A lot of people believe that, in business, more customers means more success. But, it’s not that simple, and this way of thinking can sometimes be a big mistake.
Growth is essential. However, a “growth at any cost” attitude can actually hinder your long-term success. This is where customer acquisition cost (CAC) comes in. CAC is an important measure of marketing success and can give a more accurate picture of campaign effectiveness.
Here’s everything you need to know about Customer Acquisition Cost:
What’s customer acquisition cost?
CAC is, essentially, an estimate of how much it will cost you to acquire a new customer. It takes all the potential costs into account, including
- Campaign costs including social media ads or email marketing;
- Costs of salaries of sales reps, consultants, marketers, or copywriters,;
- Payment processing fees;
- Other tools, equipment, or software;
- Any other costs associated with acquiring customers.
After determining your costs as precisely as possible, you would then calculate how many new customers were gained as a result. You can do this on a daily, weekly, monthly, or annual basis, but the basic formula would be:
CAC = marketing costs in (time frame) / total number of new customers in (time frame)
Why does it matter?
Your customer acquisition cost is extremely useful, especially when it’s combined with other key performance figures like Return On Investment (ROI) or Customer Lifetime Value (LTV).
It’s so important to know what your CAC is because:
- It helps you avoid wasting valuable resources
- You know if your current marketing strategy is financially worthwhile
- You can work out which strategies are the most profitable
- It’s easier to prioritize and focus on market efforts in the right way
- You can pinpoint any current inefficiencies and make adjustments where needed
Tips for reducing your CAC
Reducing your CAC can ensure your marketing budget is well spent. It can also improve overall business success by cutting unnecessary costs and boosting profits.
If you want to do this, here are some tips for improving your Customer Acquisition Costs:
1. Know your target audience
Taking a more targeted and precise approach to marketing is one way to transform your CAC statistics. You should always know your ideal customer and make a buyer persona to match.
In your marketing efforts, you should always consider your buyer persona so you can tailor your strategy accordingly. This can streamline your efforts and ensure your money is well spent.
2. Use retargeting
Using retargeting for your ads can save your business money, as the customers you’re aiming at have already shown some interest in your brand. Because it’s a warm lead, rather than a cold one, they will be much more likely to convert.
When using social media or Google ads, try to target users that have already clicked on your ad or viewed your website. In many cases, this can lower the cost of acquiring a customer.
3. Save money with online apps
Automation is another way to save money and reduce your business’s CAC, as well as improving efficiency and accuracy, and making your company run more smoothly.
Try to avoid paying staff to perform easy or repetitive tasks, especially when there are free or cheap apps available that can do it for you.
For example, you can use Marketo to perform many marketing functions, Logo Creator to build a great logo for your online platforms, and Grammarly to proofread blog articles, social media posts, and other marketing material.
4. Boost conversion rates
Lastly, remember that growing your business isn’t just about increasing traffic. You also need to focus on getting higher conversion rates. This will boost revenue and bring down your CAC.
Some of the ways you can do this include adding testimonials and reviews to your sales pages, making it easier to sign up, strengthening your CTA copy, offering a live chat service or money-back guarantee, and using A/B testing.