If you are a successful professional marketer, optimism is probably one of your greatest assets. You know how to dream up a new product, build a team, bring it through the various stages of development, and probably even market it. You know how to make a product you believe in, and get others to believe in it too. What may not be at the forefront of your mind, and is often overlooked by startups, is Cost of Customer Acquistion.
What is Cost of Customer Acquisition?
Cost of Customer Acquisition (or CAC) is the total amount a company must spend to acquire a new customer. This includes product development, personnel, marketing, and research. The CAC metric is fairly new in the world of web-based advertising as companies evolve in new ways of drawing potential leads to their product or service.
In the old days, it was more difficult to measure what it took in dollar and cents to attract someone to your brand. Companies would shotgun some advertising to a wide range of audiences, and not necessarily know who engaged in their efforts. Now that the web is the primary method consumers are using to research new product, marketing campaigns can be targeted and the behaviors of the customer can be tracked, thus yielding some helpful CAC data.
Why is it so important?
In short, CAC can make or break your company. Most businesses know that the acquisition of their customers will require the use of SEO, SEM, Social Marketing, direct sales, PR. The problem is, most businesses underestimate how costly these channels can be. Attracting quality leads through organic traffic is not plug and play. In fact, a company needs to strongly evaluate how much digital and human touch is required for their customers along the way.
All of these costs need to be calculated and measured against the “Lifetime Value” (LTV) of the customer. This will help determine if your company has a realistic balance of their CAC to LTV, to be sure the product is not only marketable, but profitable, and that your company understands just what it will take to get those new customers in the door.
How do I reduce CAC?
The name of the game is “conversion rates”. Your conversion rate (the percentage of people engaging your product or service and actually purchasing) is the most important metric to manage in order to reduce your CAC. The more value you are bringing to potential leads as they visit your website, the more likely they are to convert into customers.
If you can increase the amount of leads converting to customers, you will drive down your costs per customer percentage and make your product more profitable overall. Welcome to the new world of digital marketing. Quality blog content, targeted social campaigns, and email marketing that delight your leads are a must for any digital marketing strategy. These strategies are built to directly impact CAC reduction.
Still have questions on how this all works? Take a look at our free ebook below.