12 Tips to Lower Your Customer Acquisition Cost (ROI = Improved!)
Imagine you decided to run your own business one day and designed a beautiful eCommerce store. You have got this store built with the best technologies and have chosen the best product in the market.
Everything is working fine but you’re struggling to get more customers to your store or maybe worse, your expense to acquire new customers is becoming higher and higher day by day. And when you have a higher customer acquisition cost (CAC), it directly impacts your return on investments (ROI), hampering your business profitability.
If this is the case with you, let us tell you that, you have landed on the right page! At Aureate Labs, we have helped many eCommerce stores improve their conversion rate, helping you reduce customer acquisition costs and higher revenue.
With all the real-life insights we have got working with our clients, we have poured it all into this blog to help you understand what customer acquisition cost (CAC) is, how to calculate it, and ways to improve customer acquisition cost.
So, let’s first get started with a basic idea and definition of what customer acquisition cost is.
What is Customer Acquisition Cost?
Simply put, customer acquisition cost (CAC) stands for the amount of money you’re spending to attract a new customer for your business.
Think of expenses such as branding, marketing, and advertising that go into bringing in a new client for your business.
When your CAC is high, it clearly shows that all the marketing efforts that you’re putting in are not working in your favor and you should explore new avenues of acquiring customers.
But how do you know what your CAC is? Let’s find out the ways to calculate the customer acquisition cost of your business.
How To Calculate Customer Acquisition Cost?
To know whether your CAC is high and if it’s impacting your business ROI, you can follow a fixed and widely accepted method of acquiring customers.
The standard formula for calculating customer acquisition cost divides the total cost of sales and marketing by the number of new customers acquired in a particular time frame.
So, it would be:
CAC = (total cost of sales and marketing) / (# of customers acquired)
For example, if you spend $1000 on digital ads and SEO to get 100 clients for your eCommerce store in six months, your CAC would be $10.
We’ve given this very simple example, and based on your business model, you can modify it to get the actual CAC of your business.
What is a Good Customer Acquisition Cost?
As you now know how to calculate customer acquisition cost, you might wonder what’s the benchmark of CAC in your industry. Let us tell you, that the benchmark of good CAC varies from industry to industry.
But in general, a good customer acquisition cost is ⅓ or ¼ of your lifetime customer value (LTV). In other words, a good LTV to CAC ratio should be 3:1 or 4:1.
Here’s a detailed list of average customer acquisition costs for different eCommerce niches.
However, keep in mind that many factors affect the customer acquisition cost. We’ve mentioned the major and important ones for your reference below.
Factors Affecting Customer Acquisition Cost
Here are the main channels that contribute to the cost of customer acquisition. Go through the brief of each to get a better idea of what their roles are in the cycle of customer acquisition.
1. Marketing and advertising channels
As marketing and advertising are the main sources of any business to reach new customers, it goes without saying that the resources you allocate for marketing activities such as eCommerce SEO, social media marketing, influencer marketing, and offline marketing play a vital role in determining the cost of customer acquisition.
2. The target audience
Another factor that affects your cost of customer acquisition is the type of audience you choose to target for your business. For example, if you are targeting a very specific niche market with a limited size and pushing the market approach, your CAC may go higher than the normal standards.
However, if you’re in a mass market where there’s a lot of demand, less competition and it’s a pull market approach, your CAC can be significantly lower.
The best way to navigate in such scenarios is to create a map of your target audience and based on their psychological triggers, behavior, preferences, and interests and make a budget accordingly.
3. Product quality and pricing
Moving next, how you have positioned your product along with its quality and pricing also plays a crucial role in how much you may need to spend to attract the customers that resonate with your offerings.
For example, if you have designed a high-quality and unique product with a clear value proposition, you may need to spend less on providing extra discounts and offers that make your offering more appealing.
So ensure you have focused on your product and pricing well to reduce your customer acquisition cost.
