What is Customer Acquisition Cost (CAC)?
Customer acquisition cost, also known as CAC, is the total sales and marketing cost required to acquire a new customer within a specific time period.
To turn potential customers into paying ones, businesses spend money on various things called Customer Acquisition Costs. This includes advertising, creating content, paying sales & marketing people, using sales & marketing tools, participating in events, developing a website, and many more.
To calculate customer acquisition costs, you can divide the total marketing campaign costs, including the marketing efforts, wages, and services used, by the total customers acquired.
To exemplify this formula: You spend $8,000 on advertisements and selling costs, and the salary costs amount to $6,000 in a given month.
As a result of this, you acquire 30 new customers. Therefore, on average, it costs $400 to acquire each new customer in this specific scenario.
CAC= $8,000+$6,000 ÷30= $400
That is how it’s easy!
If you are interested in another explanation of customer acquisition cost, you can check What is Customer Acquisition Cost (CAC)?.
Reasons Why Customer Acquisition Cost Is Too High?
In fact, to reduce this cost, it is a good idea first to learn why this cost is increasing. If we learn the reasons, we can also produce a solution.
I will summarize a few common reasons that may contribute to an increase in CAC:
- Increased competition for the same keywords: More businesses entering your market or when your market is getting full can make your ads on platforms like Google Ads not work as well. So, you need to spend more on ads to keep them visible.
- Changes in advertising rules: Facebook's 2018 update now prioritizes posts from friends and family over business content, meaning ads get less visibility. Apple's App Tracking Transparency asks users for permission to track them across apps, impacting ad personalization. Plus, strict privacy laws like Europe's GDPR complicate ad targeting.
- Inefficient ad strategies: If you use too many general keywords in Google Ads without filters, your ads might show irrelevant things, wasting your money and increasing costs.
- Repeated ads: If your ads look the same every time, people could start ignoring them. You would have to make new ads to get people’s attention.
- Changes in consumer preferences: More people are using platforms like TikTok now. If your ads are mostly on Facebook, you might have to spend more to adapt to this new trend.
- Slow websites: If your website takes a long time to load, especially on mobile devices, it could lower your visibility in Google search results.
- Economic factors: Due to COVID-19, many businesses moved online, and the cost of online ads increased.
- Low conversion rates due to brand trust issues: If customers can't trust your brand, like if a software company releases a buggy update, getting new customers can be harder and more expensive.
You can reduce costs by refining your strategies, focusing on the relevant audience, and enhancing your advertisements. Let’s move on to effective ways to help you cut the costs of customer acquisition.
12 Ways to Lower Customer Acquisition Cost (CAC)
In a comprehensive approach to minimize Customer Acquisition Cost (CAC), you should employ a variety of strategies. Here are 12 effective ways, starting with one of the most impactful:
1. Enhance Keyword and Audience Targeting
Instead of reaching a broad but irrelevant audience with general keywords, focus on specific, long-tail keywords that closely match your ideal customer's search intent. This can reduce CAC by increasing the relevance and effectiveness of advertising.
- Select specific, long-tail keywords that match your customer's search intent to boost ad relevance and save costs. Leverage keyword research tools like Google's Keyword Planner, Semrush, Ahrefs, or Moz to find long-tail keyword opportunities related to your product or service. Look for keywords with lower competition but reasonable search volumes.
- Watch competitor content types like blogs or videos to understand audience preferences.
- Identify where your competitors are getting their backlinks from. This can reveal potential outreach areas for you to gain more visibility and ranking.
- Use content grader tools that measure the relevance and comprehensiveness of content and can help you cover relevant topics to attract more relevant audience attention.
🌟 Content grader tools tell you how well your content matches what your audience or readers want. If you have a high content grade, it means your content is useful and relevant to your audience. Look at this example from Clearscope:
2. Stay Updated with Advertising Platform Trends and Privacy Laws
Adapting to platform changes is important to reduce CAC because advertising platforms are dynamic and have algorithms and policies that change frequently, especially in response to privacy laws and user behavior trends.
The steps to lower CAC are as follows:
- Sign up for 'Marketing Dive' to learn about marketing trends and 'Search Engine Journal' for updates on SEO and SEM. Remember to check these monthly for new information.
- Learn more about Apple’s App Tracking Transparency (ATT) on their official page and visit the GDPR.eu site to understand data privacy rules clearly.
