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How to Optimize Customer Acquisition Cost

How to Optimize Customer Acquisition Cost

When evaluating the effectiveness of your current marketing strategies, Customer Acquisition Cost or CAC is a good measure of efficacy. At the same time, it is also a vital indicator of your overall marketing success. 

With different business models, especially start-ups dominating the landscape, understanding how CAC works can help them optimize their set-ups. There is no doubt that businesses first need to spend on getting the customer before the customer ends up purchasing the business 

The lower the CAC is, the more customers will be. And eventually, it will also increase the return on investment or ROI. There is no specific standardization for measuring bad CAC or good CAC, there are several factors that drive CAC. 

Customer Acquisition Cost (CAC): Meaning and Definition

Customer Acquisition Cost or CAC refers to the total amount of money that is spent by the business leading to the actual sale. A business gains a customer only when the same does a purchase of a product or service that is being offered by the business. 

CAC is one of the key metrics that is used in assessing business performance. It is calculated by dividing the total expenditure incurred in the Sales and Marketing activities by the exact number of new customers acquired by the business. 

Everything from the salaries paid to the sales and marketing professionals to all overheads is calculated to understand the true CAC for a business. The aim of CAC for every company is to reduce it by as many percentage points as possible. In other words, the lower the CAC, the better is the business performing. 

To lower the CAC, businesses tend to look at optimizations at every stage of the sales and marketing process. Smart businesses tend to look at two other variables when it comes to measuring actual profitability- Customer Lifetime Value or CLV and the actual Payback Periods. 

How to Optimize Customer Acquisition Cost For Your Ecommerce Business 

If you want to lower your CAC, the following tactics might help you. Let’s have a look at the strategies that will help you to optimize Customer Acquisition Cost for your eCommerce business. 

Evaluate Customer Acquisition Cost Correctly

Your Customer Acquisition Cost is basically your total sales along with marketing cost divided by the total number of your new customers. It is important to start with a target CAC if you want to earn a positive Rate Of Interest. It will work as a benchmark for all your marketing and sales efforts. 

In case you are just starting your eCommerce business, you can consider the average CACs for your particular industry. While you also can invest some time in calculating a reasonable and more optimized CAC, which will enable your business to be profitable. 

Retarget Or Remarketing

Using retargeting, you will be able to bring your users back into the funnel easily. In addition to this, you will have an optimal CAC. When you are using the Google Ads platform, it is addressed as remarketing. 

To do this, you can leverage the Google Ads display networks or Facebook Ads. by combining these two channels; you can also be sure that you are reaching your audience at each step of the particular funnel. It increases the chances of their conversion as well. 

Test Your Ad Copy

One specific version of your ad copy might offer good results, but when you optimize that copy, you can make those same results better. For identifying your best-performing ads, consider the click-through rates. 

Now check how those ads differ from other ads that are not performing. Now pause those low-performing ads and create variations, which are similar in style to those specific ads that are performing.  

Improve Your Conversion Rate

Just by opting for themed ad groups, you will be able to enhance your conversion rates on the Google Ads side. Here is an example for your better understanding. Keywords that are related to “small business CRM” and “srm free trial” should be in two different ad groups. 

By adding negative keywords to your same Google Ads campaigns is another time-efficient way of improving your conversion rate. You can consider this one or two times a week. And it will also depend on the amount you are putting in your search campaigns. 

Use Marketing Automation

Using some marketing automation, for example, email drip or lead nurture could also assist you in reducing or optimizing tour CAC. A great example of this can be promoting a white paper or free trial through your particular paid media efforts. 

And after that, utilize the emails that you have acquired in lead nurture. Now consider the value, which you can provide to these same leads. They already exist in your pipeline. Strong lead nurture can push all those leads into paying customers.  

Optimize Your Funnel

Every business, or start-up needs to understand the basics of CAC. Without understanding this, you will have no idea of how your business is doing. Every business ends up building some product or the other. However, successful businesses focus on how they can build the product and sell it to the customer at the lowest possible processing cost. 

This is what helps them drive sustainability and stay in operations for longer periods. If your CAC is high, there will come a time when you will not be able to sustain your business. Leading experts point out that for Subscription SaaS businesses, CAC should ideally be recovered within 12 months. 

Others state that the LTV should be typically 3X the amount that has been spent on CAC. This ensures profitability for the business, both in the short-term and long run. If you have any other questions on CAC, LTV, or any other point mentioned in the article, let us know in the comments. We will try our best to clear as many of your doubts as possible. 

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