Customer Acquisition Cost

When mapping out your business strategy, it’s important to know how to attract new customers at a lower cost. Why? Firstly, the cost of acquiring customers directly influences the operational budget. By saving on customer acquisition cost (CAC), you’ll be able to attract more users to your product or service or allocate a bigger part of your marketing budget in other areas.

Let’s see how you can keep customer acquisition cost to a minimum.

What is CAC?

Customer acquisition cost (CAC) is basically the cost of converting a potential lead into a customer. Businesses usually use this metric to determine their profitability as it compares the amount of money spent on attracting customers against the number of customers they actually attract. CAC generally represents all the costs used in the process of acquiring a new user.

Most businesses aim to reduce acquisition costs because the less you pay for customer acquisition, the less time it takes to recover this cost of acquisition, and the sooner you have a profitable customer.

Customer​ acquisition​ cost ​(CAC) is calculated as total marketing and sales costs divided by total customers. Keep in mind, that total cost includes all marketing budgets, the salary of your sales team, and any other costs that were involved in acquiring new users.

If you’re not sure of what your marketing and sales costs are, consider the following expenses for this metric:

  • spending on advertisement 
  • costs of content creation 
  • costs of marketing automation tools
  • publishing costs
  • production costs (costs associated with creating content, for example, buying a camera, buying video editing software, etc.)

For example, let’s say your company spends $30k on sales and $50k on marketing. Additionally, your company generated 800 new customers during the last 3 months. Then the cost to acquire a customer for that period of time would be $100.

Tips to Reduce Customer Acquisition Cost

1. Define your target audience 

When it comes to customer acquisition, the target audience should be defined clearly. Creating buyer personas or utilizing the Jobs-to-Be-Done framework may help you identify who your customers really are.

Unlike a buyer persona portrait, the JTBD framework helps not only determine the target audience but also identify which goals customers ‘hire’ your product or service for. Armed with this understanding, your team may be able to acquire users more efficiently. 

2. Invest in Conversion Rate Optimization

You may spend a lot of money to drive more traffic and acquire new users but think how many of the attracted ones show up with the actual action that you want (sign up, install, purchase, etc.)? In other words, analyze the conversion rate which is the percentage of users who have completed the desired action. To calculate this metric, you need to divide the total number of users who ‘convert’ or take a specific action and divide it by the overall size of the users acquired during a certain period of time.

If you notice that your conversion rate is low (the average conversion rate across industries is around 2%), you should explore the reasons for visitors not being converted. Make sure it’s simple for them to navigate your website or app, sign up, make purchases and submissions, read your content, and contact you.

3. Add value

Once visitors land your website or app, they want to receive something valuable for them that will make their life/work processes/experience better, easier, or more meaningful. The clearer people see what value you’re able to provide, the more chances they will interact with your brand further. This may be additional feature enhancements that consumers have expressed interest in, for example, or exclusive content.

4. Watch Retention Rate

Growth comes from acquiring more customers but customer acquisition alone is not enough — you need to focus on retention rate as well.

Customer retention rate is the percentage of customers the company has retained over a given time period.

If you spend money on acquiring users but then see them stop using your app or interacting with your site after a couple of days, then you may need to focus on the retention rate. Analyze at what stage and why your visitors quit using your app or visiting the website.

5. Incentivize your most loyal customers

Firstly you need to know who your loyal customers are. They are not the ones who like all posts and videos you share on social media. These are the customers who love your company and refer your brand to their networks. These people are a source of word of mouth, the most powerful marketing tool today in terms of growth and virality. Once identified, delight devoted customers by acknowledging their loyalty and providing them unique offerings such as some freebies, promo codes, discounts, upgrade packages, etc. 

6. Utilize marketing automation

For an average business, salaries can account for about 75% of overall expenses. If converting a single customer requires, let’s say, an hour of human input, the cost that goes into this hour (the employee’s salary) may buy you up to three days of marketing efforts done through an automated marketing tool. This way, you may take advantage of automation to reducing Customer Acquisition Costs since you’re spending less. Besides, marketing automation tools improve lead generation, email targeting, customer segmentation, data analysis, etc. 

7.  Use the benefits of content creation

Content is still king. As an organic marketing effort, content marketing is the method that allows you to generate leads without spending too much money. All you need to do is create valuable high-quality content that will cater to your readers’ needs. This effort may also help you boost your organic traffic over time without any extra spend and lower customer acquisition costs. 

Final Thoughts

If you want to run a successful and profitable business, you’ll need to keep an eye on what your budget is spent on. With the right tools and strategy, acquiring new customers won’t be hard or too expensive. The key point is to acquire users in the most efficient and cheapest way.

Remember, lowering Customer Acquisition Costs won’t happen overnight — be ready to develop your own strategy and explore what fits your project or business best.

By admin

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