What makes Digital Marketing so powerful when it comes to increasing a business’s profitability is the ability to capture, manage and use the most varied data to guide strategies with different objectives!
Absolutely everything in this sales methodology can be measured: from Return on Investment to customer acquisition cost — which is the subject of this content!
Also known as CAC, calculating and interpreting this metric is essential to winning new customers while optimizing (reducing or keeping under control) the amount of resources invested with this objective in mind.
The result is an increasingly attractive business that is able to spend fewer resources to deliver products or services with superior quality!
If this is what you want to do for your brand, follow me until the end: I have a whole universe to show you!
What is customer acquisition cost and why is it important?
The acronym CAC, which represents the cost of customer acquisition in Digital Marketing, is an abbreviation of the English expression “customer acquisition cost”.
As everything in Marketing must be measured to inform and correct the course of sales strategies, knowing the average amount your business needs to invest to acquire each new customer (the CAC) becomes essential for:
- Make smarter decisions, based on real numbers;
- Determine whether your company’s strategies are being efficient ;
- Identify the next phases of growth for your business, knowing in advance an average of how much to invest to capture new market shares (or develop better products and services);
- And know if your brand is investing in a balanced way when compared to the value that customers generate over time!
How to calculate CAC?
Calculating CAC is simple:
- You need to choose a time period to evaluate;
- Then add the cost of sales to the Marketing cost for the chosen period;
- And divide the previous sum by the number of new customers acquired (also in the period)!
In a formula, customer acquisition cost is calculated as follows:
CAC = (cost of sales + cost of marketing) ÷ number of new customers
Consider the example of a fictitious company that chose to calculate CAC for the last six months:
- She would add the cost of sales for the period (300,000);
- With the cost of Marketing at the same time (100,000);
- And I would divide it by the 400 new buyers of the period;
- Resulting in (300,000 + 100,000) ÷ 400;
- A CAC of R$1,000.
It costs on average a thousand reais for this fake company to win over and convince a buyer — but is this rate high or low?
This is what I will discuss next.
How to interpret customer acquisition cost?
A high or low CAC, good or bad, will depend exclusively on the goals, financial objectives or the industry in which your business operates (and which you would like to dominate)!
Knowing how much your brand needs to invest to acquire a new customer is crucial, but it is just as important to observe the context in which this customer is being converted beyond what the number literally shows.
Customer acquisition cost tends to decrease when your company looks at the customer context:
- What he expects from your brand;
- What your business can do for him;
- How much he trusts (and is reminded of the relevance of) your company;
- And how easy it is to buy the solution you offer!
In other words, the better the product or service your company offers — and the better your customer service and presence on the digital channels your customers use — the lower your CAC will be!
Still, an upward swing can be healthy when that inflation continues to bring your business closer to its executive goals.
In the case of an investment in more noble raw materials for your products, training for your services, or a greater injection of advertising to make your business visible everywhere, the cost of customer acquisition may increase — but the results will last much longer than this initial investment!
Marketing Investments
Marketing-related costs involve everything related to creating materials with the purpose of reaching the public and converting them from curious people to potential buyers (also called leads)!
Among the Marketing activities to include in the sum of total costs are:
- Each investment to take Marketing campaigns (including Internet advertising) from scratch to broadcast;
- And everything that involves Content Marketing, without forgetting the creation of your own materials and the maintenance of blogs, websites or social networks.
Selling Expenses
Sales expenses are associated with the operation of the platform that actually carries out sales — involving:
- The sales team;
- The tools the team uses;
- The salaries of those involved;
- Team training;
- And the commissions.
To make it easy to remember, Marketing costs involve everything that is done from the door of your company outwards, with the aim of attracting and impressing people.
Sales costs are represented by everything you need to keep running from the front door of your company inwards, with the aim of keeping the organism alive!
This is why customer acquisition cost is such an important metric when compared to your strategy, as CAC shows how sustainable your strategies have been in the recent past — and what you can do to make even more profit in the future!
What is the relationship between CAC and LTV?
