No matter in which industry you are, the competition to showcase your products and services in the digital space is only increasing over time. More and more companies are competing to get the attention of the same users in one way or another, making it increasingly difficult to target prospective customers.

And on top of that, advertising channels like Google and Facebook ads are slowly increasing their advertising cost, which is only contributing to improving the overall customer acquisition cost.

The increase in customer acquisition cost will reduce your business’s profitability, making it more and more challenging to scale the company. So, you need a way to reduce this cost.

In this blog, we will show you the top eight methods to reduce your average customer acquisition cost. But before that, you need to understand what the cost of customer acquisition is.

Let’s dive in.

What is Customer Acquisition Cost?

Customer acquisition cost, or CAC, is the total cost a business needs to shoulder when they get a new customer to buy its products or services. The CAC will include all the costs incurred in the process, from the salaries of the employees to the amount of money poured into the marketing campaigns and business software for a set period of time. 

To understand which idea or marketing plan works better for your business, you should always measure the customer acquisition cost of all marketing campaigns and sales channels. 

Let us show you an example of what CAC is.

Let’s say that in January 2023, your business acquired a total of 2,000 new customers. On the flip side, you had to spend around $150,000 in sales costs, marketing expenses, employee salaries, software expenses, and other miscellaneous fees.

So, in January 2023, the total customer acquisition cost will be:

CAC = $150,000/ 2,000 = $75.

Tips to Reduce Customer Acquisition Cost

Now, let’s take a look at some of the most effective ways you can reduce the CAC of your business.

Understand What Your Customers Want

To reduce the overall CAC, the first thing you should do is study your ideal audience, know them better, and find out what they are looking for. If your business has a high customer acquisition cost, it means that you are delivering the right solutions or products to your target audiences.

So, the first thing you must do is to create a buyer’s persona, get into your customers’ shoes, and understand what makes them click.

Identify Target Audience

Before you create a marketing strategy and kick-start the campaigns, you need to find out if you’re targeting the right audience in the first place. Once you identify the right target audience, you can market your brand with a tone of voice that fits well with your prospective clients.

In short, finding the right target audience gives you the opportunity to lead your marketing efforts in the right direction, adding consistency to your brand’s voice.

This way, you can give them exactly what they need, building stronger customer relationships. It will eventually lead to the reduction of customer acquisition costs.

Shorten the Sales Cycle

The longer you take to convert your leads into paying customers, the more money you need to spend on your marketing efforts. In the end, it will only increase the overall CAC. You can decrease this accumulated cost and improve your ROI by making your sales cycle shorter.

You can nurture the leads using several marketing automation tools and chatbots and move them through the sales funnel at a rapid pace.

In fact, the usage of automated chatbots will help you get more leads, segment the leads into different categories, and answer their queries faster to quickly lead them to the end of the funnel.

Reduce Customer Churn

Customer churn is a metric that shows how many customers have stopped using your products or services for an extended period of time. So, whenever customer churn shows up, the marketing team only has to find a lot of new customers, but they would also have to find a way to bring in the lost customers.

So, why is it important to know?

That’s because the cost of customer retention is seven times lower than the cost of customer acquisition. That’s why you must focus on customer churn and take proper customer retention measures to reduce the churn as much as possible.

One of the best ways to reduce churn is to proactively engage with them via multiple platforms. Talk with them to understand whether they are satisfied with the services your business provides. Use marketing and analytics tools to gather data like customer behavior and identify recent market trends to modify your services accordingly.

Reach out to the Customers on Their Preferred Channels

According to a recent study, nearly 75% of all customers do not make the final purchase because they have to switch back and forth between multiple channels. 

As a result, businesses are forced to invest more money in retargeting ads, email marketing, and others to bring customers back. All of these things increase the overall customer acquisition cost.

That’s why your brand should meet the customers where they already are and help them make the purchases right there without making them move to different channels.

For example, if your customers see a product they like on Instagram, try to answer their queries on Instagram itself using chatbots. Provide them with a personalized offer and help them complete the purchase while making them move through as few steps and platforms as possible.

Ask the Current Customers for Referrals

With referral marketing, your business can get high-quality clients for an affordable cost. Unlike traditional marketing methods, referral marketing mainly uses existing customers to spread the word about your business services, which significantly lowers the cost of customer acquisition

In fact, according to a Wharton Business School study, the CAC of the referred customers is $23.12 less on average than the non-referred customers. Plus, the referred customers bring $0.45 more profit per day than the usual non-referred customers. So, in a six-year span, referred customers will provide you with 60% more ROI.

Bring Customers Back Using Retargeting

Retargeting or remarketing is one of the most straightforward strategies to attract users back to your sales funnel, which reduces the overall customer acquisition cost. 

Most marketers do it by using Google Display Ads or Facebook Retargeting ads. However, you can also use other channels like email or chatbots for retargeting the leads and rekindling their interest in your brand. 

Let’s take Google Display Ads as an example. If any user has visited your website or has seen one of your Google ads, then you can use Google Display Ads to show relevant products or services to them as they visit other online media. A good portion of the leads might be interested in your products and click on the ads, re-entering your sales funnel.

Some of them will eventually make a purchase, lowering the overall CAC.

Increase Average Order Value

By now, you should have a clear idea of the steps you need to take to reduce the customer acquisition cost of your business. There is one last way that can not only decrease the average CAC but will also increase your business’s overall profitability.

The method is to increase your business’s overall order value or AOV.

By increasing your AOV, you can quickly boost your ROI and lower the customer acquisition cost in the long run. Some of the best ways to increase your AOV are cross-selling and up-selling. 

You can use several marketing tactics to suggest different products along with the customers’ initial purchases. Entice your customers to purchase high-value bundles or products using free shipping, discount, and other tactics. This way, your AOV will go up, and your average CAC will go down as time goes on.

Summing It Up

Customer acquisition cost is a valuable marketing metric that can help you calculate your campaigns’ ROIs. You will get the exact amount of money you are spending to attract a new customer in the short term, helping you understand the amount of money your business generates from every conversion.

Use the tips mentioned in this blog, and you should be able to reduce the CAC over time.

Do you have any other tips that might help a business reduce its CAC? Let us know in the comment section.