Customer acquisition cost (or CAC) is a metric that has been relegated to the background in many small businesses and brands. Many small businesses don’t understand what it means and how it affects their business, not to mention how to reduce it.
CAC refers to the costs of sales and marketing that are generated from every step of acquiring a customer. When you pay for ads to give leads information online or when you take any other action in order to attract leads, online or offline, you incur costs. For some brands, these costs are far less than the monetary value of the customers they attract eventually, so they’re most likely in a good place.
For others however, the cost of acquiring customers is greater than the revenue generated from keeping those customers. Running a business this way could mean the company risks going under, or at least, not being successful, unless something is done about it. If you find yourself in this category, you want to reduce your brand’s CAC. Here are some ideas of how to do so:
Have a Clearly Defined Marketing Target Audience
Many marketers and brands waste money and time reaching out to people who have no interest in their products and services. Not understanding your target audience can drive up your CAC costs unnecessarily.
Thanks to new digital marketing methods, you can get leads information online (with their consent) and use this information to figure out the best set of leads to market your products and services to. Thanks to this, you avoid having to spend lots of money and time reaching out to people who aren’t interested and won’t help your business in the long run.
Boost Your Conversion Rates
Instead of focusing on increasing your reach and boosting traffic, why not focus on improving the chances of converting a customer that visits your business website?
Many brands spend a lot of money on creating ads and getting customers to visit their website and forget about optimizing their landing page for sales, reducing bounce rate and retargeting. A simple step like optimizing your landing page can significantly improve your conversion rate and reduce your customer acquisition cost.
Focus on Customer Retention
According to the Harvard Business Review, it is 5 to 25 times more expensive to acquire a new customer than to retain an existing one. This study shows the importance of customer retention over customer acquisition. It also gives you a good reason to focus on improving your customer satisfaction, as well as your lead and customer interaction with your brand, instead of focusing on more ways to attract leads online.
To do this, you have to find new and better ways to reduce churn and improve your customer service by creating a system that can help you respond to your customers‘ feedback quickly and efficiently. Xeno is a powerful tool meant for just that: its’ goal is to help you skyrocket your customer satisfaction levels, and thus, help you attract, convert, and keep customers all at once.
Conclusion: The Keyword is Optimization
When Dan Kennedy, renowned marketing advisor and direct response expert said, “The business that can spend the most to acquire a customer wins”, many people were confused. This quote is controversial because it seems to go against the logic that customer acquisition cost should be reduced to better improve profit.
However, what matters in spending for customer acquisition is that you optimize your spending. If you can afford to spend more to acquire more customers, your business will most likely expand, however you must ensure that you are marketing to a well-defined target audience, optimizing your marketing to boost conversion and improving your customer retention.
So, maybe the saying should be: “The brand that can optimally spend more money to acquire a customer, wins”.
