Table of Contents Hide
- What Is Customer Acquisition Cost?
- Calculating Customer Acquisition Cost
- How to Reduce Your Customer Acquisition Cost
- 1. Create a Cohesive and Motivated Sales Team
- 2. Targeted Advertising
- 3. A/B Testing to Reduce Content and Advertising Failures
- 4. Strategies to Encourage Customer Referrals
- 5. Grow Brand Communities
- 6. Keep an Eye Out for Better Channels and Tactics
- 7. Improve Customer Experience
- 8. Trigger a Displacement Strategy
- Learn to Improve Your Customer Acquisition Cost
Your customer base is your most important asset. You spend lots of time, money and resources to convince them to buy your products. For this asset to make you money, customers you gain must spend above the cost of converting them.
The cost of attracting new customers is the customer acquisition cost. If this cost focuses on a single customer, it is the average customer acquisition cost (CAC).
Understanding this cost can inform your decision-making. It can also help you craft effective marketing strategies. Keep reading to find out 8 secrets to awesome customer acquisition cost.
What Is Customer Acquisition Cost?
Customer acquisition cost is the cost you incur to convince a customer to buy your product. Measuring it helps you determine the effectiveness of your sales and marketing strategies.
A high CAC means you’re spending your marketing budget but converting few customers. Your acquisition strategies are not working well or don’t resonate with your audience.
Calculating this cost opens your eyes in many ways. You realize it’s time to test your marketing strategies and identify what works best for you. Not all tactics work for your business and if you figure out the best ones, you can maximize your budget.
CAC is also a key metric in qualifying customers. If you weigh it against a customer’s lifetime value (CLTV), it shows whether it’s worth keeping a customer. A low CLTV vs. CAC may mean you need to rethink your retention strategy or change your pricing model.
If your customers are leaving or the churn rate is high, you don’t want to retarget them right away. You can do a renewal analysis to establish whether to retarget these customers. With the customer acquisition cost in hand, you make a better remarketing decision.
So, how do you measure customer acquisition cost?
Calculating Customer Acquisition Cost
You calculate the average customer acquisition cost by dividing total acquisition costs by the number of new customers in a given period. New customers, in this case, include those who had never bought from you and former customers.
Acquisition costs equal marketing expenses plus the expenses incurred to fulfill orders. Costs to meet a customer’s order can consist of supply, processing, installation and so on.
- Customer acquisition cost formula or average acquisition cost= Total costs/total non-customers gained.
Here are examples of customer acquisition costs to use in your calculation:
- All promotional expenditure─ advertising, indoor displays, direct mail, email or events, etc
- Online expenses like social media marketing and website costs
- Pricing incentives like discounts, after-sales services, cost of proposals and third-party commissions
- Retailing costs
- Product fulfillment costs like supply and distribution
- Data analysis and market research costs
Using CAC is a great way to find effective ways of acquiring customers and improving revenue. It would be best to keep this cost low.
How to Reduce Your Customer Acquisition Cost
Looking for creative, effective strategies that work to reduce your customer acquisition cost? Read on to review our best secrets to a stellar CAC.
1. Create a Cohesive and Motivated Sales Team
Sales teams contribute largely to the type and quality of customers. They also influence the lifetime value of existing customers. If your team isn’t engaged in meaningful conversations with your customers, this can lead to low conversion and retention.
Building a healthy sales team is imperative for better performance. Energetic, confident and inspired teams are successful. Great leaders know how to keep their teams vibrant and inspired for peak performance.
Create a strategy that focuses on keeping your team together and motivated. Analyze performance challenges and the cause of inconsistencies across your organization. Conflict arises because of varying individual backgrounds, goals, values and arising choices.
At Petram Consulting, we know how to overcome the chaos that risks harmony in your team. We help organize teams and create strategies that make everyone feel part of your vision. By uplifting your people, we’re boosting the performance of your business.
2. Targeted Advertising
Customers come across tons of advertisements every day. Most of them don’t expect anything new, so they resorted to blocking all ads. 83% of online browsers in the US and Europe say they’d block mobile ads.
If people are blocking advertisements, you lose a chance to reach them. Show customers what they like to get results from your marketing campaigns. Fuel your marketing strategy with targeted advertising campaigns.
Targeting advertising finds the right customer, at the right place and at the right time. It leverages the user’s traits, interests and preferences to dispense relevant advertisements. High success rates make it one of the most cost-effective advertising tricks.
Targeted advertising starts by analyzing the audience. You use analytics and data sets to understand your audience’s behavior. With pixel codes, you can gather detailed audience insights on the web and social media.
3. A/B Testing to Reduce Content and Advertising Failures
Adding some changes to content acquisition strategies can result in high costs and many strategy changes. Launching marketing campaigns without knowing whether they’ll work is a massive risk.
A/B testing helps in experimenting with strategies before you invest. You can compare variations of offline or online campaigns to see which is better. That way you launch campaigns after proof of outstanding performance.
Although A/B testing doesn’t guarantee cut customer acquisition costs, it can reduce the likelihood of overspending. You only spend your budget on strategies with a higher potential. More than 70% of companies boosted sales after A/B testing their landing pages.
