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How to Lower Your Customer Acquisition Costs (CAC)

B2C (business-to-consumer) companies invest around 9.6% of their revenue in their marketing efforts. And B2B (business-to-business) firms invest even more at 11.8%. With such a significant portion of budgets assigned to marketing activities, these companies need to be sure that they’re spending it intelligently. One effective way to measure the effectiveness of spending activity is to use and calculate advertising metrics.

Customer acquisition cost (CAC) is widely regarded as one of the most important metrics in marketing. In this guide, we explore why it’s important to calculate it, how to calculate it, and five ways to reduce it.

What is customer acquisition cost & why should you measure it?

CAC covers how much a company has to spend to get a new customer. These costs can vary by campaign, channel, and even time of year. CAC is a key metric for all businesses to measure as it informs them of exactly how much they are spending on converting leads into customers. 

Calculating and regularly measuring CAC also helps companies understand how effective their marketing strategy is since it directly reflects the performance of their marketing and sales campaigns. 

In short, calculating CAC enables businesses to determine whether they are getting a good return on their investments in their efforts to grow their customer base. Plus, with this information at hand, businesses can better strategize how to reduce these costs.

How to calculate customer acquisition cost

CAC is a simple metric to calculate. All you need to do is add together the total expenses involved in converting prospects into customers and divide this amount by the total number of new customers acquired in a given time period.

Basic formula to calculate CAC - Opticks infographic

For example, if you spend $5,000 in one month and acquire five new customers, your customer acquisition cost is $1,000.

What costs are involved in acquiring new customers? 

While the formula for calculating CAC is straightforward, it can be difficult to identify all of the costs involved in growing your customer base. 

Here’s what you need to include in the cost of acquiring new customers:  

  • Paid sales and marketing staff
  • Social media campaigns
  • Paid marketing costs such as Google Ads, Facebook, and agency fees 
  • Any equipment or tools

When calculating CAC, it’s also incredibly important to take into account the business context. For example, if you’ve just hired new marketing staff or are augmenting your current marketing efforts with new technologies, your CAC will be significantly higher.

How to lower customer acquisition cost: 5 bulletproof methods

CAC is a great indicator of profitability. Your CAC should be 33% or less than your Customer Lifetime Value (CLV) or your business will not be viable.

By knowing your CAC, you can act and strategize to reduce those costs and increase your return on investment (ROI). Here are five methods to lower your CAC.

1. Use a customer relationship management (CRM) system 

A CRM helps you remain engaged with your audience, fix leaks in your funnel, and improve your outreach to prospective customers. 

By organizing your customers within a CRM, you can also keep track of your leads throughout the funnel and ensure they convert. Remember, the earlier you engage a customer, the lower the final acquisition cost.

2. Target the right audience

When you run highly-targeted marketing campaigns, you’re better placed to reach the right audience and avoid wasting resources on unqualified targets. This involves knowing your customers and their wants and needs in order to create timely and relevant messages for potential prospects. 

However, this also ensures that you’re targeting real human users rather than bots and fake leads. This problem can easily be solved by using an invalid traffic detection solution that can prevent invalid leads from entering your traffic.

3. Focus on converting prospects into paying customers

Not only should you target the most profitable audience, but you should also make sure that they convert into paying customers.

Start at the beginning: Check out your landing pages to make sure that they’re engaging, provide a smooth user experience, and include relevant calls to action. By improving the overall user experience, you’ll be able to keep attracting new customers and increase your conversion rate.

4. Prioritize your channels and partners

Comparing your channels and allocating your budget to the most profitable ones helps you keep your CAC as low as possible. By weeding out the channels where your campaigns aren’t resonating or are providing low traffic quality, you can automatically reduce your CAC. Plus, by focusing on the highest-performing channels, you can make them even more efficient.  

Additionally, solutions like Opticks enable you to compare channels based on the rates of advertising fraud within them. This helps you reduce the chance of invalid traffic, therefore reducing your CAC.

5. Partner with affiliate and influencer programs 

Affiliate partner and influence programs are an effective way to reduce your CAC by using their reach to engage a larger audience. Since you only pay affiliates and influencers a percentage-based commission after customers convert, you can boost sales at a lower cost. 

However, investing in these programs can also be extremely costly if the traffic they generate is polluted by invalid leads -- including fake contacts and contacts whose data has been stolen. 

Solutions like Opticks can automatically detect the presence of invalid traffic and prevent it from entering your database. This ensures that you don’t get charged by illegitimate partners and also protects your overall brand reputation.

👉 You may like: How to Demand Transparency in Advertising From Media Partners

Opticks can help you lower your CAC and improve your ROAS

When it comes to the health of your marketing budgets, CAC is an essential metric to calculate and optimize. Anti-ad fraud solution Opticks can help you block invalid traffic before it can add to your CAC and reduce your return on ad spend (ROAS)

Find out more about how the expert team at Opticks can improve your CAC and campaigns by contacting us here for a free demo. 

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