How to lower your customer acquisition costWritten by hadar,
Campaign managers and media buyers on all levels constantly dance on a thin line between tight budgets and new customers acquisition.
On one side, they’d sell their souls for just a few more customers, as bringing in new people is their lifeline. On the other side, they sometimes feel that even their souls wouldn’t be able to cover all the expenses of customer acquisition. So is it possible to constantly be acquiring new customers without having to sell both kidneys, your soul, and your neighbor’s cat?
Oh very much, indeed.
Below we’ll show you a few things: how to identify key metrics, the importance of increased conversion rates, and possible issues with SEO, to name a few. Paying close attention to the guiding principles below and you’ll be able to effectively lower the overall cost of acquiring new customers.
Take out those calculators
First things first, you need to calculate the customer acquisition cost or CAC in order to assess the profitability of your sales model and efficiency of your marketing. In essence, you will be pitting CAC with the lifetime value of your customer, or LTV. The easiest way to calculate your CAC is to divide all of your marketing costs and your sales costs for a time period (let’s say 3 months) by the number of customers that you have had for that time period. On the other hand, to calculate your LTV you will need to dig a bit deeper and go into the monthly or annual income you see from those customers. That amount will then be multiplied by the margin earned from that relationship.
Image source: JimmyData
These metrics are very important for your business. A great business will have a ratio of 1 CAC : 3 LTV. In essence, great business models get three times the value from a generated customer than it took them to get that customer in the first place. Graphically, it looks something like this:
Image source: JimmyData
How to lower CAC and increase LTV, making sure that your company strives and ensures a stable workflow? Find out in the following steps.
- Increase conversion rates: Are you spending on acquiring traffic? If so, why not make sure that the traffic you get converts into your customers? Conversion usually has to do with testing and testing and more testing. This will ensure that you have factual data and know what converts and what doesn’t. In order to pull this off, you will need to run A/B testing – an approach which compares two methods in order to find the best one – we go in-depth about A/B testing here and here. Unfortunately, only around 52% of companies perform these tests for their landing pages. In order to boost conversions, make sure you get into this chosen circle by doing the work. Focus on things such as e-mail marketing, testimonials, the structure of your offer and website, copy or text of your content, call-to-actions, etc. in order to boost conversions. Test often and ensure that you are offering the best that you can for your customers.
- Consider marketing software: Marketing automation software has improved greatly over the years and it would be a shame not to try it out. Why? It actually reduces the need for human input and cuts down on time. With that, costs go down, too. On top of all of it, it can increase your lead generation, improve reports and analysis, better target e-mail campaigns, and much, much more. Just think how much of your expenses go into your employees’ salaries; now equate the time they spend on the above tasks and finally compare it with the price of marketing software and its efficiency. It’s quite clear who, or more accurately, what has the advantage.
- Referrals: Walt Disney was credited for basically giving the first definition of word-of-mouth type advertising, where a company should focus on doing things right so that their existing customers would bring in their friends and family. As mentioned earlier, acquiring new customers is costly, but once you lose a customer, the costs of getting new ones may rise even further. Having people leave your business dissatisfied can hurt you in the long run, badly. Up-selling will be the name of your game as well as cross-marketing schemes along with the maturation process, which will allow you to ensure that your customers won’t leave you dissatisfied. Creating customer support, surveys that measure satisfaction, utilizing social media and getting involved in dialogue with your customers will ensure that your customers are kept happy. Happy customers will bring in a new customer to your business. However, they will need a gentle nudge in that direction, so give them an incentive to refer other clients to your business. With this simple approach, you have managed to cut your CAC substantially.
- Buyer profiles: If you are all over the place, you won’t be sending the right messages and you won’t be targeting the right customers. Giants in the marketing world, such as Neil Patel, are championing this approach of getting your buyer profiles right so that you aren’t “shooting in the dark”. Advertising to the right audience with the right messages is a sure way of reducing your CAC.
- SEO all over the place: Buying into the idea of SEO is a long term strategy that needs little justification unless you’ve never heard of digital advertising. Though it can certainly lower your CAC in the long run by allowing you to have organic traffic flow to your website, you will need to target keywords (long-tail keywords to be more precise) to your specific audience. This will enable a nurturing relationship with your potential and existing customers. In essence, this will allow you to slowly turn cold or warm prospects into buyers and significantly reduce your CAC.
There you have it; the 5 guiding principles that will help you reduce your CAC by a significant percentage. Keep in mind that there are more ways of reducing your CAC and this list should not be considered as exhaustive. Go forth and reduce your CAC.