9 Tips to Lower Customer Acquisition Cost (CAC)

Different types of digital marketing campaigns help businesses achieve and sustain growth by making customer acquisition an ongoing process. A business can run both organic and paid digital marketing campaigns to acquire new prospects and convert existing prospects into customers. However, no business can increase profit without controlling and reducing customer acquisition costs.

According to the Corporate Finance Institute,

“Customer acquisition cost (CAC) is the cost related to acquiring a new customer. In other words, CAC refers to the resources and costs incurred to acquire an additional customer. Customer acquisition cost is a key business metric that is commonly used alongside the customer lifetime value (LTV) metric to measure the value generated by a new customer.”

You can calculate your business’s customer acquisition cost by dividing the total cost of marketing and sales by the total number of new customers. However, you need to calculate the key business metric accurately and consider the average customer acquisition cost for your industry. In addition to measuring CAC accurately and tracking CAC regularly, you must focus on implementing tips to lower customer acquisition costs (CAC) to increase profit margin and sustain profitable growth.

9 Tips to Lower Customer Acquisition Cost (CAC) and Sustain Profitability

1) Create Detailed Buyer Personas

As research-based profiles, buyer personas make your digital marketing campaigns successful by targeting ideal or perfect customers.

According to SocialMediaToday.com,

“Buyer personas describe who your ideal customers are, what their days are like, the challenges they face, and how they make decisions.”

When you create detailed buyer personas, your marketing campaigns can customize customer acquisition strategies by targeting the buyer’s precise needs. You can even perform A/B testing to create buyer personas that replicate potential customers exactly.

2) Implement SEO Strategies

Several digital marketers have highlighted the effectiveness of search engine optimization (SEO) techniques in reducing overall CAC. Unlike other digital marketing campaigns, SEO campaigns do not require you to invest in expensive software. You can reduce CAC by implementing passive SEO strategies based on Google’s recommendations and guidelines – make the website load faster, boost the website’s user experience, create sitemaps, and write titles and meta descriptions. Likewise, you can meet customers’ precise needs by implementing active SEO strategies like publication and promotion of high-quality content.

3) Run Retargeting Campaigns

Retargeting campaigns help your business boost sales conversion by reminding prospects about your products or services after they leave your website. You can run retargeting campaigns leveraging the options provided by search engines like Google and social networks like Facebook. Unlike intent-based ads, retargeting ads are effective in acquiring customers without escalating digital marketing costs. Hence, you can reduce customer acquisition costs by running retargeting campaigns on both search engines and social media.

4) Launch Customer Referral Programs

Referral programs drive customer acquisition by making existing customers recommend your products or services to their friends, coworkers, and family. You can incentivize existing customers to recommend your products or services without incurring additional costs. As the customers already avail of your product or service, they will help your business generate warm leads without escalating CAC. However, you can make the referral programs effective in acquiring more customers only by incentivizing the existing customers by providing the appropriate incentives and rewards.

5) Boost Conversion Rate by Optimizing Landing Page

According to Hubspot.com,

“Landing pages, the least popular type of signup form, have the highest conversion rate (24%).”

You can optimize landing pages to increase conversion rate as well as decrease CAC. It is always important to compare different versions of a single landing page by performing A/B testing based on real-time website statistics to know what converts visitors into customers. The A/B testing will help you to make the landing page conversion-friendly by making small changes – including a call-to-action or changing the button color.

6) Set up Lead Nurturing Campaigns

You can set up lead nurturing campaigns to increase the number of customers and reduce CAC by building and sustaining relationships with prospects through various stages in the sales process. However, your lead nurturing strategies must focus on two important factors – dividing the leads into relevant segments and sending highly targeted and personalized content to every lead according to his current position in the sales funnel. Also, you must send various types of content to leads through multiple channels of communication to increase ROI on lead nurturing campaigns.

7) Measure and Boost Your Website’s User Experience

You cannot acquire and retain customers, in the age of mobile apps, if your website does not deliver an excellent user experience. In addition to making your website accessible on smartphones and tablets, you need to ensure that it loads in less than 2 seconds, prevents targeted security attacks, and keeps data encrypted. Likewise, you must keep the website visitors engaged by not showing popups as they access a web page. You can even include the appropriate search option to enable visitors to find the relevant product or information in seconds.

8) Remove Low-Performing Paid Ads

Most businesses increase CAC unintentionally by running low-performing ads. You can easily reduce CAC by measuring the performance of paid ads and removing low-performing ads regularly. You can easily evaluate and compare the performance of pay-per-click (PPC) ads using a variety of marketing metrics – conversion rate, click-through rate, and cost of conversion. There are a slew of tools that help you to measure and compare the performance of PPC ads in minutes based on the latest data and statistics collected from real-time sources.

9) Focus on Increasing Customer Lifetime Value

Leading e-commerce companies reduce CAC by increasing customer lifetime value (CLV) consistently.

According to Shopify.in,

“The lifetime value of a customer, or customer lifetime value (CLV), represents the total amount of money a customer is expected to spend in your business, or on your products, during their lifetime.”

E-commerce companies increase CLV in a variety of ways – offering related products at discounted prices during checkout, introducing new products to customers by offering them as free gifts, and making customers accumulate rewards and loyalty points by buying additional products.

You can achieve and sustain profitable business growth only by monitoring and reducing customer acquisition costs. You need to implement a slew of strategies to curtail CAC, increase the conversion rate, and boost CLV. But you can get a higher marketing return on investment only by adopting new tips to lower customer acquisition costs (CAC) regularly.