The ability to show the sustainability of a strategy or the growth of your business becomes even more evident when CAC is used in conjunction with an indicator such as LTV.
Wouldn’t business be more magical if you could know how much revenue a person would generate over the entire lifetime of their customer life? LTV is a metric that calculates exactly that — the “Lifetime Value” of your customers!
Alongside customer acquisition cost, this indicator helps determine whether the company:
- You are spending efficiently on attracting customers;
- You are acquiring customers that justify these expenses;
- It is taking these numbers into account with the values that each customer will generate over time.
This is a perspective that informs a whole range of strategies aimed at recurring sales — and increasing profits with lower expenses — making LTV quite complementary to CAC!
How to reduce customer acquisition cost?
There’s no way around it: when talking about reducing CAC, you need to look at the planning as a whole and evaluate whether both the demand capture and demand generation strategies are working!
Demand capture is your company’s potential to capture the finite and renewable quantity of people who may become interested in your offering from time to time.
These are customers who show interest, but who, if they are not convinced in the next few days, will leave the purchase for next month (and will never come back).
Having a strategy in place to capture this demand is just as important as the parallel strategy that feeds the continuous influx of potential customers into the company — demand generation!
Both cover Digital Marketing techniques aimed at making closing new sales a predictable, consistent and cheaper phenomenon!
I will present some of them below.
Marketing Automation
Digital Marketing automation tools are among the most valuable investments a growth-focused company will make on the Internet.
With them, you can cut out redundant tasks (freeing up your team for higher priorities) as well as create qualified traffic flows to bring new leads into your business!
Since a marketing automation tool can do the jobs of multiple people simultaneously, the cost of customer acquisition decreases due to efficiency — as do the efforts to keep the funnels running!
IF THE
Being found on the Internet is the most important thing of all — and that’s the job of a robust SEO strategy !
By “robust”, I mean that Search Engine Optimization is capable of converting more people and at a lower cost, compared to other Digital Marketing strategies.
There is an initial effort and adjustment period when implementing SEO, but CAC can be reduced considerably from there.
Customer retention
It is natural to imagine that, by retaining a customer (keeping them as a repeat buyer for as long as possible), CAC will also be reduced — since new purchases for the same customers require less investment to impress these people.
How impactful this retention is will also depend on the company’s long-term goals — but what business wouldn’t benefit from loyal, repeat customers?
Acquisition channels
By analyzing the CAC of your main new customer acquisition channels, focus your investments on the most effective ones and eliminate (or adjust) everything else!
Acquisition channels are how your new customers “enter” your online store, so focusing your efforts on the doors with the highest entry points can be more profitable — and reduce your CAC.
Quality content
Content is all material published by your business with the intention of communicating with the most qualified audience so that they can purchase the offers and solutions that it offers!
This is the only way for your company to demonstrate that it is more than a corporation — it is a brand!
When a company becomes a brand, it gains a personality in the minds of its customers — and this personality is fueled by the topics, tone of voice and “manners” that your company demonstrates, and the content it publishes.
It’s no wonder that the more importance you place on developing original, engaging content that attracts your ideal audience (the one that buys), the more sales you will make in the long term — and the lower your acquisition costs will be!
Win more (and better) customers!
If you want a shortcut to lowering your business’s CAC (which you now know stands for customer acquisition cost), just improve quality:
- From your attraction and conversion strategy;
- And your products or services!
Of course, you will need the help of SEO and Digital Marketing automation at some point to make your quality be found, recognized and approached — but, to start, just do excellently what your company already does well!
A small increase in CAC to implement new strategies may be welcome in the context of your sales strategy — where long-term results or executive goals will dictate whether a CAC is too high or too low for your current business.
Since the goal of Digital Marketing is to create a lifetime source of new customers, defining how your brand communicates with the audience you would like to attract goes far beyond putting emojis in messages!
You need to understand your audience’s desires, problems and behaviors in relation to your company’s offerings.
Reductions in customer acquisition costs and increases in profitability often follow the steps of those who lead with Customer Success in mind — and there are complete guides on how to do all of this here on the Enjoy Minder blog!
Enjoy — it’s free!