A/B tests help you create content that has a higher chance of converting. It’s easy to find the best working piece if you craft and compare two. It can take longer but you only post valuable content to your visitors.
You can also use A/B testing when your campaigns are performing poorly. Let’s say you have high bounce rates on your site. With A/B testing, you get to test different contents to arrive at the exact cause of bouncing visitors. You can then adjust for better interactions and make the most of your visitors.
4. Strategies to Encourage Customer Referrals
Referrals are one of the best ways to reduce your customer acquisition costs. 84% of customers say the word of mouth tips are the most trusted source of information. 67% of respondents in the same survey trust online opinions from other customers.
Referral marketing means maximizing existing customers to bring new ones. It’s a free strategy that allows you to turn loyal customers into your advocates. If you successfully maximize this strategy it can save you tons of marketing costs.
To increase chances of getting referrals, go the extra mile for your customers. Make each experience and interaction with your business exceptional or memorable. If people feel you’re dedicated to their happiness, they often want to share their experience with others.
Improving customer service can also boost acquisitions by causing referrals. Customers feel valued when you listen to them and solve their problems. If you’re agile and flexible, customers will be empathetic when you face issues.
Start a program to encourage referrals and reward your loyal advocates. Incentivizing people often makes them feel like it’s their mission to help your company. A formal referral program maximizes the power of word-of-mouth marketing.
5. Grow Brand Communities
A brand community helps improve customer acquisition and save on costly marketing strategies. A loyal community provides social proof and helps support your marketing efforts.
New customers can feel your brand is credible if you have a large group of online followers. The loyal customers in your community also help provide free marketing. Imagine the impact of content shares if you have a large online fan page.
Customers are often vocal when they form a brand community. The experiences they share act as free testimonials or recommendations. When people see these recommendations, it reduces doubts about your brand.
Brand communities are also full of ideas that you can use to improve your marketing strategy. The exchanges of views and recommendations provide a pool of information. Data can save you hours of research and help reduce your acquisition costs if you use it strategically.
6. Keep an Eye Out for Better Channels and Tactics
Average customer acquisition cost increases if you’re using many ineffective marketing channels. It’s also easy to get overwhelmed when your efforts scatter on these channels. The best way to save money is to focus efforts on the impactful channels only.
Use analytics to rate your strategies from the top to the worst-performing channel. You can’t do away with the channels which seem to attract the most customers. But for the average to the worst performing one, rethink your acquisition strategy.
Consider your audience and the channels to which they pay attention. There are many channels and there’s a chance you’ve yet to use what your audience favors. Do surveys to ask your customers the platforms they prefer.
You can avoid customer acquisition costs if you figure out your buyer’s stage in the buying cycle. A new customer might want to know how to solve a problem. Target them with educational content to help them find an answer to their problem.
Also consider your business model when looking for cost-effective marketing strategies. If you run a service business, you need different tactics from a product company. For instance, Instagram may work better than Twitter for promoting physical products.
Your goals and timeliness are also important considerations. Some tactics are free but they can cost you lots of time.
7. Improve Customer Experience
One of the top priorities for businesses is improving customer experience. Customers often buy from your company based on how you make them feel. Studies show 86% of customers pay more for a great customer experience.
Successful implementation of a customer experience strategy can result in fewer customer acquisition costs. It boosts satisfaction and reduces churn rates leading to higher revenues. In short, happier customers have a higher lifetime value.
Improving customer experience starts by analyzing the aspects that your customer interacts with. Create a customer journey map so employees can visualize how and where they can influence customer experiences.
Also, audit every department to understand their perspective about customer service. Every aspect of your business affects customer experience in one way or the other. If any department laxes, or lags, the customer ends up hurting.
Some brands spend millions doing marketing and rarely meet their customer acquisition goals. Some top brands capture customers’ hearts and minds. Attracting high-value customers isn’t about how hard you market but rather making your service please the customers.
Think about how you can add value to your service or product. Emphasize how your product or service is better and highlight the improvements it adds to customer’s lives. Make big promises and ensure you deliver them.
Also, be sure to make interactions between your brand and customers seamless. Ensure top customer service regardless of a customer’s limits like language and knowhow. Reduce hold times to make customers feel that you value their time.
8. Trigger a Displacement Strategy
The goal of a customer acquisition strategy is to get the most out of your marketing tactics. You want to attract only high-value clients. Yet not every channel will meet your expectations at the end of the day.
After weeks of customer acquisition optimization, consider a displacement strategy. Look for the channels that bring higher-value- users and result in stronger ROI. Shift your budget to the best channels with a lower customer acquisition cost.
By doing this, you will establish which channels to rely on to reach your target audience. You will also spend your money on strategies that guarantee solid results. Your customer acquisition rates will increase fast and with little marketing effort.
Learn to Improve Your Customer Acquisition Cost
A great customer acquisition cost is the key to the long-term health of your business. If it’s strong, you enjoy higher revenues from every converted customer. Use these tips to get started on improving your CAC today.
For more tips and advice on business and marketing, check out the rest of our blog.