Customer acquisition cost is essential to your company’s financial health and directs your overall marketing approach. You may increase your profit margin by benchmarking how much you spend to attract clients and optimize your marketing funnel. Reducing acquisition costs allows you to invest in improved customer experiences, which will help you retain your customers. Check this customer acquisition cost guide:
What is customer acquisition cost (CAC)?
Your company’s cost of obtaining a single client is known as the customer acquisition cost (CAC). In other words, you have to account for everything that went into putting your product into the hands of a client. If you want a successful company, you need to know how much you can expect to make from each client, which is why knowing your CAC is so critical.
Calculating the cost of acquiring a new consumer
Most companies use their client acquisition costs to gauge the effectiveness of their marketing efforts. If you are not a marketing expert, it might be challenging to figure out how much money and effort you should put into acquiring a new client.
- The simple formula
To simplify the initial CAC calculation, assume that solely marketing expenses go toward gaining a client.
Assume you spend $500 on Google Ads and receive ten clients monthly. The cost of acquiring a new client would be $50. For those who have difficulty marketing, this calculator will give you an indication of whether or not you are on the correct path.
- Consider the cost of goods sold (COGS)
The actual customer acquisition cost and your total profitability are influenced by other daily operating expenditures, such as the Cost of Goods Sold (COGS).
You are racking up expenses while you work on your items. Your cost of goods sold includes everything from purchasing raw materials to the labor required to produce your items. Alternatively, it has all the charges and expenses directly tied to your products’ creation. You don’t include marketing and sales in this calculation. To accurately determine your CAC, you must have the cost of goods sold.
- Look at the AOV
You can measure customer spending on your website or shop by tracking the average order value (AOV). Divide total revenue by the number of orders to arrive at the average order value for your company.
- Determine your gross profit or margin
The gross margin is the percentage of total sales income retained by your organization after deducting the direct expenses of manufacturing your items.
How to reduce customer acquisition cost
- Improve conversion rate optimization
Simply raising the proportion of people who take the desired action on your website is what you’re doing with conversion rate optimization (CRO). To achieve this, you must ensure that your website functions as expected when prospective clients arrive.
- Retarget Customers
Retargeting is a valuable strategy to keep your brand in front of prospective buyers. Customers often abandon unfinished tasks on websites and software. Customer dissatisfaction might be motivated by any number of factors. You may sometimes get your customers to go back and finish what they started by giving them a push in the proper direction.
- Boost customer retention
Customers who are happy with your items are more likely than new customers to spend more money on a product. In the third year of their connection with a firm, repeat customers spend 67% more on average than they did in the previous years. Existing consumers are more likely to believe in a company’s worth than new customers who have never engaged with it.
How to improve customer acquisition costs
- Aim to increase on-site conversions
You may use Google Analytics to define objectives and conduct A/B split testing with new checkout systems to decrease shopping cart abandonment and optimize the landing page, site speed, mobile optimization, and other elements to improve overall site performance.
- Improve user value
The term “user value” refers to the capacity to produce something appealing to the end-user. Consumers have shown a need for extra features and attributes like these. There are a variety of possibilities here, from enhancing an already successful product to finding new methods to earn money off of current clients. There is a link between customer happiness and retention, for instance.
Implement customer relationship management (CRM)
Almost every successful business with recurring customers uses CRM (Customer Relationship Management). You may cultivate customers’ loyalty via various strategies, including a cloud-based sales monitoring system, automated email lists, blogs, loyalty programs, and other approaches.
Any business looking to stretch its budget while also getting the most out of its resources would benefit significantly from learning how to assess its client acquisition costs. You will be better positioned to implement tactics to boost this crucial parameter by determining your new client acquisition costs.