To grow your brand, you need to be bringing in new customers. Simple, right? But matters quickly get more complicated once you start considering which strategies will get you the most value. Customer acquisition can be pricey, and you don’t want to waste your precious marketing dollars on ineffectual marketing tactics.
That’s why you need to be tracking Customer Acquisition Cost (CAC). With the right strategies, you can lower your CAC to maximize revenue and increase the efficiency of your marketing initiatives.
Why is Customer Acquisition Cost Important?
Customer Acquisition Cost refers to the amount of money it takes for a business to acquire a new customer. You can find this metric by taking the amount of money spent on customer acquisition and dividing it by the number of customers gained within a specific timeframe.
Tracking CAC helps companies ensure that they are using their marketing budget efficiently. Put briefly, the more you can reduce CAC, the larger the profit. It’s important to note that what is considered a good CAC will vary depending on industry. For instance, the average CAC for travel businesses is $7, compared to $395 for software.
To see the full impact of CAC, you need to consider another metric: Customer Lifetime Value (CLV). This metric represents how much money is gained from a customer over the entire course of the brand relationship. Combining CLV and CAC gives you a more holistic view of how much you are getting back from your customer relationships. For instance, if a customer has a higher CAC but then they remain with the company for a long time and spend a lot of money during that time, then the initial cost may be worth it. The average ratio of CAC to CLV is 3:1, and higher than this is even better.
Keep in mind that acquisition costs more than retention, so efforts to reduce CAC should be paired with re-engagement campaigns for current customers. You don’t have to choose one or the other; customer acquisition and retention should be working together.
How Do Economic Downturns Affect Business?
This is a particularly important time to think about CAC given the 2022 global economic downturn fueled by the continuing effects of COVID-19 and the war in Ukraine. Global growth is projected to drop to 2.9 percent in 2022, compared to 5.7 percent in 2021. If inflation remains high, we can expect to see a marked downturn and possibly even a major financial crisis down the road.
Of course, economic recessions always affect businesses. Small businesses are usually hit the hardest since they have less money to fall back on and may struggle to get approved for loans during these times. While larger companies have more of a cushion, they are still affected. They often have to lay off employees, which leaves many people without a job and forces those remaining at the company to work extra hard. Companies of all sizes may experience declining sales, employee layoffs, and credit challenges.
And with inflation currently at record highs (it hit a 41-year high in June 2022), customer spending will go down. While customer spending overall hasn’t dropped dramatically yet, consumers are putting less money into savings and are accumulating more credit card debt. It’s only a matter of time before this takes a toll on the amount consumers can spend. As such, it’s wise for businesses to plan ahead for the probable looming recession by finding ways to stretch their marketing dollars further—and that means lowering Customer Acquisition Cost.
What’s Included in CAC?
When calculating your Customer Acquisition Cost, be sure to include money from a variety of sources, including:
- Advertising spend
- Technology
- Salaries of marketing and sales team members
- Travel costs for meeting with new customers
- Website maintenance
- Creative assets
- Inventory upkeep
- Production
- Any third-parties involved in marketing and advertising
- Equipment used by sales/marketing team members
What’s Not Included?
Some items that should not factor into your CAC include:
- Technology for team members who are not working to bring in new customers
- Payment processing fees
- Contests or giveaways
- Travel expenses for meeting with current customers
- Customer knowledge base
- Customer education programs
- Salaries for team members who manage renewals/existing customers
- Sales tax
5 Tips for Decreasing Your CAC
We’ve covered what Customer Acquisition Cost is, why it matters, and what it includes—but how can you go about lowering it? It all comes down to building the most effective marketing campaigns possible.
Here are some proven strategies to lower CAC:
Segment Customers
If you cast a wide net and target customers who aren’t an ideal fit for your company, you will end up spending more money convincing them to give your business a try. However, with audience segmentation, you group customers according to shared attributes, such as age, profession, or location. Doing so helps marketers create more targeted campaigns and drive personalization. This lowers CAC because narrower campaigns will speak to someone’s needs and identity more accurately and, therefore, will be more persuasive. You can also zero in on customers who are the perfect fit and might already be looking for a product or service like yours.
Build Exclusive Offers
One highly effective acquisition strategy is identity marketing, a technique that includes offering exclusive discounts that honor the identities of your customers. When you aim discounts at specific consumer communities, such as the military or students, you show your support and make customers feel valued. This encourages them to take advantage of the offer and generates goodwill. Offers give customers a clear reason to try your brand; for example, 58% of military members would try a new brand if given a personalized discount. Then, the positive relationship you’ve established can turn these new customers into loyal, long-term ones.
Another great benefit of exclusive offers: because members of these communities are connected by strong commonalities, they often tell other eligible people about your discount. In fact, studies show that over 90% of military members, teachers, and students would share an offer with their peers. This word-of-mouth buzz then sends eager customers your way, helping you acquire new customers without spending any additional money.
Optimize Your Website
A responsive, easy to navigate website is one of the most important investments a brand can make. You should ensure your website meets technical snuff, including site speed, technical SEO, mobile optimization, and a clear site structure. In addition, brands should create offer-specific landing pages for any customer discounts and optimize these pages for SEO. This will ensure that eligible customers can find the right offers quickly and easily.
When optimizing your website, be sure to remove buying friction. You can accomplish this by optimizing the customer experience and performing regular testing to be sure everything is working properly. Customers are happiest with a seamless in-brand experience that doesn’t involve third-parties. When dealing with offers, this means using an in-brand verification process that is instant, simple, and clear. And in a time when consumers are more protective of their personal data than ever before, you can gain customer trust by requiring verification and using a consent-based data collection model.
Research Recession Buying Habits
Whenever we collectively tighten our economic belts, consumers become more selective about what they buy and how much they are willing to pay. Consumers will focus their spending on more practical items—such as food and transportation—and will cut back on non-essentials, such as entertainment and travel. As consumers rethink their spending priorities, they often look for ways to buy the things they need for less by switching to cheaper versions or finding deals. This means a recession is the perfect time for discounting strategies, including exclusive discounts and sweepstakes, as consumers will be eager to save money.
And remember that while it’s tempting to cut back your marketing budget during an economic downturn, those are important costs that can matter greatly to your company’s bottom line. During times like these, maintaining loyalty among repeat customers keeps businesses afloat, so be sure to continue nurturing these ongoing relationships while you work on bringing new customers into the fold.
Retarget Customers Using Zero-Party Data
When customers verify for an offer, you can gather zero-party data—that is, customer data that a customer willingly provides in return for something of value. Zero-party data is privacy-friendly, high-quality, and self-attested, making it the best way for marketers to learn about their customers.
You can use zero-party data to continually retarget customers with personalized campaigns. For example, if you know which of your customers are teachers, you can target them with exclusive back-to-school deals and related content. This keeps your brand top of mind for your customer base and engages them with personalized content, which, in turn, improves retention and CLV. And the longer you keep current customers around, the less you have to spend acquiring new ones.
It Pays to Lower Your CAC
During an economic downturn like the one we are seeing now, decreasing your Customer Acquisition Cost is one of the most important things marketers can do. It will allow you to maintain a strong customer base while driving revenue.
If you want to implement customer acquisition strategies, one of the best ways to do so is with exclusive offers marketed to identity-based consumer communities. SheerID’s Verification Platform makes it possible to instantly and seamlessly verify customers for these discounts. This technique will bring new customers into your fold while encouraging word-of-mouth and boosting retention—even in a recession.
