Want to know if your customers are worth the investment you are making to get them? Only one way to find out, and that is by calculating your customer acquisition cost (CAC).
What is Customer Acquisition Cost?
The total amount of money you spend to acquire a customer is your customer acquisition cost.
This cost comprises the total amount you spend in sales and marketing to rope in a customer during a specific period.
How does it help to know your Customer Acquisition Cost?
A high Customer Acquisition Cost reduces the profitability of your business. If the cost of gaining customers exceeds the revenue you expect to generate, you will end up with a financial loss.
Your acquisition cost should serve as a reality check. More often than not, some entrepreneurs fail to recognize the amount of effort and financial investment needed to acquire customers due to their overconfidence in their offerings.
How to calculate your Customer Acquisition Cost?
The total marketing cost incurred during a time period is added to the total sales cost during that same time period and divided by the number of new customers acquired in the same time period.
This simple formula will help you calculate your Customer Acquisition Cost:
However, there is a small catch: only the marketing and sales expenses that were aimed at acquiring new customers should be factored in when calculating your acquisition costs. This excludes overhead costs and expenditures related to cross-selling or upselling, as those activities are geared towards encouraging existing customers to make additional purchases or increase their value to your business.
Do you have an excellent Customer Acquisition Cost?
Here is how you find out whether you have a healthy Customer Acquisition Cost or not.
- Measure it against your Customer Lifetime Value (CLTV)
- Measure it against the average Customer Acquisition Cost (CAC) for your industry
Measuring it against your customer lifetime value
Analysing your customer acquisition cost and customer lifetime value alongside each other will help you identify whether you are getting your money’s worth while spending to acquire customers.
Ideally the customer lifetime value should be greater than the customer acquisition cost. The suggested ratio of CLTV:CAC should be close to 3:1.
On one hand, a lower customer lifetime value indicates funds being wasted on acquiring new customers, on the other hand an abnormally high customer lifetime value indicates that not enough money is being spent on acquiring new customers.
Identifying the right mix when it comes to budgeting spends for customer acquisition is key in order to help grow your business.
Measuring it against the industry average customer acquisition cost
It may not be a good idea to get too comfortable with your customer acquisition cost - you may be surprised to find that your industry rivals are outpacing you.
Now that is a wake-up call. However, everything comes with its advantages. This was you get to see how your competitors are faring and what they are doing to optimize their Customer Acquisition Cost. Act smartly and use those tactics and strengthen your business.
How can you reduce your acquisition cost with Growlytics?
Ramp up your Lead Generation
The speed at which you repsond to leads plays a key role on determining how high your conversion rates are. Instead of engageing agents with every single lead individually, you can use the Growlytics marketing automation platform and add a little bit of marketing automation to the mix.
This can help you engage with multiple customers simultaneously. With the presence of a marketing automation software, your agents can dedicate more of their time in resolving complex issues. This helps make your customers feel important and that you are there to help solve thier issues and not just meet your monthly targets.
Imagine having the ability to repond to your customers instantly and not havin to make them wait for not more than five minutes.
The Growlytics marketing automation platform enables you to do exactly this and reduce costs in the process.
Seamless Customer Journey
A customer journey with too much fuction will result in a higher customer acquisition cost.
With the Growlytics marketing automation platform you can create specific automations to simplify and personalize the customer journey even before they purchase your product. The advantage of these journeys is that you will get detailed insights on how each of these journeys has performed and how much revenue it is bringing in.
This can help you understand which automations are longer and confusing for the customers so that you can optimize them for a better customer experience.
Connect with Customers on a Platform of Their Choice
Every day, more than 65 billion messages are exchanged on WhatsApp alone. This is because people find it convenient to use a messaging app. The Growlytics marketing automation platform enables you to engage with your customers right here, while being cost effective at the same time.
Reach your customers and drive sales on an app of their choice. Send relevant communications and promotions to keep them in the know of the offers and promotions you are running. The seamless integration of the Growlytics platform allows you to let your customers pick up where they left off.
Personalized Communications, Recommendations and Offerings
Generic product recommendations are a thing of the past and a waste of money. Attract your customers with offers on products that they have their eye on. The Growlytics marketing automation platform records customer behavior and empowers you with the ability to hyper personalize your conversations with the customer thus increasing the effectiveness of the marketing message.
Know Your Customers
The integrations on the Growlytics marketing automation platform are so efficient, you can easily collect feedback from your customers and implement it to provide them with an even better shopping experience. This also helps you understand what your customers expect from you.
Simply integrate an app of your choice and collect that feedback, improve your offerings and marketing strategies while optimizing your acquisition spends.
Sign up here for a quick demo with Growlytics and get started with automating your customer engagements right away!