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Customer acquisition cost: what is it and how to reduce it

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The need to generate more revenue,The need to generate more revenue, at a lower cost, has always been present in companies, especially in those with more limitations to invest in marketing and resources, such as SMEs.

This aspect is more critical now, especially if we take into consideration the current economic downturn caused by the health crisis of the last year, and while acquiring new customers is vital for any business, doing so at any cost can be very dangerous for the profitability of the company.

Optimising this acquisition cost is essential and in order to archive this, businesses must implement technology strategies and solutions focused on improving and integrating marketing and sales processes.

In this post, we will show you the key to obtain the maximum return to your investment.

Let’s start form the very beginning!

What is the Cost to Acquire Customers?

The Cost to Acquire Customers (CAC), reveals how much is being investing to convert prospects into customers who will purchase services or products.

To calculate the CAC we must divide the total investment made in marketing and sales actions by the number of customers obtained during a given period.

CAC = total investment / number of customers acquired.

The total investment in marketing and sales only alludes to the direct expenses involved in the customer acquisition process. This includes salaries, sales commissions, tools acquisition, software, travels, advertisements, events, printed material, but we should not include any other expenses related to other areas such as development or administration.

Regarding customers we will only consider those captivated thanks to the investment made in marketing and sales. This formula will only be applied for the very first time a user buys; in successive purchases, if any specific action is used, the value of the customer will be equal to the amount of the purchase made.

To calculate the acquisition cost that our company can afford, it is important to bear in mind the average purchase value that our customers will invest.

For example:

Let’s imagine we have a flower shop, and our customers make an average spend of 30 €. In that case would not be profitable if the acquisition cost is 20 €. On the contrary, if we sell farming equipment and our customers make an average spend of 3500 €, it makes sense to invest that amount.

In short, whether we are talking about large companies, SMEs or small start-ups, the CAC is an essential metric for measuring the financial health of businesses.

If you want to know why, please keep on reading!

Reducing CAC is crucial for your business. Why?

Attract a customer turns crucial when it comes to obtain incomes and a successful brand. This is pretty easy to understand, but…

The reality in today’s scenario is that we must deal with increasingly digitized, proactive, and self-consuming prospects, which makes a major challenge to acquire new customers at a reasonable price.

CAC is therefore, one of the most important marketing metrics for companies, as it allows us to know the real value of the customer, and the most effective channels to attract them.

Once we know our cost of acquisition, it seems pretty easy to understand that a sustainable and well-balanced business model requires that our cost of acquisition is significantly lower than our ability to monetise the customer, but how do we reduce the CAC?

The key is to shorten the buying cycle. Here’s how!

How to reduce the acquisition costs?

As we said, one of the fundamental keys to make our business prosperous lies in counteracting the cost of acquiring customers by reducing the purchasing cycle. How do we achieve this? The answer lies in lead management.

An efficient management of our contacts will not only allow us to target and attract our ideal customer; it will also help us to improve retention by educating, encouraging and building confidence with the most profitable ones.

On the other hand, an effective leads management will increase the efficiency and productivity of our sales team, as we deliver to the agents, contacts ready and prone to buy, making easier the conversion process.

From the above points, we can figure out the two components required for a successful task: a close cooperation between marketing and sales departments and the use of the appropriate technological tools; this is the only way we can archive our goal: The acquisition of new customers at the lowest cost.

Wondering where to start, read on!

How to reduce the cost of acquisition by optimising the lead management

It is now clear that well-formulated lead management helps to greatly reduce the customer’s acquisition costs.

Below, we share some keys that will help you to effectively manage your leads so that you can make the most of their potential:

1#. Integrate your marketing and sales processes.

In many companies we can find how the marketing and sales teams work independently without sharing the information collected, which implies a lot of missing data.

Monitoring the selling process from its origin to the closing, will provide us information about the performance of our campaigns, optimsing this way, the investment according to the results.

To archive this, it is crucial to have real-time access to the information obtained by each team and the only way to get this, is to integrate the marketing and sales processes into the same platform.

2#. Maximize the conversion

Your web must mainly inform about your business, providing news of the services and products you offer, as well as your contact details or opinions from previous users who will help to create confidence for future consumers.

If you conduct your ads to that, the user will probably get lost while navigating among the different sections, abandoning therefore the purchasing process. The ads traffic should ideally be diverted to landing pages.

The landing pages are specially <strong as many leads as possible. Their content is useful, relevant and focused to move the user towards a purchase and requesting information.

3#. Offer immediate attention.

Immediacy turns to be crucial when it comes to manage leads, but archiving an efficient service needs more than an instant feedback; in addition, it will also have to be done through the user’s preferred channel and ensure an intelligent distribution of the leads.

Having the right technology to successfully do this, will ensure a personalised and satisfying user experience:

In case you provide a phone number for the user to directly call, it is important to inspect the call tracking to identify the origin of the call; this way you will know which ads and webpages give the best results.

Implementing Click to Call and Click to Chat buttons is another option that offers excellent results, as they provide feedback to the user in the right moment when they are really interested, increasing thus, the chances of conversion.

4#. Segment your audience

Proper segmentation will allow you to increase conversion rates, reducing this way the customer acquisition costs.

To achieve this, it is essential to track your campaigns in real time, so you can recognise who are your customers, how they come to your business, why they buy your products or why an abandonment is caused.

This info will be priceless to efficiently boost your marketing strategy as it will allow you to meet your ideal customer and focus your efforts on attracting them via specific campaigns. In addition, segmentation will improve your call centre performance, avoiding losing time and resources to deal with prospects with low buying possibilities.

5#. Lead Recycling

Unfortunately, not all the leads attracted end up buying. Some of them are simply not interested, others were not contacted at the right moment.

Applying Lead Nurturing techniques will help you to recover and deal with not converted leads in order to create new sales opportunities.

Lead recycling is, therefore, one of the best decisions you can make to improve your strategy. You made an investment for your business that subsequently impact on the cost to acquire customers or CAC, therefore recovering them will help you to reduce it.

Conclusion

Reducing the cost to Acquire customers is essential to improve the results of your marketing and sales strategies and thus generate a greater profitability.

One of the best ways to achieve this is to correctly manage your leads. In this sense, it is important to bear in mind that actions such as attending to your potential customers at the right time, directing them to the right person or measuring results in real time, will make the work of optimising your results and maximising your income more fruitful.

Webphone is a Lead Management platform that combines powerful functionalities ranging from immediate multichannel contact tools (Click to Call, video, chat, etc.) to Lead Nurturing, Call Tracking, Call Routing or analytics solutions, among others.

Help your business grow in a sustainable way! With Webphone, you have everything you need to manage and measure your communications in real time.

Interested in finding out more? Don’t hesitate, contact us! !