- You can use Cookiebot to quickly analyze your website's tracking cookies and ensure you comply with privacy laws.
- You can try Quantcast, a tool that focuses on contextual ads. Start by setting up one ad campaign and compare its success with others based on user behavior.
- Start a feedback survey using Popupsmart or Typeform. To encourage more people to participate, offer a discount code once they complete the survey.
- Use Popupsmart's GDPR Cookie Consent Creator to design a cookie consent notice for your website.
- Investigate platforms like DuckDuckGo for search ads or Apple's ad network, which prioritizes user privacy.
🌟 By creating a cookie consent notice for your website with Popupsmart, you not only help you comply with privacy laws but also open a channel through which you can interact with your visitors:
3. Optimize Your Ad Creatives
Optimizing ad creatives is a key step in lowering your Customer Acquisition Cost (CAC) because it's all about making your ads as effective and engaging as possible.
Here's how you can approach this:
- Use built-in features on ad platforms (Facebook Ads Manager, Google Ads) to test images, headlines, and CTAs.
- Highlight benefits, not features; focus on how your product solves customer problems and improves their lives.
- Encourage quick purchases with deadlines by creating countdown timers with Popupsmart.
- Use dynamic ads on Facebook to personalize what each user sees.
- Refresh your ads regularly to keep them fresh and interesting.
- Use user-generated content from Instagram by using UGC tools to show real customers using your products.
- Test various calls to action to see what drives purchases.
How to find your competitor's ad creatives?
To find your competitor's ad creatives, you can use the Facebook Ad Library to see their current ads on Facebook and Instagram. Check their profiles on other social media platforms as well, as platforms like Twitter and LinkedIn also offer transparency about the ads a company runs. Additionally, third-party tools like Adbeat and SpyFu provide detailed insights.
4. Embrace New Platforms
To optimize CAC, staying updated with consumer trends is essential, especially as audiences like Gen Z shift to new platforms like TikTok. Spending a portion of your advertising budget on these growing platforms can significantly improve your marketing strategy without increasing expenses.
Here's how to proceed with this:
- Use social media analytics tools and trend reports to track where Gen Z spends their time. Platforms like Exploding Topics provide insight into emerging social media trends.
- Each platform has its own unique culture and preferred content format. Spend time on these platforms to understand what resonates with audiences. For example, platforms like BeReal encourage original, in-the-moment content, while platforms that may evolve from “X” (formerly Twitter) may focus on concise, impactful messaging.
- Partner with influencers on these new platforms. They can provide valuable insight into your target audience's likes and help you authentically promote your brand.
- Start with a small budget for paid ads or influencer collaborations on these new platforms to measure effectiveness without significant financial risk.
5. Segment Your Audience & Retarget Them
Retargeting is a powerful strategy to reduce Customer Acquisition Cost (CAC) by focusing on users who have previously interacted with your brand but didn't convert.
Here are steps to implementing an effective retargeting strategy to lower CAC with statistics:
- Use analytics to see where users spend time on your site but don't convert.
- Group users by their site activity, like cart abandoners, blog readers, and homepage bouncers, each require different messaging.
- Create ads specific to the products or pages users showed interest in.
- Utilize AI-powered tools like Madgicx or Criteo (as 88% of marketers plan to do, according to SharpSpring) to optimize your retargeting campaigns.
- Retarget across different platforms, not just one, to catch users wherever they are online.
- Given that first-time visitors only convert 2.4% of the time, according to Business Insider, provide incentives like discounts or free shipping to encourage retargeted users to make a purchase.
- Limit how often the same ad is shown to the same audience to avoid annoying potential customers.
6. Leverage Email Marketing
Email marketing is a cost-effective tool for engaging potential and existing customers, nurturing leads, and encouraging repeat business; this can significantly reduce your Customer Acquisition Cost (CAC).
According to McKinsey, email is nearly 40 times more effective in acquiring customers than Facebook and Twitter combined. Moreover, purchase rates from emails are estimated to be three times higher than those from social media, and the average order value is also 17 percent higher.
Here's how to harness email marketing:
- Start by creating popups on your website to collect visitor emails with Popupsmart. Incentivize them with exclusive content, special discounts, or free trials, and leveraging seasonal campaigns can enhance engagement even more. Here is a popup example from Popupsmart:
- Add dynamic content that changes based on the subscriber's past behavior or preferences.
