4 Proven Ways Businesses Can Reduce Customer Acquisition Cost and Improve ROI
Last Updated: January 7, 2021
Businesses will do anything to improve their bottom line.
Operators need to keep their costs low and price their goods or services high. This will ensure a profit margin that is suitable for their company.
One variable cost associated with each sale is the customer acquisition cost. This is a cost that markers continually try to improve in hopes of increasing their ROI.
Customer acquisition cost (CAC) is the total amount companies have to pay to reach, engage, and convert a new customer successfully.
To maximize their profits, businesses must decrease their customer acquisition costs. By saving money acquiring customers, they will increase their profit margin and improve their ROI.
Successful businesses have a well-oiled marketing machine that is optimized to acquire customers at the lowest cost.
Those attempting to optimize their CAC should look at what channels are working and explore other low-cost, high-growth marketing tactics. When they have all the data available, they can double-down on the most scalable channel and calculate their CAC.
This post will look at four different tactics businesses can deploy to reach and convert new customers at a low cost.
Before we dive in, let’s define customer acquisition cost.
What is customer acquisition cost?
Customer acquisition cost is the amount of money you have to spend to reach and convert a potential customer effectively.
There are so many ways to reach a potential customer. Whether you’re running campaigns on paid channels like with a Facebook ad or driving revenue through inbound marketing, these tactics cost money.
There is a marketing cost associated with each tactic, and you need to factor that into your profit margin.
By deploying various marketing tactics on different channels, you can calculate the average cost to acquire a paying customer.
Businesses work tirelessly to reduce this over time to increase their profit margin.
Customer acquisition costs can make or break a business model. If it’s too expensive to acquire a customer, it might not make sense for the business to continue onward.
However, it’s essential to calculate your customer lifetime value as well. Customer lifetime value is how much a single customer is worth to the business. This calculation factors in the total amount of money that paying customers will spend with the business.
Let’s take a look at how a business owner can achieve optimal customer acquisition cost through various marketing efforts.
1. Retarget shoppers online and nearby
Launching digital ad campaigns on social media can be a highly effective way to target and acquire new customers at a relatively low-cost.
However, if you don’t have the right targeting parameters in place, campaigns can get costly.
Depending on what industry you’re in, you can launch top-of-funnel campaigns on Facebook, Twitter, Instagram, or LinkedIn. These campaigns are excellent ways to reach hyper-targeted prospects that you’re looking to nurture and convert into customers.
One type of effective campaign strategy is retargeting customers who are familiar with your brand and may have visited your store or website.
By adding a line of code to your website, you can retarget customers who have recently browsed your products and explored individual pages.
But what about retargeting the customers that visit your stores? Well, with beacon technology, you can do just that. By geofencing your business, you can trigger unique offerings and messages to all who are nearby.
Retargeting ads, paired with awareness ad campaigns, are a compelling mix to lure new customers and educate them on your offering.
Most ad platforms have added granular targeting levels, enabling marketers to get hyper-specific with who will see the ad. These targeting levels include geographic, demographic, and psychographic data.
Successful businesses take their targeting one step further. Marketers can leverage unique customer data and create custom audiences on ad platforms. They can add brand affinities, high-value purchase intent, and other data points to their targeting parameters.
With custom audiences, marketers can launch ad campaigns that reach existing customers or a look-alike subset of similar customers.
Since the audience seeing the ads is similar to your existing customers, the ad may resonate more with them than a broad audience. This will improve your ad quality score and lead to a higher click-through rate and lower customer acquisition cost.
By using enriched customer data in your ad targeting, you’ll reach new potential buyers interested in purchasing on digital channels.
2. Bolster your email automation
The value of a prospect opting into your email communication cannot be overstated.
Getting a prospect’s email address is only the first step. Then you have to nurture them.
There are so many ways to get a prospect’s email. You can add a form to your website or promote a landing page for email collection on social media.
If your business has a physical location, you can add a QR code in the window, at the table (if you own a restaurant), or near the checkout location. Once a customer scans the QR code, you can send them to an email capture form to input their information.
Customer email addresses are so valuable. You need to put in the effort to ensure you are proactively trying to capture as many as possible.
But what happens once you have their information?
Sophisticated companies set up automated email cadences that will be automatically triggered once a customer opts-in receives. These can be personalized by the customer’s preference, demographics, household income, and more. Companies can increase their conversions with targeted email marketing.
When someone opts into your email communication, you can send them relevant content to nudge them closer to purchase.
Email is one of the most common customer acquisition channels that marketers use today. Over 83% of marketers agree that email is an effective way to reach and convert new customers.
Email surpassed social media, online advertising, and SEO as the most selected acquisition channel.
