One of the biggest struggles of companies is finding new customers.
It is always a headache for marketers to acquire new leads and convert potential customers into paying customers. That’s why companies go above and beyond, keep up with trends, and try new tactics to attract customers.
Most often, these strategies become successful. As a result, the company experiences exponential growth because of the new leads. But how can we measure it?
There must be a metric to measure the success rate of these campaigns. That’s where customer acquisition costs play a significant role.
Some companies have found the balance between organically growing their business and spending money on ads. However, you don’t want to spend too much on customer acquisition alone.
Right?
If you’re worried about high customer acquisition costs, then keep reading. In this article, I’ll share 13 ways through which you can reduce customer acquisition costs.
So let’s get started.
What is Customer Acquisition Cost?
Customer Acquisition Cost (CAC) is a metric that represents the total cost incurred by a business to acquire a new customer over a specific period. This includes all the expenses associated with:
- Advertising costs
- Marketing budget
- Sales expenses
And any other efforts aimed at attracting and converting prospective customers into paying customers. CAC is a crucial metric for businesses. Why?
Because it helps them assess the efficiency and effectiveness of their marketing and sales strategies, the goal is to have less CAC in business because it can lead to improved profitability and a more sustainable customer acquisition process.
But why is lower CAC important?
Let’s understand it with an example.
- If your average customer lifetime value is less.
- CAC is higher.
In the long run, your business will burn a lot of money. Because you’re spending more money on acquiring the customer, but the revenue the customer brings in is extremely low.
So, to run a thriving business, you must know how to manage CAC. Your aim should be to keep it as low as possible.
How Do You Calculate Customer Acquisition Costs?
To reduce CAC, you should know how to calculate it with maximum precision. Knowing these will help you formulate more effective sales and marketing strategies.
To calculate it, you should divide all the costs that go into acquiring new customers by the total number of customers that you acquire. Now, let’s understand it practically with this example.
Imagine you run an e-commerce business selling high-quality electronics. To attract new customers, you invest in various marketing strategies. These can be online advertising platforms, social media ads, or email campaigns.
In short, over a year, you spend $50,000 on these marketing efforts.
Now, let’s say you acquired 1,000 new customers during that year as a direct result of these marketing campaigns. Therefore, your CAC for the year would be:
CAC = Total Marketing Expenses / Number of New Customers Acquired
CAC = $50,000 / 1,000
CAC = $50 per customer
So, your CAC is $50, which means it costs your business $50 to acquire each new customer.
But there’s another factor you should consider. It is the Average Customer Lifetime Value (LTV).
It estimates how much revenue a typical customer will generate for your business throughout their entire relationship with your company.
For your electronics business, let’s assume the average customer makes purchases totaling $200 per year. The customer continues to do so for an average of 5 years. It would result in an LTV of:
LTV = Average Annual Revenue per Customer x Average Customer Lifespan
LTV = $200 x 5
LTV = $1,000
In this case, the average customer’s LTV is $1,000 over five years.
Now, here’s where the relationship between CAC and LTV becomes critical:
If CAC is higher than LTV, you spend more on acquiring customers. In our example, if the CAC is $50 and the LTV is $1,000, your business is in good shape. Why?
Because your CAC is significantly lower than your LTV. Thus ensuring that your business is profitable in the long run.
However, if your CAC were, for instance, $1,200 per customer, it would be a problem. It would mean that you’re spending more to acquire customers than they’re expected to bring in revenue. Thus resulting in a long-term loss for your business.
So here’s two things you should consider:
- Keep your CAC less.
- CAC should be at least in line with your LTV.
But remember, CAC can go up and down. That’s why you should create a system to calculate it properly and get clarity on aspects that bring maximum ROI to the business.
13 Ways to Reduce Customer Acquisition Costs
Companies have exceptional products, customer service, and offers. But what matters the most is how much revenue your business is generating.
Customer acquisition is a highly crucial thing in this approach. Here are 13 ways through which you can reduce your customer acquisition cost.
1. Calculate CAC Correctly
You have already learned how to calculate CAC for your campaigns. You should aim for a positive ROI. But how can you do that?
By setting a target CAC.
It will provide a basis to measure your sales and marketing efforts. If you don’t know how to set CAC for your business, do competitor research.
Decide a suitable CAC which will make your business profitable.
2. Always Talk To the Right Audience
All your acquisition efforts will fail if you’re talking to the wrong audience. That’s why you must get clarity on who your ideal customer is.
Here’s what you should do.
Outline your target audience needs →. Engage with them →. Sell your products or services to them.
Once you develop a relationship of trust, you can easily sell anything to them. Nowadays, people want personalized customer experience; they don’t want copy-paste templates.
You should create unique and personalized content for your target audience. Use effective strategies such as potential buyer personas to understand your customers.
3. Use Power Of Affiliate Programs
You must have heard of affiliate programs. But do you know they can also be used for lowering customer acquisition costs?
Use the influence of affiliate partners to leave a long-lasting and positive impact on your customer base. Moreover, you can also expand your business reach through affiliate programs. There are no up-front costs while sales keep increasing.
