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What is Customer Acquisition Cost?


Customer Acquisation Cost

Every business should aim to have a steady number of loyal, content, and happy customers. But whether you’re caring for current ones or attracting new people, employers need to plan their ‘customer acquisition cost’.

This term is often chucked about within the marketing realm; but what does it actually mean? Well, customer acquisition is all about retaining loyal consumers and getting them to make future purchases with you. But, you may need to spend a few pounds to encourage and protect this relationship.

Let’s dive deeper into what a good customer acquisition cost looks like, why it’s important, and how to spend well without affecting your marketing budgets.

What is customer acquisition cost?

A customer acquisition cost (CAC) is a measure used to determine how much a business needs to spend in order to gain a new customer. CAC marketing has fast become a popular procedure, as employers utilise this data to make business decisions.

Businesses will invest well when it comes to targeting a specific audience or even widening the doors a little. But without a proper plan or budget, you’ll soon run out of money.

That’s where CAC comes in.

Through simple maths, you’ll be able to see how much you spend on attracting a single customer. And determine whether it’s worth continuing this way or making changes for the better.

Why are customer acquisition costs important?

The cost for customer acquisition is considered as a vital part of any business marketing procedure. It allows you to spend sufficient time and resources on marketing campaigns which truly improve one’s consumer retention rates.

Once you’ve established solid methods for attracting and retaining customers, you’ll be able to figure out how to do it better – saving you time, money, and effort in the long run.

At this point, it’ll cost you less to retain your current customers, and even less to find new ones. So, it’s all about solidifying your relationship with your consumer base. But you need to invest time in understanding your average customer acquisition cost.

Are there different types of customer acquisition costs?

Yes, there are numerous types of customer acquisition costs you may come across. These vary from marketing campaigns to individual customer preferences. But remember, you should utilise ones that truly work best for your business.

Let’s take a look at different types of customer acquisition costs:

  • Initial CAC: This is the cost for attaining a customer for the first time.
  • Renewal CAC: This is the cost for retaining a customer. (This could be done once or repeatedly over a lifespan).
  • Reactivation CAC: This is the cost for regaining a customer who may have recently left or no longer chooses to interact with the business.
  • Market CAC: This is the cost for gaining customers in a specific sector, area, or country.
  • Customer CAC: This is the cost for attracting a specific kind of customer. (This might be based on their gender, age, or professional background, or even shopping interests).
  • Product CAC: This is the cost for gaining customers for a specific product or item that a business sells.
  • End users CAC: This is the cost for attracting customers based on how many the business’s licence allows.

How to calculate customer acquisition cost

There is a simple formula used when is comes to calculating customer acquisition cost:

  • CAC = (total cost of sales and marketing) / (number of customers acquired).

Employers need to add up all the money spent on attracting new customers. This may include processes on online platforms or through phone sales. After this, they need to divide it by the number of new customers gained in a specific period (i.e., like a business quarter or annual year).

For example, a start-up business spent £500 on social media marketing in a quarterly period. During this time, they gained 50 new customers. The business has spent £10 per customer as part of their CAC process. They will need to decide if they’re happy with this progress or want to increase their efforts for the better.

How to achieve a low customer acquisition cost

There are many ways things to consider when it comes to getting a good customer acquisition cost. You may need to spend a little more to reach a wider audience. Or make cuts in order to spend a little more wisely.

Whatever the process is, it’s always best to choose a method that suits your business budget and needs. And remember, you can always amend these numbers if and when needed.

Let’s take a look at ways you can achieve a low customer acquisition cost for your business:

Boost lead conversion rates

The first step employers should take is boosting your lead conversion rates. Conversion rates are all about finding ways to convince a potential customer (or lead) into an actual one who’s interacted with your business.

A popular software which helps track this well is Google Analytics (GA). This software helps identify how often customers interact with your website. For example, clicking on certain product pages or adding things to their cart.

GA also helps check whether people interact with your business through your web pages or on mobile devices. This will help you decide which to invest more money into. Whatever the statistics show, employers can utilise the numbers to successfully convert more potential leads into long-lasting customers.

Add value to your products

The next step employers should take is adding value to their products or services. Every business will have its own way of making themselves stand out from their competitors. But the real deal-clincher is giving them a reason to choose you over others.

For example, you can add value to your products using a customer retention strategy. Offer a £10 gift card or voucher for every transaction that adds up to £100 and more. Through strategies like this, value is added to your products – along with your brand-name.

Soon, customers will see the benefits of shopping with your business; some may even start recommending your brand to others. Whatever their positive comments are, be sure to utilise these new interactions to their fullest.

Introduce a CRM system

Customer relationship management or CRM is another great method used to keep on top of your acquisition rates. This procedure helps businesses track data from new customers, see how much their spending is, and even initiate a loyalty program for you.

You can even use CRM to manage things like emailing lists and marketing campaigns. Like, dealing with promotional campaigns or seasonal emails.

Whichever methods you use, your business will soon be on its way towards retaining customers for longer periods. Not only will it strengthen your consumer relations; it’ll also help establish better relationships with newer ones.

Think about your business future

When it comes to customer acquisition costs, you need to think about the overall picture for your business – and in particular, the future.

Set aside a budget for how much you’re able to spend on CAC. Base this on your individual capabilities – don’t copy what others are doing. Think about investing in both short and long-term projects.

It’s also best to think about tracking any ‘shares’ you’ve made on social media platforms. Interactions like this will outline how wide your brand-name has spread. And shed light on what audiences you may benefit from investing in.

Is customer lifetime value the same as customer acquisition cost?

No, customer lifetime value (CLV) isn’t the same as customer acquisition cost (CAC). However, they do often go hand-in-hand.

Customer lifetime value (CLV) is the number of repeat purchases one customer has made with your business. This relates to a particular period – from their first interaction, to their last.

Both CLV and CAC are equally crucial when it comes to a business’s overall efficiency, longevity, and profitability. There are several factors to consider when it comes to CLV. For example:

  • Retention rates: This is the number of loyal customers who make repeat purchases with your business. When you concentrate on CLV, you’ll be able to increase the number of buyers without having to acquire new customers.
  • Sales value: This is when you can increase the sale of individual items through add-ons or incentives. Upselling is a sure-fire way to attract new customers – keeping them satisfied and loyal to your business.
  • Purchase frequency: This is when you consider how many times customers have interacted or bought something from your business. You can send them promotional offers or even gift cards to encourage multiple sales and purchase frequency.

Get further advice on customer acquisition costs with Love2shop

Whatever your business is, you can’t function without a steady influx of customers. And this doesn’t just mean getting new ones, it also means investing in your most loyal consumers.

Tracking customer acquisition cost can easily be utilised through offering gift cards and vouchers. At Love2shop, we offer a variety of rewards guaranteed to help boost your customer retention rates.

Whether you’re enticing new leads or rewarding loyal customers, Love2shop has the perfect gift card for you.