- Go beyond basic demographics and segment your list based on behaviors like purchase frequency, browsing behavior, and engagement levels.
- Craft subject lines that create a sense of urgency or exclusivity, encouraging immediate opens. For example, "Hello [Name], Your exclusive discount ends at midnight!"
- Set up marketing automation triggered by specific actions, such as visiting a product page without purchasing, to re-engage potential customers with personalized content or offers.
- Beyond promotions, include content that provides value, such as tips related to your product or industry insights, to keep subscribers engaged and foster loyalty.
7. Enhance Landing Page Performance
A well-optimized landing page that converts more visitors into customers means you're getting more value out of the same traffic volume. This conversion efficiency directly contributes to reducing CAC.
Here are the steps you can take:
- Use tools like Google PageSpeed Insights to check your page's load speed.
- Shrink images and choose the correct formats to speed up loading.
- Lower the number of external scripts and plugins.
- Activate caching to quicken the load time for returning visitors.
- Simplify your CSS and JavaScript and load key content first.
Also, looking for the best examples of landing pages can be a great idea like Ecommerce landing pages, SAAS landing pages, mobile-friendly landing pages, and Shopify landing pages.
8. Streamline the Checkout Process
A simplified checkout or sign-up process reduces the drop-off rate, optimizing the conversion rate from existing traffic. Higher conversion rates mean that each ad dollar spent results in more customers, lowering CAC.
Here's how to streamline the checkout process to lower the cost of customer acquisition:
- Only ask for essential information to make checkout quick and easy.
- Ensure the checkout works smoothly on phones and tablets.
- Offer a variety of payment methods to suit all customers.
- Allow customers to buy without creating an account.
- Add recommended product to increase upsell & cross-sell.
An example from Pipcorn’s checkout page shows they have a streamlined page with clear free shipping incentives, multiple checkout options for a quick purchase, and a section for recommended products to encourage additional sales.
They display an efficient checkout form with a clear progress indicator, a guest checkout option to reduce barriers, and minimal form fields for ease of completion.
If you need more checkout page examples, you can find them on this blog: “26 Best Checkout Pages to Enhance Shopping Experience”
9. Optimize for Voice Search
With voice search becoming increasingly popular due to the rise of AI assistants like Siri and Alexa, optimizing for voice search is an essential strategy for lowering CAC. Here's how you can optimize for voice search:
- Prepare a “Frequently Asked Questions page” answering immediately relevant questions about your product or service. A tool like Answer the Public can help you find common inquiries related to your business.
Here's an example from the FAQ section on Bruvi's website:
- Implement schema markup on your website. It's a reliable way to help search engines understand your content effectively, enhancing your chances of appearing in voice search results. Explore tools like the Technical SEO Schema Markup Generator (JSON-LD) to simplify the implementation process.
- If you operate a brick-and-mortar business, ensure your details are accurately and consistently listed on platforms like Google My Business. Consistency in your name, address, and phone number across all listings is key to improving your local voice search visibility.
10. Try Affiliate Programs
Affiliate programs effectively lower Customer Acquisition Costs (CAC) by leveraging the networks and audiences of others. In these programs, affiliates promote your products or services and receive a commission for the leads or sales they generate.
Here’s how to implement a successful affiliate program:
- Partner with individuals or businesses whose audiences align with your target market. Look for affiliates with engaged followers, a strong online presence, and a credible reputation in your industry.
- Attractive commission rates will motivate affiliates to prioritize your products. Consider what’s standard in your industry and ensure competitive rates.
- Supply your affiliates with high-quality marketing materials like banners, graphics, and product information. This makes it easier for them to promote your products effectively.
- Platforms like ShareASale, Commission Junction, and ClickBank can help you manage your affiliate program and connect with potential affiliates.
- Regularly check in with your affiliates to offer support, update them on new products or promotions, and gather feedback.
- Use affiliate tracking software to monitor clicks, conversions, and sales generated by each affiliate.
Amazon Associates is an ideal example of a successful affiliate program; it offers strong promotional tools and simplifies registration. Affiliates are rewarded with competitive commissions for promoting Amazon Associates' extensive product line:
11. Create a Referral Program
Encourage your existing customers to refer friends and family by offering them incentives. This word-of-mouth strategy can be a cost-effective way to acquire new customers, as referred customers often have a higher trust level and are more likely to convert.
