Understanding your cost of acquisition: A key metric for growth

As an ecommerce business, your goal is to always meet the customer where they are. A great way to do this is by calculating the cost of customer acquisition and adapting your marketing strategy to improve it. Never heard of customer acquisition cost? No stress! Let’s dive in.

The rundown

Customer acquisition cost (CAC) is the total cost required to acquire a new customer. This includes the total cost and resources required to attract new customers and keep them. It is a crucial business metric that considers the salaries of marketers and salespeople, social media campaigns, advertising costs and more.

Your goal should be to reduce the cost of acquisition because it directly represents how effective sales, marketing, and customer service programs are to your business. Businesses use this equation to directly compare the amount of money they spend on attracting customers against the number of customers they actually gained. A lower CAC means higher returns, which is key to developing and growing any successful business!

The equation

It’s as simple as it sounds: Customer Acquisition Cost = Cost of Sales and Marketing divided by the Number of New Customers Acquired.

CAC = (Cost of Sales + Cost of Marketing) / New Customers Acquired

The first step when calculating your personal customer acquisition cost is to determine the timeframe in which you want to evaluate your CAC. This guarantees you’re narrowing your scope and remaining consistent when running your metrics. Then, add together your total marketing and sales expenses. This can include:

• Ad Spend: Money spent on advertisements
• Employee Salaries: Sales and marketing team and those hired as contractors
• Creative Costs: Money spent on creating content
• Technical Costs: Technology used by sales and marketing team
• Publishing Costs: Money spent on releasing the marketing campaign to the public
• Production Costs: Costs for physically creating content
• Inventory Upkeep: Money spent on maintaining and optimizing your product

Ways to improve Cost of Acquisition

What you offer to your customers is valuable. Your business, as a whole, is valuable. Don’t downsize your team or simplify your strategy to lower your customer acquisition cost. A lot of time and money can be put into marketing campaigns and sales efforts. And that’s okay. Just make sure it’s worth it.

1. Target your appropriate audiences

Find audiences that are interested in your product or services. Reach them where they are, on the platforms they use most. Create a buyer persona to give clear targets that will pull in new customers with a vested interest in your company.

2. Retargeting 101

It’s the abandoned cart problem. Potential customers often leave your site with incomplete actions. That gentle nudge back to your site can offer promising returns to complete a purchase that may have been left behind. This is a highly beneficial practice to generate those highly targeted campaigns to audiences who are interested in your business. Use it!

3. Use Conversion Rate Optimization (CRO)

Your website can benefit from some key changes. An effective site makes it easy to convert visitors to leads and leads into customers, seamlessly. Optimize your site for form submissions and shopping, and develop your copy to simplify what you’re offering.  This should help create a flawless shopping experience from start to finish.

4. Improve your product and web pages

If customer service is king, customer feedback is queen. Your customer’s opinions on your product are important to improving and expanding your business. Listen to what your customers are asking for, and offer it!

This feedback is also important when it comes to the customer user experience (UX) on your website. Customers with a positive user experience will show higher levels of customer satisfaction overall. Sometimes, these changes may be minor page layout changes or sales funnel developments, but it is important to monitor these changes to make decisions about what is (and is not) working.

5. Conquering content creation

Just like those product and web page developments, your content creation should run through the same developments and testing. Content creation is all about building out a genuine connection to customers. Despite this, some content simply never takes off. Monitor your content’s performance against the overall brand strategy and look for ways to improve. Test and learn, improve your tone, and create effective call to actions (CTAs) to develop your campaign as you go.

6. Accessing automations

Never underestimate the power of good automations. Using automated marketing and CRM tools can offer an abundance of benefits when it comes to improving your cost of acquisition. With tools that manage the marketing and customer relations aspects of your company, this switch to effective automation tools improves conversion rates and reduces acquisition costs by easing human resource costs.

7. Build out your business

As your business grows and scales, maintaining the cost of inventory upkeep and customer relations can be difficult. Develop your business as you grow, weighing and balancing the benefits of the cost of expanding your team, improving your warehousing, or partnering with a 3PL. Maintaining your business gets harder with expansion, and working with a team can truly benefit you in the long term. Partner with a company that knows the ups and downs of running an ecommerce business. If you’re considering partnering with a 3PL service, learn more about Saltbox and our logistics solutions here.

Grow with ease by harnessing the power of the customer acquisition cost equation. When you learn how much it costs to bring in new customers, you can make informed decisions on where your business stands and where it could be headed. Take the time now to calculate your customer acquisition cost to evaluate where to appropriately allocate your company’s budget.