What is customer acquisition cost and why is it important to your business? Customer acquisition cost, or CAC, is an important metric used by companies to determine the resources that are needed to attract new customers. In order to gain new customers and still make a profit, you need to understand CAC, how to calculate it and how to optimize your CAC. Let’s look at how to determine your CAC and then how you can optimize it for greater organizational success.
How to Calculate CAC
To start, CAC is your company’s total sales and marketing costs required to earn a new customer over a specific period of time. To calculate CAC, take the total cost of sales and marketing and divide it by the number of new customers acquired. In order to do this, you must first determine what time period you want to evaluate – this could be a year or a quarter, depending on a number of factors including the length of your sales cycle. Then, add up all your sales and marketing expenses during that time and divide it by the number of new customers you gained. The result is your CAC, or the estimated cost of acquiring a new customer.
How to Improve Your CAC
1. Utilize conversion rate optimization (CRO). CRO is the process of converting visitors to customers, ultimately increasing your conversion rate. In order to successfully increase your conversion rate and lower your CAC, it’s important that this process runs smoothly once potential customers reach your website. You can make this happen by strengthening your calls-to-action and copywriting, ensuring your website is mobile and tablet responsive, and optimizing your landing pages. If your customers are getting stuck on a landing page, try implementing A/B testing on your visuals and copy to find out what works best. Following these steps and maximizing your CRO ensures higher engagement and conversion, lowering your CAC.
2. Provide value to your customers. How can you increase customer value, create repeat customers that continue to purchase new products, recommend your brand to others and in turn lower your CAC? You need to provide them with something they value. Collecting customer feedback is invaluable in this process and can help improve your products or services. You can do this by sending following up emails or surveys, reviewing live chat transcripts or conducting customer interviews. Whether it’s a product fix, a new feature, or a promotion for future services, if you do your best to provide your customers with what they have asked for, they are more likely to continue to purchase new products and become an advocate for your brand, lowering your CAC.
3. Implement a customer referral program. Customer referrals deliver immediate value to your business. If one of your customers refers your company to someone in their network who is already interested in your products or services, they are a warm lead and will have a CAC of zero if they convert. These are essentially free customers and will lover your CAC over time. A referral program with substantial rewards can be an excellent way to incentivize your customers into participating.
4. Create automated campaigns. Using marketing automation tools and implementing lead nurture and email drip campaigns can help reduce your CAC. An example path could look like promoting a piece of gated content, such as an eBook, gathering emails, then using sending a targeted lead nurture email campaign to those who downloaded the eBook. With strong automated workflows in place, you can convert those leads into customers. This type of campaign also reduces manual processes and maintenance costs when gaining customers.