With your prospects’ emails, you can send them multiple automated email campaigns in a specific sequence. These campaigns can include infographics, blog posts, videos, and reports designed to teach them more about your product and share insights.
However, you can’t only send an email campaign to your entire subscriber base and think everyone will convert. You need to segment your audience and ensure they are receiving personalized content that fits their use cases and needs.
You can segment your subscribers by:
Inactive vs. Engaged Prospects
If you wanted to take things one step further, you could segment based on the subscriber’s previous action.
For example, if someone opened your last email and clicked the call-to-action, you could automate your sequence to send them a targeted piece of content. This will ensure you’re providing relevant content to those who are interested in your product.
You’ll need to continuously update and test your emails to see which ones perform the best. To do this, try using A/B testing.
When conducting an A/B test, you can send a portion of your list, one message, and a different message. After, you can compare the results and update the email before sending it to the entire segment.
By sending relevant content in targeted emails, you won’t have to spend a lot of your budget upfront to convert the subscriber into a customer.
3. Build an organic community
Brands that have built a tight-knit community of customers and prospects are the ones that will stand out this year.
In 2020, a brand-led community was a competitive advantage for businesses looking to surpass their competitors.
Before we get too far, let’s define the community. Community is the facilitation of transparent communication between a brand and its customers to make customers feel a part of something bigger.
With a community, marketers can engage with customers on a more meaningful level. By doing so, customers will feel more attached to the company’s brand and be the first to purchase products when they are released.
Every brand wants to create a community but cannot be easily manufactured or replicated. That’s why they are such a powerful marketing channel for brands that have successfully mastered them.
To begin growing your community, keep these three tips in mind:
Facilitate transparent communication.
This can be an online forum, a Slack channel, or a blog with a content section allowing customers to post and engage with your team in real-time.
Open lines of communication bring customers under the fold of the business and invite them to be a part of the planning and feel a part of something greater.
Don’t focus too much on the transaction.
A community is an investment. Focus on creating close relationships with your customers. Send thank-you notes. Reach out on their birthdays. Share insights that they will find relevant. Keep a pulse on their obstacles and successes.
By doing so, you’ll tighten the bonds between you and your customers. Their loyalty will increase, which will pay off when it’s time to purchase or renew their subscription.
Provide exclusive updates and deals.
Incentivize your customers and superfans to do the selling for you. Provide them with unique updates before they’re released to the public. Give them exclusive deals as a thank you for their support and loyalty to the business.
A brand-led community will be full of loyal customers that you can remarket for you. You can also gather their feedback to direct your product roadmap and guide you in creating products that they love.
4. Publish evergreen content
Evergreen content optimized for search engines will drive new customers to your site while you focus on other aspects of your business.
Marketers can dominate search engines for specific focus keywords by writing good content. Blog posts optimized for relevant keywords will take advantage of the high volumes of search traffic pertinent to their product.
Evergreen content can be consumed at any point in time. It typically has a timeless lifespan and only needs a few updates every few months or at the year’s end.
If it ranks high on search engines, it can be invaluable for your business. Evergreen content can guide thousands of relevant leads to your site and exponentially grow your business.
SEO can be intimidating for marketers, but investing in it can lower your CAC in the long-run.
There are so many factors that contribute to whether or not your page ranks in search engines.
From keyword optimization to ensure you’re using the best content delivery network for faster page load times, there’s a lot for marketers to consider.
Marketers should perform basic on-page SEO tactics or hire a freelancer who is knowledgeable about increasing page ranks.
To capitalize on evergreen content, make sure you add lead capture forms natively embedded into your website’s content.
When customers click on your content, they’ll submit their email if they like what they’re reading. This can be a low-cost, effective way of gauging interest and getting customer information for those who can become qualified leads.
Businesses will benefit from evergreen content exponentially. An article you write this year may still drive customers to your site over the next few years.
Once you publish it, share it on your social channels or add it to your newsletter.
You’ll start acquiring new customers through your organic channels immediately without the need to add a massive budget behind it.
To sum up,
Lowering customer acquisition cost is a challenge that many businesses continue to face.
To maximize profits, marketers work feverishly to find new solutions to acquire customers at the lowest rate possible.
To accomplish that, there are many different tactics marketers can try.
Launch retargeting ads with custom audiences and current customer data.
Build an automated email program with targeted, relevant content.
Build an organic community that you can convert into passionate customers.
Publish evergreen content that ranks high on search engines for recurring traffic to your site.
With these four steps, you’ll create new channels for growth and acquire customers at a low cost.
Joanne Camarce is a digital marketing expert specializing in SEO, eCommerce, and social media. She loves meeting new people and embraces challenges. When she is not wearing her marketing hat, you will find Joanne fine-tuning her art and music skills.