11 Tips to Lower Customer Acquisition Costs (CAC).
It's clear that businesses are increasingly competing in the digital space, regardless of their network. Every company is competing for the same customers on the internet, making it more difficult to market effectively to your target audience. Additionally, pay per click advertising costs are rising.
It is important to ensure that your processes and systems for acquiring customers through these channels are cost-effective. There are many ways to reduce customer acquisition costs.
In this post, I will cover
- Define customer acquisition (CAC) and customer acquisition cost
- Explain the differences between CPA and CAC
- Here are 11 strategies and tips that you can use to reduce your customer acquisition costs.
What is customer acquisition?
It is the acquisition of customers who are paying you. It does not mean that you click "purchase" or sign a contract. It encompasses the full path from prospect to paying customer.
Some businesses, such as ecommerce, may have a shorter path with fewer stops. For others with a longer sales cycle, it could be weeks, months, or even years.
A customer acquisition strategy is designed to make the customer journey as smooth as possible, thus allowing for the best conversion rates.
Understanding and building your business's funnel can be a difficult task for marketers, especially if you don't have the data necessary to make informed decisions. We'll discuss that later. However, I would like to briefly review the differences between CAC (or CPA) and CPA.
Customer acquisition cost vs cost per acquisition
We need to be clear about one thing: customer acquisition cost (CAC), is not the same cost per acquisition (CPA).
What is the customer acquisition cost (CAC).
You calculate your customer acquisition cost by dividing your overall advertising spend by the number of new customers you received as a result. While CAC is an important metric for direct-response campaigns, it can also be used to measure the success of marketing at a business level as opposed to a campaign.
What is the cost per acquisition (CPA).
Cost per acquisition is a campaign-level metric. CPA simply refers to the cost of acquiring a lead.andA paying customer) through a content download or free trial, demo request or any other submissions of contact information with intent.
CPA is an important factor in the overall scheme of things. However, the funnel's conversion rate is far more important. For example, let's say you drive leads for a consultation or sales demo. This lead type is considered low-funnel. However, it may not be as effective as converting leads for a sales demo or consultation.
You may be able sacrifice a higher CPA depending on your business's nature and sales operations. If the conversion to customers and return on ad spending is high, you might be able to. This is a critical factor in a competition for valuable ad space.
As mentioned previously, the difference between CPA and CAC may not be significant if your ads are for ecommerce. You can instantly see if your ads are making money.
A user could start by going to your online shop and making a purchase.
How to reduce customer acquisition costs
This section will cover 11 strategies and tips to lower customer acquisition costs. Or at least to encourage you to consider ways to increase the efficiency of your marketing funnel.
1. Tracking in place
It is crucial to have accurate tracking. You need to track traffic from ad click to website visitor, lead, customer and even to customers.
Don't just send users aimlessly to a landing page without setting up conversion tracking within each platform first. That's where you will be able to get the baseline CPAs and make optimizations within the campaigns themselves.
It doesn't matter if you create UTM parameters or individual landing pages for each channel, but it is important to be able tie performance to specific campaigns. And be sure to set up conversion values so you can connect paid advertising spend directly to leads within your pipeline.
2. 2. Establish a baseline
Due to the differences in sales cycles and businesses, it might take some time for your CAC to reach its peak. It may appear that you are not in the black if leads arrive but it takes months for them to become customers.
It is therefore important to determine the baseline conversion rates of your channels, promotions, and platforms. Once you understand the average conversion rates throughout your funnel you can begin to accurately predict the CAC.
3. Adjust your ads accordingly
Yes, demo requests are more likely to lead to paying customers than content downloads. An ad that offers a free trial of a project management platform will not work well for people who are simply searching for tips and templates. It would be more effective to offer a free guide or template in this case. Based on the number of people who have clicked on each previous ad, you can create retargeting ads to promote incrementally lower-funnel products.
The point is, some businesses think they can target prospects with bottom-funnel promotions entirely and drive scalable profitable returns. While this may work for some, many businesses will see their conversion rates drop and their customer acquisition cost (CAC), skyrocket. You can keep your customer acquisition costs low by focusing on the offers that are most likely to convert at each stage.
For tips on doing this through Facebook ads, check out these 5 Steps to a Conversion-Driven Facebook Ads Sales Funnel.
4. A clear path to conversion
This section could have been called "optimize the funnel", but that would simplify what I'm trying to say. The greater framework of the marketing funnel comprises the minor components of promotions or offers.
You should ensure that your offers match the stage of your users. You may have content downloads at the top of your funnel, but you might also have multiple pieces of content. It is important to plan the content, align it with your target audience and their needs, and make sure there is a path to sales after conversion.
Then, plan your next offers. Leads who downloaded guide A may be more interested in a different type of retargeted advertising offer than those who downloaded guide B or used your free tool.
