How To Lower Your Customer Acquisition Costs

Everyone wants to acquire new customers, of course, but what no one talks about is just how expensive it can be.

Are your customer acquisition costs rising lately?

With so much competition on the market, consumers today have more choices now than ever. But that doesn’t mean that customer acquisition has to be expensive. In fact, there’s one major lever that can reduce customer acquisition costs that many brands neglect: customer service.

The data doesn’t lie:

• Acquiring a new customer can be 5x more expensive than retaining an existing customer.
• 90% of customers will spend more with companies who personalize their offers and customer service.
• 60% of business leaders have said that great customer service has improved customer retention.

Since retaining existing customers costs much less than acquiring new ones, and customers are more likely to stay loyal to a brand when there’s great customer service, improving your customer service can lower your acquisition costs. In addition, it often makes your existing customers more effective promoters of your brand, which in turn lowers acquisition costs as well.

How to Calculate Your Current Customer Acquisition Cost

First things first: before you can make measurable improvements to lower your CAC, you need to determine a baseline measurement.

To calculate your current customer acquisition costs (CAC), you’ll need to take the sum cost of your marketing and sales expenditures over a given period of time and divide it by the total number of new customers acquired during that same time period.

For example, if you spent $120,000 on marketing and sales in 6 months, and acquired 1,000 new customers during that time, your CAC would be $120 per customer. Whether or not that’s a “good” CAC depends on your industry, pricing model, overall marketing strategy, business stage, target audience and more.

As a rule, the higher your CAC, the less effective your marketing strategy, and the lower your CAC, the more effective your marketing. The higher your price point—or the longer your sales cycle—the higher you should expect your CAC to be. But even if your CAC is relatively “high” due to a business or pricing model, there are always ways to reduce it and ensure you’re acquiring customers effectively.

Ultimately, reducing your CAC is all about making your marketing more effective. But marketing isn’t the only way to reduce CAC—did you know your customer service can have a direct impact on your CAC? That’s because better customer service and customer experience creates loyal customers, which reduces churn, therefore improving CAC and CLV.

8 Ways To Lower Your Customer Acquisition Costs

Both marketing effectiveness and great customer experiences are necessary—and work in tandem—to lower your CAC.

More effective marketing ensures that you’re maximizing your budget and getting the most “bang for your buck” as you acquire new customers. But ultimately, great customer experiences are just as—if not more—necessary. After all, if your customer churn rate is high because customers are having poor experiences, you’re still burning through your marketing budget for a very low return.

Customers who stay loyal and connected to your company will reduce your CAC and improve your CLV over time. At ROI CX Solutions, we help businesses thrive by employing effective customer acquisition strategies that are tailored to our client’s industries and target audiences. Through a wealth of tried-and-true customer retention strategies, we build a foundation of customer loyalty through exceptional experiences.

Here are 8 tried-and-true techniques we’ve used in our partnerships to reduce customer acquisition costs.

Create a Referral Program

People trust other people. Sounds obvious, of course, but it has big implications for your marketing. If you don’t have a referral program yet, you need one. Consider the data from one study done at Wharton:

• The churn rate for referred customers is about 18% lower than other customers
• The customer lifetime value of referred customers was 16% higher than non-referred customers.
• Referred customers are about 25% more profitable than non-referred customers.

What does all of this mean for your CAC? Customers who are referred by another customer spend more, stay more loyal to your brand, and have a greater lifetime value than non-referred customers. As a result, by increasing the number of customer referrals, you can increase the value of your customers over time and reduce your CAC.

In addition, great loyalty programs can help reduce churn and improve brand affinity. The more loyal your customers are, and the higher your customer retention, the lower your overall CAC. Whether you partner with a provider like ROI CX Solutions to create a referral program for your customers or create one in-house, it’s a clear path toward lowering your CAC.

Generate high quality leads

One way to make your marketing more effective is to strengthen the quality of your leads. The higher-quality your leads, the more effective your marketing and sales.

If you’re currently doing a lot of outbound marketing in-house and struggling to generate quality leads, it’s worth considering outsourcing this task to a trusted provider. Many of the brands we’ve worked with at ROI CX Solutions have lowered CAC by getting qualified warm leads from our team. Since the leads are pre-vetted, screened and verified, your team doesn’t have to waste time on contacts that end up being dead ends. Instead, you spend more time effectively selling to qualified leads that are within your target audience.

Get positive reviews

Customer satisfaction (CSAT) and your overall customer service make a big impact on the loyalty and retention of your customers. Think your customers are pretty forgiving? Think again:

• 73% of customers say customer service is an “important factor in their purchasing decisions.”
• 71% of customers say they would switch to a competitor after just one or two bad customer service experiences.
• 73% of customers say “a positive customer service experience makes them more likely to make another purchase.”

