What is customer acquisition cost (CAC) and how do you keep it as low as possible?

What is Customer Acquisition Cost (CAC)?

Customer Acquisition Cost (CAC) is the amount your company spends to bring in a new customer. This can range from marketing and advertising costs to sales efforts and all other costs incurred to win over a customer. Simply put, CAC measures how much you invest to acquire one customer.

The formula to calculate CAC is quite simple:

CAC = (Total Marketing and Sales Costs) / Number of new customers

Example: Say you spent €5,000 on marketing and sales in a month, and you brought in 100 new customers. Your Customer Acquisition Cost would then be €50.

Why is it important to know your CAC?

Knowing your CAC is essential to determine how profitable your marketing and sales strategies are. A high CAC can hurt your profitability, while a low CAC gives you room to grow faster or invest more in other parts of your business. Moreover, it helps you assess whether your current strategies are effective or whether optimisations are needed.

The ultimate goal is to find a balance where you can attract as many customers as possible, without your costs getting out of hand. That is why it is important to keep your CAC low - but how exactly do you do that?

Optimise your marketing efforts

The first step towards lowering your Customer Acquisition Cost is to take a critical look at your marketing efforts. Many companies unnecessarily spend money on ads that do not deliver the desired returns. Here are some ways you can optimise your marketing:

• Target your audience: Make sure your marketing campaigns are aimed at the right audience. The better you know who your customer is, the more effective your campaigns will be. As a result, you will avoid unnecessary spending on people who will probably never buy your product or service.
• Use remarketing: Remarketing helps you target potential customers who have already visited your website. These people are already somewhat interested in your product or service, making them more likely to convert at a lower cost.
• Focus on organic growth: Invest in SEO and content marketing to attract organic traffic to your website. Although it takes time to get results from this, the cost per customer can be much lower than with paid advertising.

Improve your conversion rates

The more of your visitors actually become customers, the lower your Customer Acquisition Cost will be. Therefore, improving your conversion rates is another effective way to lower your CAC. Here are a few tips:

• Optimise your website: Make sure your website is easy to navigate and has a clear call-to-action. A slow or confusing website can put off potential customers.
• A/B testing: Regularly test different elements of your website and marketing campaigns. This can range from changing the colour of your buttons to rewriting your ads. A/B testing helps you discover which variants work best to convert visitors.
• Use customer reviews and testimonials: Social proof can make a big difference when convincing new customers. Get satisfied customers talking to win over potential buyers.

Increase the value of your existing customers

Another smart way to reduce your Customer Acquisition Cost is to focus on increasing the value of your existing customers. It is generally cheaper to sell to an existing customer than to bring in a new one. Here are some tactics:

• Cross-sell and upsell: Offer existing customers additional products or services that match their previous purchases. This not only increases customer value, but can also help lower your overall CAC as you generate more sales without having to acquire new customers.
• Loyalty programmes: By offering a loyalty programme, you encourage customers to come back more often and spend more. This does not directly lower your CAC, but it does increase customer lifetime value (CLV), which proportionally lowers your acquisition costs.
• Encourage word of mouth: Satisfied customers are your best ambassadors. Encourage word of mouth by offering referral programmes where customers are rewarded if they bring in new customers.

Make smart use of data

Finally, using data can help you make better decisions and keep your CAC low. Make sure you have insight into which channels bring in the most customers at the lowest cost. With tools like Google Analytics and CRM systems, you can track exactly how visitors use your website and which marketing channels are most effective. These insights allow you to allocate budgets smartly and avoid unnecessary costs.

Conclusion

Lowering your Customer Acquisition Cost is crucial for the growth and profitability of your business. By optimising your marketing strategies, improving your conversion rates and increasing the value of your existing customers, you can effectively lower your CAC.

Want to know more about how to optimise your marketing and sales processes to lower your CAC? Contact us today! We are happy to help.