Your Customer Acquisition Cost (CAC) is a critical part of calculating profit. You must track, monitor, test and optimize it, constantly tweaking it as you go. If you’re looking for investors, it’s an important number they’ll all ask for. Most of today’s CAC is based on online advertising. Luckily, the digital world comes with a myriad of tools to help, providing everything from tracking to analysis.
Unfortunately, the cost of acquiring a new customer continues to go up, increasing by 60% over the last six years. It costs up to seven times less to sell to an existing customer than it does to acquire a new one, which is why so much emphasis is placed on customer retention. However, we all need to pull in new customers as well.
Calculating Your Cost of Customer Acquisition
Basic CAC Calculation:
Cost of Marketing (MTC)
÷
Number of Customers Acquired (NCA)
=
Customer Acquisition Cost (CAC)
For example…
Marketing Expenses:
Marketing & Sales Costs $4500
Wages $2500
Software $300
Outsourced Services $500
Overhead for Marketing & Sales $700
Total Marketing Expenses: $8500
Divided by the Number of Customers Acquired: 912
Equals a Customer Acquisition Cost of $9.32 per customer
How to Reduce Your Customer Acquisition Cost
There is no more effective or more budget-friendly way to acquire new customers than through online marketing. The problem is, it can quickly eat up your marketing budget if it isn’t done right. It’s critical that you either have a high level of expertise in the art of digital marketing, or hire someone who does.
That said, the following tips will help you improve your Customer Acquisition Cost, even if you’re not an expert.
1. Boost Your Conversion Rate Optimization
Optimize high-performing content and perform A/B testing to improve conversion rates for the most profitable pages on your website. For example, Basecamp saw its conversions skyrocket by 102.5% when it tweaked its landing page to include human images.
2. Implement a Retargeting Strategy
Use retargeting to promote your best-selling products or services, launch a new collection, or build brand awareness. For example, Casper used retargeting to get a 28% increase in Return on Ad Spend (ROAS), and a 40% decrease in Cost per Acquisition (CPA).
3. Create an Affiliate Program
Set up a commission structure that makes sense for your business and reward affiliates who bring you the most traffic. For example, Amazon has almost a million affiliates who drive massive traffic to Amazon’s websites, and earn hundreds of thousands of dollars. For further guidance, check out How to Start an Affiliate Program for a Canadian Business.
4. Use Marketing Automation
Use chatbots, automated personalized emails and social media campaigns to boost efficiency. For example, Birchbox subscribers receive a welcome email followed by a string of emails on beauty tips and makeup tricks.
5. Create Engaging and Meaningful Content
Factor SEO into the strategy and share your content everywhere to drive organic traffic to your company’s site. For example, River Pools and Spa earned $2 million in sales with a single blog post targeting a long-tail keyword its prospects were searching for. Ongoing keyword research is imperative, but keep the quality of the resulting content high to ensure maximum results.
Infographic compliments of GetVoIP.com via InfographicJournal.com
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Marie has an M.Sc. in Marketing and a certificate from the Ryerson Digital Media program. She's enrolled in one course or another most of the time and is always in the middle of a new business book (or three). Marie enjoys writing, traveling and volunteering at local events & trade shows.
Timely article! Most of us Canadians are just starting to feel our way through online advertising or offline for that matter. I hear the DRAGONS ask about CAC all the time!!