Improved customer service has a direct correlation with improved loyalty and increased spend. As such, having positive reviews—on your website, on review sites, and on social media—is an important way to signal to customers that your brand is one they can trust. Positive reviews also work as a sort of referral—generating social proof and trust in your product that influences purchasing decisions.

While there are many ways to generate more positive reviews—from improving CSAT to sending out rewards for customers who leave a review—you can reduce your CAC by allowing your customers to do some marketing for you.

Automate marketing and customer service

Did you know that 67% of consumers prefer self-service options—especially if it means they can get a faster response?

Customers like automated solutions because it means instant answers. And with the average consumer expecting a response to customer service questions within 10 minutes, providing automated solutions alongside your human-powered customer service makes more sense than ever. Self-service solutions, knowledge bases, chatbots—all of these tools are great ways to automate your customer service.

With automated solutions, not only do you improve CX by allowing customers to get help instantly, but you reduce the amount of time and resources spent internally. This can free up your team for more complex customer questions and make your marketing and customer service more effective overall.

You can automate other aspects of your marketing as well, from sales emails to generating warm leads to nurturing sequences and more. If automation is new for your organization, outsourcing can help your team develop automation or AI integrations to make your customer service more effective.

Build personalized experiences

Personalization is no longer a novelty in customer experiences—it’s an expectation. While the majority of customers (66%) expect companies to understand their needs and preferences, it’s still not a given that this will happen. As a result, some 80% of customers say they’re more likely to purchase from companies that offer personalization.

Customers who have personalized experiences are also more likely to become loyal to a brand and are typically willing to spend more.

What does all of this mean? More personalized experiences mean you get more for your money when it comes to customer acquisition costs. The more targeted the experience, the more likely the customer is to convert—which means personalized, targeted marketing is effective marketing that will lower your CAC over time. 

Create organic content that connects with your audiences

Organic marketing channels (as opposed to paid channels like PPC or paid ads) are a great way to connect with your target audience in personalized ways while reducing your customer acquisition costs. After all, when content is published on an organic channel, it’s typically free—and you can continue to optimize and re-share winning content over time.

For example, consider you spend $500 one month on paid ads, and bring in 100 new customers as a result, your CAC (based on the paid ads alone) is $5. Not bad—but imagine instead that you create 10 social media posts that each bring in 10 new customers. You’ve drawn the same amount of attention—but at a fraction of the cost.

Social media posts, blogs, website content, videos, podcasts and more can all help create an organic content strategy that connects with existing audiences and reaches new ones. The best part is: it’s much more cost-effective in the long-term, since a single piece of effective content can continue drawing in new customers for years.

Use data and feedback from customers to create promoters

Your Net Promoter Score (NPS) is a valuable piece of data for how to acquire and retain customers more effectively.

One of the most effective ways to use your NPS is to gather feedback and data from the surveys and reach out to frustrated customers to try to turn some of your detractors into promoters. Oftentimes, customers have a complaint or a poor experience that can be made up for with a coupon, discount code, or some other solution, but they haven’t reached out directly to resolve the problem. If you reach out first and attempt to fix the problem, it can leave a good taste in their mouth and even change their opinion of your customer service and brand.

This can improve CAC because it turns previously-churned (or nearly-churned) customers into potential repeat customers. In addition, promoters are, as we’ve noted above, extremely valuable for your business and your marketing efforts. Research from Bain & Co. demonstrated that promoters have a CLV 6x to 14x higher than detractors.

As a result, it’s definitely worth trying to improve your promoter:detractor ratio—for your CAC, for your marketing efforts and for your CLV.

Invest in omnichannel experiences + support

Finally, if you want to reduce your customer acquisition costs, investing in omnichannel experiences and support can be an effective long-term strategy.

Omnichannel support doesn’t just mean being available on any channel—it means creating connected, seamless experiences that follow the customer from one channel to the next. 73% of customers already use multiple channels during their purchase journey, and they expect their experience to connect across channels.

As a result, delivering truly seamless omnichannel experiences develops customer loyalty. Plus, when customers are able to interact with your brand on their preferred channels, you increase engagement and efficiency, boosting conversions. It also shortens the buyer journey and prevents you from having to rely as much on retargeting campaigns, thus lowering your CAC directly.

Ready to lower your CAC?

Now that you know some of our key tactics for reducing customer acquisition costs, you can implement them in your own team and marketing strategies. If you need support reducing CAC and strengthening your customer experience, ROI CX Solutions can develop powerful customer acquisition strategies unique to your business and goals. From exceptional customer care to data-driven strategy, we’re here to drive customer success for your business every step of the way.

Connect with an expert from ROI CX Solutions today to learn more about how you can reduce your CAC through exceptional customer experiences.