4. Stiff business competition
If you are operating in a market that’s already saturated with lots of service/product providers, you may need to spend aggressively to onboard new customers to your business.
5. Geographical factors
If you are targeting an audience in multiple markets, it may lead to additional costs associated with logistics and penetrating in new markets and different territories.
Moreover, the taxing and business operational costs of that state/city/country may also lead to costly acquisition.
6. Dynamic market trends
Last but not least, if you deal in products or services that are seasonal, for example, have high demand in winter but not so much in summer, it can increase your costs during the off-season.
In such scenarios, it’s recommended to plan your marketing strategy and budget according to the seasons.
After knowing what are the factors that could affect your customer acquisition cost (CAC), let’s have a look at the effective ways to reduce the cost being spent on acquiring customers.
How to Reduce Customer Acquisition Cost — 12 Tips That Work!
As you now know what is CAC, how to calculate it, and what are the factors that contribute to customer acquisition cost (CAC), let’s have a look at twelve practical and actionable steps that will not only lower your customer acquisition cost but also help you increase your return on investment (ROI).
Quick Snippet:
- Target the Right Audience
- Understand What Customers Want
- Run Campaigns Wisely – Ads in Non-Peak Hours and Retargetting in Peak Hours
- Highlight Your Best-Selling Products and Features
- Try Affiliate or Referral Programs
- Trim Down Your Sales Funnel
- Partner with Micro-Influencers
- Use Personalized and Dynamic Landing Pages
- Optimize Your Website for Speed and Performace
- Improve at Copywriting
- Increase AOV with Smart Pricing and Bundling
- Track Everything
Let’s explore them in detail.
1. Target The Right Audience
The first and the foundational step of optimizing your customer acquisition cost is defining your audience. When you have a clear idea about your target audience, it allows you to figure out which marketing channels would work best for your target audience.
On the other hand, when you don’t define your audience well, it becomes very difficult for you to follow one path due to a lack of clear vision and strategy. Remember, if you’re targeting everyone, you are targeting no one.
Keeping this in mind, we recommend you write down the characteristics of your target audience like their age, what are their preferences, and how they like to be communicated to decide on the right marketing channels.
For example, if you sell fashion accessories for teenagers, marketing your products on TikTok and Instagram is the best option to reach your target audience most effectively while reducing your customer acquisition cost.
2. Understand What Customers Want
Once you have defined your target audience, the next step is to be in their shoes and get an idea of their pain points, desires, and solutions they need. When you know your customers in and out, you can talk to them in a language they understand.
To get a holistic understanding of your target audience, you can conduct offline research, talk with industry experts, and focus on your existing customer base to get in-depth feedback.
Continuing with the above example of teenage fashion jewelry, to start with, you can visit university campuses and party clubs and get in touch with them to understand their thinking patterns, what they love, what the latest trends appeal to them, and what kind of fashion they like to wear.
When you hit the right nerve of your customers, you don’t have to force your products on them but rather you can design a product and offer that fits their personality and buying capacity – helping you improve your customer acquisition cost.
3. Retarget Wisely – Ads In Non-Peak Hours & Retargeting In Peak Hours
Additionally, observe the patterns of your ad performance and make the required adjustments accordingly. You can check the reports of your Google and Meta ads to get insights about best-performing days and times.
For example, if you find that your ad is converting more people during weekends and night times, you can spend more at that time to lower customer acquisition costs while improving your brand awareness and reach.
4. Highlight Your Best-Selling Products and Features
Have you ever been in a situation where you liked the product but were not sure if that was the right choice? Let us tell you that it’s quite common because people need social validation and you can leverage this psychological behavior to reduce your cost of customer acquisition.
To do this, you can label high-profit products as popular and best-seller products to balance the cost it took to make a customer visit your store.
Moreover, you can increase the perceived value of the product by showing its unique features and benefits along with customer reviews.
Recently, we worked for a fashion store where we integrated some of the most effective features for their website that can help them convert customers faster.
