Deferred Acquisition Cost
Deferred Acquisition Cost (DAC) represents the costs that a company incurs in acquiring new customers or renewing existing client contracts, but which can't be immediately recognized as expenses. Instead, these costs are capitalized and amortized over the life of the policy.
In the insurance industry, for example, deferred acquisition cost typically includes agent commissions, underwriting expenses, and other direct costs associated with acquiring and servicing customers. As premiums are collected from policyholders over time, a portion of these deferred costs is gradually recognized as expenses, which reduces profitability in the short term.
DAC is an important financial metric for companies operating in industries that rely heavily on customer acquisition and renewal, such as insurance, banking, and telecommunications. It can provide insights into a company's operating efficiency, growth potential, and long-term profitability.
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