Marketers do a lot of things to bring in new customers. Depending on your audience, business, and strategy, some of these tactics work better than others. Often marketers have to experiment to find the right mix of tactics for their business.
But there’s a problem with this approach: cost. Marketers need a budget to bring in customers. Unfortunately, we’re not always able to attribute where, exactly, our budget dollars went to bring in a customer.
The bigger problem is that customer acquisition is getting more expensive. The cost to acquire a customer has gone up by 50% over the last few years.
It’s a difficult task, but it’s critical for marketers to see where they’re spending money to get the most ROI possible. The best way to increase ROI is to cut down on your customer acquisition costs, or CAC, to make more money from the same level of effort.
What is Customer Acquisition Cost (CAC)?
As a marketer, you need to measure what you’re doing. This helps you see what’s actually working and what’s a drain on company resources.
CAC is a critical KPI that helps you measure how much of a marketing investment it takes to get a new customer.
CAC is the most actionable metric you’ll ever use. This data ensures that you make enough money to cover marketing costs and invest back into the company with the excess.
It also shows that what you’re doing works. If you need to preserve your department’s budget or justify jobs to the CEO, CAC is the best metric.
CAC is powerful because it assigns dollar signs to every action you take as a marketer. You don’t have to guess what’s working because everything is laid out in front of you in big dollar signs.
CAC is easy to measure, too. You simply take the total cost of your marketing efforts and divide that by the number of customers brought in. So if you spent $100 to get 15 new clients, your CAC is a little over $6. This means you spent $6 to get each customer.
Keep in mind that CAC encompasses all of your costs. It looks at not only the cost to run ads, but your team’s salary, software fees, subscription, tools, and more.
Some businesses include overhead like rent and utilities to calculate their CAC, too. This helps you see the cost of doing business and ensure that the money coming in is greater than the money going out.
What’s important is to compare the CAC against the lifetime value (LTV) of the customer. You can improve your marketing’s effectiveness by lowering the CAC and increasing the LTV. What you’re left with after subtracting LTV from CAC is your profit.
For example, if you spent $6 on a customer who bought $100 of product, you have $94 in profit.
CAC is a simple but revolutionary metric because marketers don’t often see how much it cost to acquire individual customers. We don’t track this number because it can be complex to set up a tracking system at first.
But if you aren’t tracking it, you can’t measure it. If you aren’t measuring CAC, you have no idea whether your marketing budget is succeeding or going down the drain.
Optimize Your Customer Acquisition Costs
Marketing is all about optimization. In the case of customer acquisition, this means reducing costs while getting better results. Here’s how you can make that happen.
1. Improve your website
Your website is like your brand’s digital home. Do you have the right curb appeal or are your customers running for the hills?
Take an honest, critical eye to your website. If you don’t know how to improve it, invite a few third-party testers to check out your design and website flow. You’ll probably find something to fix with an outside opinion.
Check your CTAs to see if they’re compelling and easy to understand. Is your website responsive with mobile as its priority instead of desktop? Have you split test all of your landing pages?
If you haven’t done these things, now is the time to start. You can tackle the low-hanging fruit by sizing up your website first.
2. Implement a retention strategy
It costs five times more to attract a new customer than it does to keep existing customers. That means we can decrease marketing costs considerably by targeting existing customers first.
You’ve already paid a lot of money to acquire a customer. Don’t let them slip through your fingers. Attract previous customers’ attention back to your brand with specials, coupons, or upgrades.
Implement a customer loyalty program. A rewards app or punchcard encourages customers to come back again and again.
When people buy from you repeatedly, their LTV increases. This means you get way more profit for a lower CAC. The result is a boosted bottom line for lower acquisition costs.
3. Diversify your marketing
The best marketing is strategically diversified. It’s not enough to be everywhere online for the sake of getting a sale.
Instead, you need to diversify and spread to the channels that help you connect with your audience. Here are a few ways you can diversify marketing in both organic and paid ways.
- Content marketing and user-generated content
- Social media
- Email marketing
Remember, just because a tactic like social media is “free” doesn’t mean it won’t affect CAC. You’re still using manpower and tools to create social media, which still increase your CAC. Nothing is free if you’re paying someone to do it!
4. Get a CRM
This is the single most important tool for measuring CAC. A CRM, or customer relationship management platform, helps you see what you’re spending on marketing, where you found a customer, and how much they’ve spent during their time with you.
If you don’t have a CRM, you can’t measure CAC in an automatic, easy way. Implement this tool across sales and marketing to stay on the same page and reduce overall acquisition costs.
The Bottom Line
Businesses need customers to thrive. It’s your duty as a marketer to bring in the fresh blood that keeps your brand alive.
Get out of survival mode and thrive with good customer acquisition cost analysis. Connect with your ideal customers, decrease marketing costs, and build a healthy legacy brand by watching your costs.
Need a hand with your customer acquisition? Logical Media Group has a team of trained specialists who can help you decrease marketing costs and increase conversions. Give us a ring now to chat about your next campaign.