This article was republished in March 2024.

Most businesses these days drive lead generation and lead conversion by running multiple digital marketing campaigns. Digital marketing campaigns like social media ads and pay-per-click ads help enterprises to generate more leads in the short run by increasing traffic to their websites. At the same time, a business can generate more leads and increase conversion rate in the long run by running search engine optimization (SEO) and content marketing campaigns.

According to Amazon Advertising,

“Marketing metrics are a quantifiable way to track performance and are an important marketing measurement tool for gauging a campaign’s effectiveness.

The most appropriate marketing metrics vary greatly from one campaign to the next, but in general, they measure the effects of your campaign on audience actions.”

The CEOs need to measure the performance of every digital marketing campaign as well as assess the impact of the campaign on preset business goals. They need to measure the performance of short-term and long-term marketing campaigns using different metrics. At the same time, they must use the right marketing metrics for CEOs to understand how a specific marketing campaign performs and what measures must be taken to boost the performance of the marketing campaign.

Identifying 9 of the Crucial Marketing Metrics for CEOs

1) Marketing Originated Customer Percentage

Every customer acquired by a business is not influenced by digital marketing campaigns. A CEO can measure the effectiveness of marketing campaigns only by knowing the percentage of customers acquired through lead-generation activities. She can measure the important metric by dividing the number of customers acquired through lead generation campaigns by the total number of customers. Some CEOs replace the number of customers with the amount of revenue to measure the contribution of marketing campaigns more accurately.

2) Conversion Rates

This marketing metric helps a CEO to understand what percentage of website visitors convert into customers. But the way conversion rate is calculated varies across businesses and industries. For instance, an e-commerce business can calculate the conversion rate in terms of the percentage of customers who place orders. On the other hand, a lead generation business will calculate the marketing metric based on the number of website visitors who place an order or make an inquiry. Hence, the conversion rate will vary across e-commerce and lead-generation businesses.

If you want to know what is conversion rate optimization and how CRO can benefit your website, please check out this blog.

3) Cost per Lead per Channel

Every business these days connect with potential customers and generate leads through multiple communication channels. That is why; CEOs need to know the average customer acquisition cost across communication channels. The metrics help CEOs to identify the digital marketing campaigns or communication channels that generate more leads than others. Also, they can identify the channels that generate warm leads. Hence, CEOs can increase marketing ROI consistently by investing more in more impactful lead-generating channels.

4) Return on Ad Spend

Unlike return on investment (ROI), return on ad spend (ROAS) does not measure the profitability or efficiency of specific investments. Instead, this marketing metric helps CEOs to know the amount of revenue earned for the amount invested in marketing. A CEO can calculate the metric simply by dividing the sales revenue by the cost per sale. She can use ROAS to figure to ensure that the marketing and advertisement expenditures incurred by the business are delivering higher ROI in terms of revenue.

5) Traffic Channel Growth

A business these days divert traffic to its website from multiple channels – direct, organic, paid, referrals, email, and social media. The number of visitors diverted to the website from a specific channel varies from time to time. CEOs need to track if the number of website visitors from each of these core channels has been increasing or declining. This marketing metric helps CEOs to identify if certain marketing campaigns need to be optimized to drive the growth of low-growth channels.

6) Marketing Percentage of Customer Acquisition Cost (M%-CAC)

This marketing metric is calculated by expressing the marketing portion of the customer acquisition cost (M-CAC) in the form of a percentage. CEOs use the metric to compare sales and marketing expenditure using the overall customer acquisition cost (CAC) as the base. M%-CAC helps CEOs to know if the business is spending more on marketing campaigns than sales activities, marketing campaigns reduce overall sales costs by generating warmer leads, and the sales team is converting leads into customers efficiently.

7) Customer Lifetime Value

Customer lifetime value (CLV) complements another important marketing metric for CEOs – customer acquisition cost. The lifetime value of individual customers differs. Also, the customer lifetime value differs across businesses and industries. But the marketing metric is calculated simply by calculating three figures – average order value, number of orders in a year, and the average retention time in a year. CEOs can sustain profitable business growth only by increasing customer lifetime value consistently. Many organizations these days increase CLV by implementing customer retention programs.

8) Website’s Search Visibility

As highlighted by several studies, the average click-through rate (CTR) declines as the position or ranking of a website decrease on search engine results pages (SERPs). As a long-term and organic digital marketing strategy, search engine optimization (SEO) helps businesses to increase conversion rates and reduce customer acquisition costs. But a CEO can measure the performance of SEO campaigns only based on the website’s search engine ranking. Most CEOs monitor the performance of the website by checking its search engine ranking regularly.

9) Perceived value

In addition to driving sales conversion, customer referral helps businesses to reduce customer acquisition costs. CEOs can use perceived value as a key marketing metric to know if existing customers will promote or recommend the business to their friends, family, and coworker spontaneously. Also, they can know what measures must be implemented to boost customer satisfaction and get more customer referrals. CEOs can easily measure perceived value based on the widely used market research value – net promoter score (NPS).

CEOs can measure and optimize the performance of a digital marketing campaign only by using the right marketing metrics. But marketing metrics for CEOs must vary across marketing campaigns. The CEO must combine the right metrics to accomplish the business goals by finetuning the short-term and long-term marketing campaigns at the right time.