Customer Acquisition Cost The Silent Killer
I love digital marketing. Why? Because it’s data-driven, and numbers do not lie. If we’re running a less than successful campaign for a client or one of our businesses, we know about it, and most importantly, we can pivot.
As digital marketing has grown, the use of buzzwords such as synergy and collaborate have taken off. I don’t put much stock into the latest trends; however, there’s one that is critical to your business’s success.
Customer Acquisition Cost [CAC] will make or break your business. In the past, let’s think the Mad Men style marketing agencies, a company would decide on a marketing strategy, test it in a market, and then rely on methods such as coupon claims, tracking numbers, marketing research groups, etc.. to track consumers through the buying process.
Customer Acquisition Cost scales meaning the 100th new customer you acquire is going to be more expensive than the 1st. By simply opening up shop, a business will receive a certain amount of business and referrals. The cost to acquire the next customer continues to rise until market saturation.
Today’s digital marketers can execute highly targeted marketing campaigns and track customers through the buying funnel as they progress from prospects to leads to loyal customers, referral partners.
What is Customer Acquisition Cost? As you may have inferred, it’s the cost of convincing a prospect to convert into a paying customer, and it’s the single biggest battle your marketing strategy needs to combat.
Why Is Customer Acquisition Cost Important to My Business?
CAC is the metric used to determine the success of a marketing campaign, as it allows you to optimize the return on your advertising dollars. The lower you can get your CAC, the higher your profit margin, which then allows you to allocate funds appropriately.
Measuring Customer Acquisition Cost
How do I measure Customer Acquisition Cost? Calculating CAC is done by adding up all of the expenses used to acquire a customer (AKA Marketing Dollars) by the number of customers acquired during that period.
Example: My plumbing company spent $10,000 on marketing in 2019 and acquired 1,000 customers. Therefore the Customer Acquisition Cost is $10,000 / 1,000 = $10 per customer
Breaking Customer Acquisition Down by Channel
Understanding the CAC for each of your marketing channels is what most business owners want to know. In theory, if you know which channels have the lowest CAC, you’ll know where to expand your marketing budgets. The more funds you can allocate to the lower-cost channels, the more customers you can get with the same budget.
The easiest way to do this would be to gather all of your marketing expenses for your selected date range [year, quarter, or month] and add up each amount by marketing channel.
Example: My plumbing company spent $5,000 on SEO $3,000 on AdWords, $1,000 on BNI and $1,000 on Remarketing in 2019 which accounted for 1,000 customers.
Now that I know how many advertising dollars I spent on each channel, a basic calculation of CAC would look like this.
SEO = $5,000 / 250 = $20 per customer
Adwords $3,000 / 250 = $12 per customer
BNI (Network Marketing) = $1,000 / 250 = $4 per customer
Retargeting = $1000 / 250 = $4 per customer
Leading you to believe that it would be wise to double down on Network Marketing and Retargeting. This is where the waters get a little murky, above I listed 4 different marketing channels reaching 3 different stages of the marketing funnel. Each one individually would have some success, however, together they support each other. Retargeting makes AdWords and SEO more effective, Network Marketing leads to more introductions and brand name searches, which in turn leads to more retargeted ads. This is an important takeaway for what we’re about to dive into.
What’s The Takeaway
Separately, every strategy I’m about to teach you is effective, and I don’t expect small – medium-sized business owners to have the time and tools to track every single metric. Some channels are more expensive than others, and that’s okay. Some channels are easier to replicate than others. For example, search engine traffic is easier to predict and replicate than viral content. Implementing multiple marketing channels means that each channel supports each other as prospects move through your sales funnel.
The idea is this: You invest in Search Engine Optimization and Networking, a potential customer visits your site via Google or a referral, they are then served Ads on Facebook, they then click through to your website and opt into your email list, three months later they become a customer, they then send you a referral, and then nine months after they become a repeat customer. As each channel supports the other, CAC drops, and the business succeeds.
Understanding the marketing funnel and which marketing channels apply to each level.