Here's how to build an effective referral & loyalty program:
- Offer appealing incentives to the referrer and referred, such as product discounts, complementary goods, or upgraded services.
- The process of giving a referral should be uncomplicated. Clear instructions and user-friendly mechanisms like referral codes or special web pages are recommended.
- Regularly promote the referral program via email newsletters, social media platforms, and your website to inform your customers.
- Constantly track and evaluate your referral program's effectiveness and adjust strategies based on the findings to ensure optimal results.
Here is a great example of the Referral Program from The Body Shop:
12. Improve Customer Service and Support
Statistics show exceptional customer service can turn satisfied customers into brand advocates.
Investing in training for your support team, implementing live chat, and ensuring timely responses on social media can enhance customer satisfaction.
Happy customers are more likely to spread the word about your brand, indirectly reducing your CAC by leveraging organic growth through positive experiences.
By implementing live chat effectively, you can significantly enhance customer support and reduce CAC through positive word-of-mouth.
You can use LiveChatAI for this purpose:
The Infographic of 12 Best Customer Acquisition Cost Reduction Strategies
We prepared an infographic about how to reduce customer acquisition cost (CAC)!
You are welcome to use our infographic on your website to display these strategies.
Why Is CAC Important?
Customer acquisition cost (CAC) is a crucial metric for businesses as it quantifies the amount of money required to acquire a new customer.
The reasons why CAC is important are:
→ Financial Efficiency: CAC helps businesses evaluate the efficiency of their marketing and sales strategies. A lower CAC indicates that the company is acquiring customers more cost-effectively.
→ Profitability Analysis: Companies can assess the long-term profitability of acquiring a customer by comparing CAC to the customer's lifetime value (CLV). If CAC is significantly higher than CLV, it may indicate potential financial challenges.
→ Resource Allocation: Efficient allocation of resources is crucial for sustainable growth. Knowing CAC helps businesses allocate budgets strategically, focusing on channels and campaigns that yield the best return on investment.
→ Marketing Strategy Evaluation: CAC enables businesses to evaluate the performance of different marketing channels and campaigns. This information helps in optimizing strategies to attract customers in a cost-effective manner.
→ Scaling Operations: CAC is essential when scaling operations. It provides insights into the scalability of customer acquisition efforts and helps businesses plan for growth without compromising profitability.
→ Investor Confidence: Investors often consider CAC when assessing a company's financial health and growth potential. A reasonable CAC, especially when compared to industry benchmarks, can instill confidence among investors.
→ Competitive Benchmarking: CAC allows businesses to compare their customer acquisition efficiency with industry benchmarks and competitors. This benchmarking helps identify improvement areas and stay competitive in the market.
Before You Leave
All in all, the topic of how to reduce customer acqisition cost (CAC) is not a big deal to handle with these strategies.
As long as you are fond of strengthening your business with new customers, these strategies will enlighten your way as you expect.
Choose the best one or ones for you and start reducing customer acquisition cost effectively.
Frequently Asked Questions
There are some points to clarify about customer acquisition strategies and let’s give them a look as well.
How Can I Measure My CAC Reduction Efforts?
To measure the effectiveness of your CAC reduction strategies, employ key performance indicators (KPIs) such as the CAC ratio, which compares your CAC to the revenue generated.
Additionally, monitor customer lifetime value (CLV) to understand the long-term value of acquired customers.
Calculating return on investment (ROI) provides insights into the profitability of your customer acquisition efforts. Regularly tracking these metrics enables a comprehensive evaluation of your strategies' impact on CAC reduction over time.
How Long Should I Track CAC Reduction Strategies?
Track customer acquisition cost (CAC) reduction strategies consistently over several months to a year for meaningful insights. Continuous monitoring enables adjustments and ensures sustained effectiveness in changing business dynamics.
Does Optimizing Website and Landing Page Design Impact CAC Reduction?
By ensuring a user-friendly and optimized website, you enhance the visitor's experience, leading to improved conversion rates.
A seamless online journey increases the likelihood of turning potential customers into actual customers, consequently lowering the overall cost associated with acquiring each customer.
This emphasizes the importance of creating a website and landing pages that are not only visually appealing but also functionally effective in driving conversions.
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