenditures, but before sales taxes.  

2. The cost of a business to acquire a new customer. The company recognizes costs, including marketing and incentives, to introduce new customers to the company's products and services. The customer acquisition cost is calculated by dividing total acquisition costs by total new customers over a set period of time.

Also known as "cost of acquisition."

Investopedia Says:
1. Acquisition costs recognize more realistic costs on a company’s financial statements. The acquisition cost of property and equipment recognizes any discounts or additional costs that the company will experience.

2. Customer acquisition costs are also important for companies to measure, as it aids in planning future capital allocations to things like marketing budgets and sales discounts. The company should also look at customer loyalty and whether the company will be able to retain customers easily.

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