As you can see in the below example of the Kalki store, they have given the option to sort products based on what customers prefer the most.
Similarly in Bezateli, they have displayed the cards of “New Arrival” and “Top Sellers” to let customers know what others are liking.
Moreover, you can also add interactive elements where your customers can engagingly look at each of the product features. For example, we recently did the same for our recent client, Miko!
Miko-Mini-GPT-Powered-Conversational-Learning-Robot-For-Kids.webm
Such elements in your store make it easier for you to convey the product value which increases ROI on your spending and reduces customer acquisition costs in return.
5. Try Affiliate Or Referral Programs
When planning to acquire new customers, who can be a better promoter than your existing clients, right? If your customer acquisition cost is super high, you can think about leveraging referral and affiliate marketing programs as they bring more clients while lowering your spending.
Imagine this, a friend of yours is recommending you a fashion bag that they found very sassy and cool and you come across a random website or an ad that promotes a bag. Which one are you going to trust more? Of course, the one suggested by your friend, right?
According to a study, 93% of people trust friends or family members while only 38% of people trust advertising that they come across the social profile.
Keeping this fact in mind, it’s recommended to introduce referral and affiliate programs where you give rewards or discounts to your existing customers to bring in new customers. This way you not only reduce the customer acquisition cost but also build a loyal fan base of customers who love your products.
6. Trim Down Your Sales Funnel (Especially the Checkout Process)
Moving forward, the next strategy you should implement to lower your customer acquisition cost is keeping your sales page as smooth and as hassle-free as possible.
Some of the best practices you can follow while creating a checkout page for our clients are as below:
- Keeping minimum steps for check-out, if possible, single-click check-out process or the option of guest checkout.
- Enabling auto-fill features to speed up the checkout process.
- Designing clean, clutter-free, easy-to-navigate, and mobile-friendly checkout pages.
- Provide a progress bar or step indicators to let users know their journey of the checkout process.
- Offering multiple secured and trusted payment methods such as credit cards, PayPal, Apple Pay, and Google Wallet.
- Removing unnecessary distractions while placing clear CTA buttons.
- Loading the checkout page (and overall site/store) for better customer experience.
- Enabling save cart functionality for customers to return later to complete the purchase.
- Offering personalized offers and discounts based on customer’s history and shopping preferences.
Following all of these practices can be a time-consuming process and that’s why we at Aureate Labs have partnered with GoKwik as it enhances your store with a powerful checkout solution.
Here is one example of a website where we successfully integrated a Gokwik to provide a seamless checkout process to their customers.
When you keep your checkout process simple, it reduces the number of people aborting the cart, helping you lower your customer acquisition cost.
7. Partner With Micro-influencers
Today people trust social media and what their favorite influencers have to say about it. And we are sure, you also check what others have to say about the brand.
In such a scenario, it becomes super important to collaborate with local and micro-influencers who have better reach and engagement on their profile. Moreover, following this strategy can be very cost-effective and build trust among your target audience. Engaging with the right marketing partners ensures that these strategies are implemented effectively and reach the intended audience.
When choosing a micro-influencer for your brand, we recommend you check if their tone and personality is matching with your brand voice to evaluate them further for collaboration opportunities.
As you collaborate with multiple mico-influencers, you can build your brand authority in specific niches and locations thus significantly reducing the cost of customer acquisition over some time. You can use this strategy to outperform your presence and make the most of top-performing locations.
8. Use Personalized, Optimized & Distraction-Free Landing Pages
The next strategy that you can follow to reduce your cost of customer acquisition is by designing personalized and fully optimized landing pages.
To personalize a landing page, you can ensure that whatever copy that you are writing is not generic which can be applied to any industry. Plus, you can add dynamic values in the landing pages to show a range of products, offers, and a timer that’s customized to every customer that lands on your sales page.
For example, if you have an online clothing store that has a wide range of choices including clothes for men, women, and kids – you can have three different landing pages to cater to these three demographics.
