Customer Acquisition Cost (CAC) is the total expenditure of a business to attract new customers for its services or products, or both. Before online space and digital marketing emerged, companies used the shotgun or mass marketing approach. They came up with strategies to enable the tracking of customers via the process of decision-making. The mass marketing approach was notorious for attracting many but lower quality leads.
Presently, internet-based businesses can engage in highly targeted online campaigns and monitor the progression of customers, from mere leads to loyal customers. Therefore, the customer cost acquisition measure is valuable for companies and their investors.
Calculation of customer acquisition cost
Add all your outlay for marketing and sales to determine CAC. The sales and marketing costs may include costs of:
● Inventory management
● Sales and marketing teams
Once you have the total sales and marketing expenditure, you divide the resulting figure by the number of newly acquired customers within the period you incurred the costs. For instance, if your business spent $2,000,000 on marketing and sales per quarter and received 20,000 new customers, your customer acquisition cost would be $100.
One of the main benefits of determining customer acquisition costs is that it allows you to reveal whether your company is making a loss or a profit.
Moreover, by looking at the financial health of your business, you become familiar with the existing opportunities that can spur growth. You may need to improve your strategies for acquiring and retaining customers.
Attracting more consumers translates into more profits and lower customer acquisition costs.
On the other hand, a higher ability to keep loyal, happy customers means having an expanding customer base because of increased brand awareness by word of mouth.
Ways of reducing customer acquisition cost
In a survey published by Marketing Charts about six months ago, more than 55% of retailers feared the escalating customer acquisition costs could affect their growth and sales sooner or later.
Since customer acquisition cost is a concern and can affect your company’s profitability, understand how to minimize the cost per acquisition. Reduce the customer acquisition cost by following these tips.
- Reduce marketing expenditure
The best way to minimize your expenditure on marketing is to shift your focus to organic marketing channels. Organic or free channel advertising naturally delivers customers to your business without incurring advertising expenses.
Organic marketing does not deliver immediate results. It demands a long-term investment of your effort and time to develop and implement strategies for generating traffic and increasing awareness.
Search engine optimization: Many companies usually invest in pay-per-click (PPC) because of its effectiveness in delivering fast results. This digital advertising model buys visits or clicks on ads or sites. However, PCC is costly and can no longer benefit you when you do not have the money for campaigns.
SEO promises increasing investment returns for years and can significantly minimize the cost of getting new customers. According to Google, the ROI for organic and paid searches are five times and two times, respectively.
Use other channels for delivering organic traffic: Have an account and post high-quality, shareable business content on social media platforms like Youtube, Facebook, Twitter, Linkedin, and Instagram. Email advertising and content marketing (blog and guest posts) can also help reduce marketing costs.
- Enhance retention of customers
It will cost you five times more to get a new client than keep an existing one. An existing customer often spends more on your company from the third year than during the early two years. Thus, you need to retain your customers after acquiring them.
Strategies you can use for customer retention include:
● Have open channels for receiving and replying to feedback. Your customers’ observations regarding your services or products can help you implement necessary improvements that improve customer satisfaction.
● Increase the regularity of customer purchases. For instance, you can offer discounts and bonuses and sales and promotions.
● Establish and run innovative customer loyalty schemes. The programs encourage customers to continue shopping with you or using your products and services. Since your costumes keep returning and spending more, that is a great way to boost your profits.
● Offer continuous education to customers about your products and services.
Tracking the CAS metric is vital for improving the profitability of your business.