You should create clear and gradual paths to conversion that are based on the sales cycle you have used and the offer that was given to the lead. You can avoid drops in conversion rates from lead to sale by creating clear paths. A content download that is not directly related to your product or service may need multiple mini conversions before they become a customer. To ensure that prospects are directed to sales at the right speed, you need to plan every step of your marketing funnel.
5. Use landing pages
Now, there are ways to increase conversion rates without touching a single landing page, but this is not supposed to be your entire strategy.
Many people still don't use them. They create ads that direct people to their website, hoping that they will convert them. Even if you have a conversion-optimized website, I advise against this because there are too many options on your website that can (and will) distract the user from converting on the action you are targeting with your ad.
Make landing pages that are specific to your ads. This will ensure that there is only one CTA on the landing page that identifies the action you want them take. And here you can include important details in your landing page copy to address any hesitations, convey your value proposition, and get more conversions.
6. Optimize your landing page and website
The website experience is a topic that has been discussed for many decades. There are many ways to discuss the role your website plays in converting prospects into customers.
First, there needs to be complete continuity between your ad and landing page (learn more in our landing page tips). Copy and imagery should be identical and convey the exact same message.
These two elements should not be in conflict. The ad should be in perfect alignment with the page to which users are directed. This is one of the easiest ways to increase conversion rates and lower your customer acquisition cost.
Web speed is important. You should ensure that your website loads quickly and can be accessed easily. Regardless of whether you are using a landing page that is hosted on something like HubSpot or Unbounce, many individuals will want to browse your primary site before making any purchasing decision. You can learn how to optimize your page speed here.
7. Convert data? Get in the details
Whether it's through looking at Google Analytics data or the conversion information provided within the advertising platforms (YouTube Studio may surprise you), it is important to understand as much as you can about the conversions taking place, such as:
- What time of the day?
- Which day of week?
- Which devices
If you find that most of your leads convert through the time window of 9AM to 5PM Monday through Friday, schedule your ads to only run at those times to get the most out of your ad spend and lower your CAC.
You should consider that while desktop users may be more expensive to acquire, they are also much more valuable. This means you should spend more money to acquire them and not eliminate or seperate mobile users.
You can get into the details about your conversion data to make sure you spend less overall and are not wasting money.
Our tool allows you to check if your spend is being wasted.free Google Ads Performance Grader.
8. 8.
There are multiple layers to an effective paid ad strategy that could warrant several blog posts, but a lot can be achieved just by paying attention to the details of how your campaigns are set up. First, you need to verify the placements that you are targeting on Facebook and YouTube. For example, many businesses will run direct response campaigns while having the setting for "automatic placements" enabled at the ad set level:
This will automatically include "Audience Network", which will serve your Facebook ads across multiple app properties.
My experience with the Audience Network is that it has driven low quality clicks and very few conversions. Facebook's algorithm is designed to produce the best results possible for a given goal, but there will often be wasted money on Audience Network placements.
Our tool will help you determine if your spend is being wasted.free Facebook Ads Performance Grader.
9. Check your location settings
Another good example of campaign settings that can influence CAC is the location targeting in Google Ads. You will find a section dedicated to locations in your search campaign settings.
Expand the Locations tab to show ads that are targeted to specific locations. Select "people who live or frequently reside" and then make any necessary exclusions.
The smallest details in a paid advertisement campaign's setup can often have the greatest impact on the quality and quantity of leads you generate.
10. Bidding strategies
Your bid strategy is the last part of paid advertising that can affect your customer acquisition costs. Leveraging bid strategies (within Google and Bing at least) can greatly improve your base CPA and subsequently your CAC. Target CPA bidding is an effective strategy to maintain average search campaign costs if there has been enough conversion data.
There are many layers and factors to a funnel that go deeper than the cost at the top, but you should make every effort to improve these metrics. When deciding how competitive to be, consider the audience (or keyword), and funnel/promotion.
11. Make great content
You can't escape it. Content is the key to marketing success. The guides and collateral you produce, their landing page copy, the ad copy that promotes them (and other non-content offers). If you want to lower your customer acquisition costs, you've got to write copy that sells.
How to reduce your customer acquisition costs [recap]
As you can see, for businesses with a longer sales cycle, lowering customer acquisition cost (CAC) requires increasing conversions and lowering the cost of those conversions (CPA) throughout your entire funnel. We've listed 11 methods to achieve this:
- Tracking in place
- Establish a baseline
- Adjust your ads accordingly
- A clear path to conversion
- Use landing pages
- Optimize your landing page and website
- Convert data? Get in the thick of it
- Verify your placement settings
- Check your geotargeting settings
- Bidding strategies can be used
- Create great content
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