How to Get Your Customer Acquisition Cost Under Control

customer acquisition cost

Running a business is a little like juggling- you need to keep multiple balls in the air at the same time.

You're continually learning about better marketing tactics, boosting your profit margins, and of course, increasing sales.

While these things are hugely important, they overlook one of the most critical aspects.

No matter what industry you're in, your business model relies on acquiring customers and keeping them satisfied.

Your business may be generating plenty of revenue and sales, but if you're not focusing on your customer acquisition cost, you could be in big trouble.

Read on to learn why this metric is so important, the formulas you need to know, and how you can improve these numbers.

What is Customer Acquisition Cost?

Customer acquisition cost (CAC) usually refers to the marketing and sales costs incurred when you acquire a new customer. Reducing this cost is crucial for businesses that want to survive.

Customer acquisition is expensive, which is why it's so important to focus on lowering your CAC however you can.

The first thing you need to do is figure out your total customer acquisition cost.

Calculating Your CAC

Sure, you can find a few buyers and determine how much you spent on average to acquire them. But that's not the best strategy. Business owners tend to be optimistic, so you'll usually cherry-pick the customers that make things look the most favorable.

Instead, you should calculate the cost for all of your customers over a specific period of time (at least a few months).

You have two ways to calculate your customer acquisition cost. First, you can use your marketing costs. Simply use your ad platforms to see how much you've spent during that period of time.

While this is a quick way to get an idea of how much it costs to acquire each customer, it's not the most accurate. You need to factor in a number of other costs, including things like:

  • Software
  • Web hosting
  • Office space
  • Your time
  • Employees

This will give you the most accurate number.

If you use a program that tracks your business expenses (such as QuickBooks), you can easily calculate your CAC. By exporting a report with your total costs, you can then divide this number by the total number of customers you acquired during the same time period.

Lowering Your Customer Acquisition Cost

Once you have your total customer acquisition cost, you can compare it to acquisition costs based on your industry to see how it stacks up.

Now, it's time to look at how you can lower this number. Here are a few ways you can get control of these costs:

Increase Your Conversions

You're probably spending a lot of money acquiring traffic to your website. But how much of that traffic is actually converting into solid leads and customers?

When you're trying to improve your conversions, you need to focus on your:

  • Copy
  • Call-to-action
  • Website design
  • Keywords
  • Structure
  • Testimonials
  • Layout
  • Emails
  • Popups

The best place to begin? A/B testing. The trick to doing this successfully is to only change one thing at a time. This could be the color of your “Buy Now” box, your heading, your call-to-action, or any other aspect on your landing page.

A/B testing allows you to show your customers two different options. And, you can quickly see which changes make your conversion rates go through the roof.

Use Marketing Automation

If you're not yet using marketing automation software, now's the time to get started. These tools improve email targeting, analysis and reporting, lead generation, and much more.

Since automated marketing tools require a much smaller amount of human input, your employees can focus on tasks like product development and customer service. And since salaries usually account for a large portion of overall expenses, you can greatly reduce your customer acquisition cost.

Another key way you can automate? Through the use of AI tools. One of the most popular tools right now is the Chatbot, which can:

  • Answer questions
  • Process payments
  • Monitor customers for key insights into purchasing patterns
  • Mimic intelligent conversations
  • Help users with purchases

Answer Key Questions

Each time a customer emails or calls you with a question, you're bleeding money. And that's when they actually take the time to ask the question. Often, they'll simply give up on the sale.

Instead of answering the same questions over and over again, develop an F&Q page and display it on your website.

This should cover any customer questions, concerns, and pricing issues. If you have a technical product, this is also where you should have your support documentation.

Reduce Churn

Every time you lose a customer, your customer acquisition cost increases. In fact, it's 6-7 times more expensive for a company to acquire a new customer than it is for it to keep a current customer.

With social media and review websites continuing to increase in popularity, dissatisfied customers are becoming more costly than ever. Negative reviews can seriously damage your reputation, and make it less likely that future customers will buy from you- reducing trust in your brand.

The last thing you want to do is lose existing customers. You need to be able to develop relationships with your customers. Be sure to encourage them to refer your business to their friends and family.

This means investing in customer support, satisfaction surveys, and social media channels to ensure you have a positive dialogue with your customers. Consider developing a referral program, or a buy-one-get-one sale to attract new customers.

Increase the Value of Each Sale

Another good option is to increase how much each customer spends. This is why you're continually asked “Wanna make it a combo?” each time you eat fast food. These small upsells add up to millions of dollars in revenue.

Consider adding a more premium product or service. Even if you don't see many people choosing that product, you'll probably notice that your second-most-expensive product has an increase in conversions.

Final Thoughts

Customer acquisition cost needs to be continually on your mind if you're aiming to scale your business.

The above strategies are some of the best ways you can reduce CAC. Not only are they easy to implement, but you'll find them extremely beneficial in the long run.

If you'd like to learn more about how you can grow your business, get in touch today and let's talk.