5 Ways to Reduce Customer Acquisition Costs

Customer acquisition costs (CAC) is the primary metric used to assess the profitability of your business. Countless new companies struggle to contain their CAC because they develop a marketing model that far too expensive and converts too little. There is no formula for all businesses to control these costs, but there are many ways in which you can optimize your customer acquisition strategies to increase sales and decrease CAC. Here are 5 ways you can reduce your CAC:

Invest in Referral Programs

Word of mouth is not only the most trusted form of advertisement, but it has shown to reduce CAC by 50 per cent! By capitalizing on existing customers, you stretch the initial CAC investment and create a consumer base that has a proven higher lifetime value (LTV).

Uber founder Travis Kalanick stated that 95 per cent of riders heard of Uber through existing customers, which is how they were able to grow their business. According to a study by the Wharton Business School, 83 per cent of satisfied customers are willing to refer a friend, but only 29 per cent of them actually do. By shifting resources to referral services, you may be able to efficiently generate high quality leads that will reduce your overall CAC.

Optimize Onboarding

Creating awareness for your product is a routine undertaking, but profits come from nurturing and supporting existing leads to a sale or through end-to-end marketing.

In order to get the most out of your CAC you must convert leads quickly. Even when you have completed a sale, businesses need to capitalize on customers by up-selling, cross-selling, and retaining them. Companies are exhausting far too many resources at the top of the purchasing funnel when they need to focus more on converting users already in. These solutions usually vary in efficiency and is different for businesses in each industry, so if you are serious about optimizing your onboard connections, consulting with a professional may be the best course of action.

Outsource/Automate Marketing

Hiring a staff represents the largest expense for most businesses and it may make more sense to outsource or automate tasks that can be. Tasks such as event setting, email targeting, and maintaining a contact center can be better handled by third parties, which will not only reduce your costs, but free up employees’ time.

Collaborate with Others

Collaborating with other businesses can be a vital tool in expanding both of your consumer bases. Many subscription-based services have recently taken on this model such as Spotify and Netflix. These partnerships are not only beneficial in gaining exposure, but also effective in converting more customers and maintaining a higher LTV. Think of this as having businesses creating needs and your business being right there to swoop up the customer. A Spotify customer will need a phone plan that has adequate data, so in comes Canadian wireless brand Fido.  They offer longer free trials and tacking on subscription fees to customer’s month phone bills, Spotify has gained high quality leads with little expense.

Refine Your Efforts

Italian economist Vilfredo Federico Damaso Pareto first suggested his ‘Pareto Rule.’ It states that 80 per cent of your results stem from just 20 per cent of your efforts. He saw this in the yield of his orchard, where just 20 per cent of his trees yielded him the majority of the fruit. This has been seen in varying degrees in other businesses being more or less pronounced. When it comes to customer acquisition look at detailed analytics on how certain strategies are performing and which “trees” are producing the most fruit and those worth cutting down.

Test, Deploy, Repeat

Your business must have access to metrics to measure the effectiveness of strategies. The key to truly decreasing your CAC is not just to evolve, but ensure that the changes are working. Employ A/B testing wherever possible until you reach maximum efficiency.