Customer Acquisition Cost (CAC) has become a key performance indicator (KPI) for many companies, especially those with a recurring revenue business model. It helps analyze the impact of marketing actions and make decisions to improve them.
This article will discuss how to reduce your CAC.
After defining this indicator and showing how to calculate it, we will explain how to improve it.
What is Customer Acquisition Cost (CAC)?
As its name suggests, CAC is a KPI that measures the average cost of acquiring a customer over a period. It is the amount you invest on average to acquire a new customer. From increasing your visibility to getting new leads to converting leads into customers, each step requires financial resources.
Why should you calculate and track this indicator?
Quite simply, to know the profitability of your customer acquisition investments. Because having new customers and selling new products and services does indeed increase your turnover. However, you need to make sure that the cost of the acquisition actions you put in place does not erode your margins too much.
This indicator is useful for measuring the profitability of your acquisition actions, but also for making comparisons. As a standard and widespread indicator, you can compare the CAC of your different products and services and the different subsidiaries of your group. It is also a very good indicator to position yourself vis-à-vis your competitors, thanks to sector data.
By breaking down your CAC, you will highlight the most profitable actions. Is it Inbound Marketing, cold emailing or your partnerships? This KPI will tell you. And if you are able to measure it in real time, you will be able to detect improvements to be implemented to continuously improve the ROI of your different customer acquisition actions.
How to calculate the cost of acquiring a product or service?
You can calculate CAC by dividing the amounts invested in your acquisition campaigns by the number of customers obtained as a result of this campaign.
CAC = Budget of acquisition campaigns / Number of customers obtained
The budget for acquisition campaigns includes all the amounts invested in marketing and sales to obtain new customers.
The more your analytical accounting allows you to categorize your expenses and products, the more you will be able to calculate precise CACs. This is a great way to measure (and then improve) the ROI of different campaigns and focus on the actions that bring the best results.
Also, the whole point of setting up KPIs lies in their accuracy and availability. The more your company is able to calculate your key performance indicators precisely in real time, the more you will be able to adjust your campaigns quickly and efficiently. This is an essential first step before implementing levers to improve CAC.
How to improve Customer Acquisition Cost?
Now that we have seen what CAC is, what it is used for and how it is calculated, we can see how to improve it.
To improve a cost, you need to reduce its weight in the company’s revenues.
We propose two actions to implement to improve your CAC and the ROI of your acquisition campaigns.
First, offer a trial offer. This is a great way to increase your number of potential customers. Because once your audience understands your offer, they need to be reassured about the benefits they will be able to obtain. With a trial offer, your potential customers will be able to familiarize themselves with your offer, understand the benefits and gain confidence in your company.
Second, offer a progressive rate. With the rise of the functional economy, consumers are buying the use of a good or service (rather than the ownership). By setting up a progressive tariff, you offer the possibility to your new customers to buy what they really need at the moment. Then, as their needs evolve, they will be able to opt for another adapted offer, thanks to the progressive tariff. On the one hand, you have an additional way to convert your leads into customers, and on the other hand, you improve the CLV (customer lifetime value).
In parallel with the acquisition cost, also make sure to maintain good retention. As you know, maintaining or increasing revenue with existing customers requires less financial resources and energy than doing so with new customers. We therefore encourage you to implement 2 useful actions for this objective: immediate refund and instant offer change. These are for us two new key factors of success for customer support.
In conclusion, to improve your CAC, the speed of implementation of new offers, the ability to adopt innovative pricing and to provide a tailored customer experience are essential. To achieve this, we advise you to rely on an innovative monetization platform to offer each customer a personalized offer.
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