What Customer Acquisition Cost means to your business
In recent years, as web-based advertising has increased, the customer acquisition cost (CAC) metric has also been growing in popularity. With the technology available today, it is possible to create highly targeted marketing campaigns and follow visitors as they progress through the sales funnel – from leads to loyal customers.
As you are probably already aware, customer acquisition cost is how much it costs to persuade a potential consumer to purchase a product or service. This article attempts to explain a little more about how CAC can be measured and what you can do to minimise it.
What does CAC mean to your business?
Both companies and investors consider CAC important. Investors can use the figure to determine the profitability of an organisation, while the companies themselves can use it to maximise the return on investment in terms of advertising. The lower the CAC, the greater the profit margins. The added value can in turn be passed on to customers and secure a more advantageous position within the market.
Calculating CAC can be achieved by adding up everything spent on customer acquisition marketing and dividing this by the number of new customers acquired in the same period; for example, if £1,000 was spent on marketing over the course of a year and 1,000 new customers were acquired, the CAC would be £1.
As with anything, there are additional considerations when using this type of metric; for example, there could potentially be some overlap from previous marketing campaigns. Although it is important to draw the line somewhere, it is a good idea to keep this in mind when evaluating figures; in some cases, using more than one metric might be useful to increase the reliability of the results.
CAC per channel
Ideally, you will want to work out the CAC for each individual marketing channel in use. This information will enable you to gain a picture of which channels are working well and which need more attention. In some cases, it will be your cue to invest varying amounts into different channels. To ensure the CAC information you gather is reliable, try using tools to trace customer source, from Google to email or SEO.
Improving your CAC
No matter whether you are running a tiny local business or are the top marketing boss at Apple, there is always room to improve, whether this is customer loyalty, the effectiveness of any one campaign, or CAC.
CAC can be improved in a variety of different ways, including:
– On-site conversion. Improve landing pages, checkout systems, mobile optimisation and other aspects of your website to enhance performance overall.
– User value. Improve existing products, respond to customer recommendations and add new products to increase levels of customer satisfaction.
– Customer relationship management (CRM). Encourage repeat buying behaviour by looking after customers both during the buying process and afterwards; for example, utilise techniques to enhance customer loyalty, such as automated emails, loyalty programmes, blogs and special offers. A first-rate customer service department that respond quickly with great service quality and recovery in the event of a service failure is also vital.