Customer Acquisition Cost, or CAC generally refers to sales and marketing costs that are incurred in the process of acquiring a customer. And, reducing this cost is an ongoing mission for any business that wants to survive and continue generating revenues.
Customer acquisition is an expensive process, however with proper tips you can lower your CAC.
Here are three strategic ways of cutting down your CAC costs:
1. Focus On Boosting Conversion Rates
Since you’re focusing on spending to acquire traffic, why not focus just the same on how much of that traffic is converted into paying customers?
If real estate is about location, conversion optimization is all about testing, and lots of it. So you’re relying on concrete data (as opposed to hypotheses) and that’s going to make you successful in the long run. In fact, you ideally should have a person or team whose job is to only do testing, such as A/B testing - a tool used to compare two methods so you can find the one that’s more affordable. Sadly, only 52% companies properly test their landing pages to improve conversions. Make sure you do not make this mistake.
So when you try to improve your conversions, you need to focus on the content’s copy, CTA layout, structure, testimonials, emails etc. That’s just one way to boost conversion rates. One other way is to retarget potential customers and get their attention through email marketing and other such tools.
Email marketing is considered a solid option as it has an ROI of 4300%. However, just because email marketing works for one person, does not mean it would work for you as well. The right way to increase conversion depends on a number of things, most importantly your demographic and the nature of your business. Failure to realize what works for you would result in a wastage of time and money, causing high customer acquisition cost. In order to reduce it, use your energies where the result is good.
2. Start Utilizing Marketing Automation
It’s a really good idea to start using marketing automation software now if you’re not already using it. These tools improve lead generation, analysis and reporting, email targeting and much more. And why shouldn’t it? After all, it does reduce the amount of human input required.
Let’s look at it this way: for any average business, salaries can roughly account to about 75-80% of overall expenses. Now let’s say if converting a single customer requires, say, five minutes of human input, the cost that goes into those five minutes (the employee’s salary) may buy you up to three days of marketing efforts done through an automated marketing software. This way, you will reduce the CAC since you’re spending less.
It’s important to concentrate on methods that are efficient and require automation. Bill Gates says, “The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.”
B2C marketers who take advantage of automation including everything from cart abandonment programs to birthday emails have seen conversion rates as high as 50%.
3. Cut Down Customer Churn And Use Them To Bring New Customers
“Do what you do so well that they will want to see it again and bring their friends.” Walt Disney.
Naturally, when you lose customers, you acquisition costs go up. It’s six to seven times more expensive to acquire a new customer than it is to keep a current one?
In addition to incurring heavy expenses to acquire new customers, those that have been left dissatisfied can seriously hurt a company’s reputation by sharing negative reviews. And if that happens, prospects will have little to no reason to trust you. So you’ll be paddling very hard to not stay afloat but investing heavily into marketing just to convert prospects, while trying to get them to overcome negative biases towards the business.
So at the end of the day, you do not want to lose existing customers just because you were slow to address dissatisfied customers or negative reviews and comments for that matter. Your ability to mature and better customer relationships largely depends on how good you are at cross-marketing opportunities and up-selling. And of course, you’ll need to work just as hard to maintain referral relationships.
"No business can grow without growing its pool of clients," says Jake Rheude, Director of Business Development & Marketing of Red Stag Fulfillment. "While customer retention is important, and much cheaper, it is customer acquisition that allows businesses to move ahead.”
You need to keep money aside to develop customer support mechanisms, create satisfaction surveys and most important of all, leverage social media channels to facilitate a positive dialog with customers. This is important for another reason: old customers bring new customers. And the cost of these new customers is very low. However, you will need to push your clients to bring in new clients.
This can be done by introducing special referral programs, such as: 1 month of free service for every new client you bring. The offer that you makes depends on the worth of each client. And to make sure this turns into a profitable venture, you can put caps on it. For example, a new customer must stay for at least 3 months for the referrer to be eligible for bonus.
Referrals programs get a major boost with the the help of referrals, and considering that 60% of new business comes through referrals, this investment is worth it.
Closing Thoughts
I've only scratched the surface here as these are just some of the strategies incorporated by top businesses today to reduce CAC. They are quite easy to implement and extremely beneficial in the long run. So get to work and reduce your marketing expenditure now.