Moreover, if you have sub-categories, you can design even specific landing pages to cater to various sub-niches without mixing them all.
As you can see in the above example of Adobe landing pages, they have designed two landing pages where they have placed different CTAs and the language that is used is also different based on the location. The first landing page targets the United States while the second landing page targets the United Kingdom.
9. Optimize Your Website For Better Speed & Performance
Though we all know that store speed matters, even Google’s then Developer Programs Tech Lead, Maile Ohye has confirmed that “Two seconds is the threshold for eCommerce website acceptability. At Google, we aim for under a half second”.
The longer your store takes to load, the higher the chances that potential customers would leave, and all the money that you have spent to get that person to the landing page holds no value now – increasing your overall cost of customer acquisition.
However, on the other hand, when you have optimized your store and website for better speed and performance, you can not only make that customer stay longer on your page but also make him purchase the product with good UI/UX experience.
At Aureate Labs, we’ve helped many online stores increase their store’s speed and conversation rate with our tried-and-tested methods which also helped them lower their cost of customer acquisition. See how Imaginfires experienced 296% increase in site speed.
If you would like to get the same results for your store, feel free to get in touch with our team.
10. Improve At Copywriting
Language and content hold the utmost power in your marketing efforts. The kind of messaging you pass to your customers through landing pages and marketing campaigns can either make or break the deal.
Write your landing page copy in a way that focuses on customers more and not on the brand. Focus on the benefits your customers will get instead of simply telling them the features of your product. Speak the language they speak by adding everyday phrases and common slang. Keep your copy fun and wit with a pinch of creativity rather than sounding like a boring judge of a court.
You can also look at the giants from your industries and take inspiration from them for your marketing messaging and reduce your cost of customer acquisition.
11. Increase AOV With Smart Pricing And Bundling
Imagine, you have tried all of the above-mentioned tips to lower your cost of customer acquisition and still it’s not going down, what will you do? The best way to get more revenue and generate more profit is by increasing your average order value (AOV) with smart increase prices and bundling strategies.
To apply this strategy, you can bundle your products in a way that costs less to your customers while giving them the same or better value without you losing on your profits.
For example, if one product costs $100 and another is $50; you can offer the bundle of these two products at $125, making your customer buy the products without a second thought.
See how beautifully, Kylie Cosmetics has tied two products into one! Mostly shoppers will buy the “Skin Tint Blurring Elixir” only. But when they find this combo, they will think for the convenience in product application and would like to buy this with at a discounted price.
And, in return, Kylie Cosmetics will get more value on each sale and thus they can also clear their stock of “not-so-popular” products rapidly.
You can apply the same strategies for all the popular products in your state, helping you reduce the cost of your acquisition.
12. Track Everything
Last but not least when it comes to reducing the cost of customer acquisition, it is by tracking it. Remember, if you measure it, you can improve it and the same applies to tracking your CAC while you execute all of the above given tips.
Whether you are running Meta and Google ads campaigns, making changes to your Shopify store, or designing dynamic landing pages, it’s always recommended to have tracking in place to keep an eye on what’s the impact of the changes you have made.
Track your conversions and CAC for a minimum of one month and double down on the strategy if it’s working for you, otherwise jump on the next technique.
When you know what’s working best for you, you can allocate your resources more effectively and efficiently to lower your customer acquisition cost.
Reduce the CAC with These Strategies!
We hope with all the information provided in this guide, you have better clarity about how you can reduce the cost of customer acquisition while improving returns on your investment.
The strategies that we have mentioned in this blog are based on our experiences working with multiple online stores to increase their revenues. Some of the techniques like optimizing the store for better speed and performance, highlighting the best-selling products along with their features, leveraging dynamic landing pages, and trimming down your sales page can do wonders for your store.
At Aureate Labs, we have helped multiple business owners build their online stores while helping them improve their conversion rate and generate more revenue. If you are ready to achieve your business goals related to eCommerce, feel free to get in touch with our team and check our portfolio to learn more about the work we do.
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