All you need to do is pay them a percentage (commission) every time a customer purchases.
4. Enhance Your Sales Funnel
If you have a strong sales funnel, you can impact your customer’s buying journey. So, what is a funnel?
It is a complete step-by-step process through which a company converts leads to paying customers. These funnels play a great role in reducing CAC.
Content should guide prospects through the funnel, educating them about the product or service and addressing their pain points. A well-designed funnel efficiently captures leads through various marketing channels, such as:
- SEO
- Email marketing
- Paid advertising
- Social media campaigns
5. Experiment with Different Ad Copy
If one version of the ad copy does not provide the expected results. Then don’t get disappointed. Instead, make changes, try different copy, and optimize it according to your ideal customers.
How can you identify that ad copy is not getting any results?
It’s by checking click-through rates. You can find which ad is performing best and which one is not. Pause ads that are not generating any results to save your budget.
6. Leverage Marketing Automation Tools
You can use marketing automation tools to nurture leads. It can eventually lead to reducing CAC.
The best example of this is giving freebies, white papers, and guides to customers. In exchange, you can gather emails from potential customers. Now that you have emails, all you need to do is nurture them.
A strong lead nurture workflow is important in this case.
7. Create A Community
A community is the easiest way to build a business that can survive. You should build a community around your business’s values, goals, and missions.
Allow people to interact, ask questions, engage, and learn with each other in the community. Due to social media platforms, building a community is not difficult.
- B2B community: LinkedIn, X
- Consumer-centered community: Instagram, TikTok, Facebook, YouTube
8. Make Winning SEO-Friendly Content
Everyone talks about SEO, and yes, here we are talking about SEO as well. Why?
It’s because SEO can make businesses thrive in the online marketplace. Yes, it is difficult, but most people give up too soon. To reap maximum results from SEO, you must create a robust content marketing strategy.
Start by finding relevant keywords and creating valuable content according to them.
9. Use Psychology For Pricing
Pricing psychology has been used for years. It highly affects the decisions we make, whether it’s purchasing popcorn at movie theatres or Starbucks coffee. Pricing psychology is used everywhere.
But the real question is how you can use it to your advantage.
You can bring attention to high-ticket products through psychology pricing tactics known as decoy pricing. Add the product you want to sell in the middle, and add offers that are cheap or insanely expensive around it.
Not only this, you can introduce discounts, sales, and other offers.
10. Make To The Point Landing Pages
According to stats, landing pages are 123% more effective in conversions than sign-ups. What does this teach us?
It tells us that if businesses want to enjoy a high conversion rate, they must use landing pages. However, the key phrase here is “Effective” landing pages.
It means that you should give clear information to the audience.
Suppose a prospect clicks on the landing page.
Clicks on landing page → Loads quickly → Compelling headline → Scannable content → Bullet points and check boxes for readability → One bold CTA → Customer success stories
Avoid adding irrelevant words, stories, and images. Get straight to the point. In short, give them what they are looking for.
11. Find Influencers In The Industry
Influencer marketing is becoming extremely popular. People love buying products their favorite influencer is using. It makes them feel special.
According to experts, micro-influencers will play a crucial role in the growth of brands. A brand that’s been endorsed by influencers appears more authentic.
But what if you don’t have a huge budget to hire mega-celebrities?
You can hire nano influencers who have minimum reach. But the followers engage actively. However, ensure these influencers are relevant to your business industry.
If you have a cosmetics company, you should work with a beauty influencer instead of a travel influencer.
12. Monitor Retargeting Campaigns
Many marketers retarget their campaigns. But they do it only once. Do you know when?
It’s when they are setting it up.
After that, they leave it, which is a wrong practice. You should continuously optimize your campaigns based on the results you’re generating from them.
Moreover, it’s important to remove customers who have already purchased. After a week or two, you should audit your campaign.
13. Adopt Nurturing Content Strategy
You should give your target customers an offer that would make them feel as if it’s a win-win situation.
Don’t make them doubt their buying decision. Don’t let that happen for even a second.
Give a no-brainer offer + Nurturing content strategy
It makes customers connect with the brand. Your content should be engaging based on the customer journey. You should keep track of what your customers are purchasing and which items are most loved by them.
Make your content around solving the problem instead of getting money from their pocket. Repurpose relevant content across platforms your audience uses the most.
Ending Thoughts
If you want to reduce CAC, you must experiment with different approaches. There is no one-size-fits-all. A technique that works for others might not work efficiently for you.
So what should you do?
Experiment and combine different strategies to find the path to success. It can be SEO, influencer marketing, or other growth strategies. However, one thing that you should remember is that it’s important to nurture your existing customers.
Once they see value, they’ll keep coming back. You might not even need to run thousands of ads for the sake of customer acquisitions because a higher customer retention rate is an indication of a thriving business. Selling to current customers is much easier than acquiring new leads.
In a nutshell, you should provide customers with solutions to their problems. It will eventually make them fall in love with your brand.