Customer Acquisition Cost

Acquiring new leads can drain out your marketing budget if you don’t put the right strategies in action. As your business grows, it’s essential to come up with new methods to lower your customer acquisition cost. In this blog, we will help you learn how to bring down this cost. Before we get into that, let us understand what customer acquisition cost is. 

What is customer acquisition cost?

It is the amount of money you spend on acquiring a new customer. To figure out this cost, you must add all your marketing expenses and divide it by the number of customers. To figure out whether you are using the proper marketing and sales strategies, you need to keep an eye on your customer acquisition cost.

If you want to sell your products online successfully , you shall be launching different marketing campaigns like PPC, Social media and it is very important to acquire a new customer at a decent cost to sustain at the beginning.

What is considered a good customer acquisition cost?

There is no benchmark to define a good or bad customer acquisition cost (CAC). But, you can use the ratios below to know if you’re heading in the right direction.

Considering the ratio of CAC to LTV is:

  • 1:1 – It shows your expenses are equal to the revenue made.
  • <1:1 – It shows your CAC is quite higher 
  • 1:3 – It is considered a good Customer Acquisition Cost because you are spending less and earning more. 

(LTV or Lifetime value: It is the total amount of revenue you generate from a customer over their entire lifetime)

What factors affect CAC?

These are the three factors on which your customer acquisition cost depends:

  • Cost per lead- marketing costs
  • Touch costs- sales and marketing staff salary
  • Conversion rates

If you’re looking to bring down your customer acquisition cost, these are the key aspects you need to focus on:

  • Time: It is about the frequency at which you should target your customers, i.e.annually or monthly.
  • Customer type: You need to define your customer type according to their spending power. 
  • Revenue acquired: It’s vital to analyze revenue acquired to the gross margin. If you’re constantly spending more money on acquiring new customers, it means you need to rethink your strategies.

How to bring down customer acquisition costs?

Here are a few ways to acquire customers at a low cost.

Know your target audience

You must focus on using your company’s resources wisely. Start by getting a deeper understanding of your target customers. Once you know your audience better, you can engage with them more effectively by utilizing personalized content. Create buyer personas and churn out information-rich content to generate better results. 

Be precise with CAC rate calculation

To generate a positive return on investment, you should first figure out your CAC the right way. This will help you set a benchmark for your sales & marketing team. If you are running a startup, do a little research to figure out the average customer acquisition cost in your domain.

Retarget your customers

When you retarget your customers, it keeps your brand right in front of them. Retargeting is a method using which organizations try to convince visitors to reconsider their product or service. Conversion rates can improve when your customers are already aware of your product or service. This is where you can leverage the power of Google or Facebook ads.

Focus on customer retention 

As per surveys, regular customers are likely to spend 67 percent more in the third year than they did before. It means that convincing your existing customers is easier than acquiring new ones. Build strategies to target your repeat customers. Customer loyalty programs, customer education programs, and feedback loops are some of the strategies you can use here. 

Highlight your USP

When you clearly tell customers about your unique selling proposition, they start feeling motivated to use your product/service. It also makes your brand stand out from your competitors. 

Automate your marketing methods

Automation is the new way to infuse more efficiency into your marketing efforts. There are automation tools you can use to speed up your marketing operations. Besides saving time, these tools can help you save tons of money too! According to the data, the use of automation tools can boost your revenue within six to nine months.

Optimize your sales funnel

The productivity and efficiency of your sales funnel depend a lot on how well you optimize it. In the marketing context, funnel is a method using which companies guide their audience from being leads to paying customers. An intelligently-designed sales funnel can provide you with highly useful data, which in turn can be used for improving your marketing strategies. 

Wrapping it up!

Customer acquisition cost is a crucial metric every company should focus on. It can help businesses achieve a higher return on investment. The money you save can be utilized in other areas of your business. Try the above-mentioned methods and take your business to the next level!

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