Updated: Jul 25
CAC or Customer Acquisition Cost is the cost incurred by your eCommerce brand to get customers to visit your website or other sales platforms, and purchase products or services. The CAC is an important metric to track to understand how well both organic marketing strategies and ad spending are working for you. Here are some of the reasons why CAC is key to a sound marketing strategy:
Tracking CAC and maintaining (the lower the better) it helps brands take informed decisions on investments in different marketing channels.
CAC is a necessary metric to understand the time it takes for a customer to bring money back to the brand that was spent across different channels for marketing purposes. In other words, time is also an important determinant of success.
Finally, CAC is important to understand the financial viability of a business. Really high customer acquisition costs are likely to make a retail venture unsustainable.
In this article, we talk about how you can reduce your Customer Acquisition Cost and how the Growth Platform can help.
5 Ways to Reduce CAC
Now that you understand why you need to monitor your Customer Acquisition Cost, here are some ways by which you can reduce it.
1. Tracking your expenses
Tracking marketing expenditure is the first step toward controlling CAC. It is important to continuously track how much money you spend per customer acquired and how long it takes for that customer to pay you back to cover the expenses incurred in their acquisition.
Tracking also helps you optimize your budget, cut costs where needed, and increase your spending on channels most likely to give you long-term returns.
2. Identifying your audience
Before defining your marketing budget, you must consider who your audience segments are, what is the most cost-effective way to engage them, and what costs you are likely to incur as you engage them through their buying journey. CAC covers not just the direct costs associated with marketing, but also the costs of marketing operations- the tools you need, the expertise you employ, and so on. A vital step in reducing CAC sustainably is identifying and segmenting your audience. If you are unable to get a sense of the audience that is likely to convert and become a customer, the entire budget will be wasted since little to no audiences will convert.
Consider a budget jewelry brand that makes contemporary accessories. Now, the brand must understand its ideal audience (in this case, likely, young women who are early working professionals, or attending college) to target people who are likely to make a purchase. If the brand targets say broad market, which is composed of adult males instead, the costs will skyrocket.
A great way to reduce CAC is to reach out to audiences who have previously engaged with or visited your platform and convince them to make a purchase. This way, you are able to improve retention and recall as the customer has already noticed your product in the past.
Retargeting allows you to target those who have had an interest in the past, however, have dropped off for some reason. However, the audience still remains a viable lead since the brand awareness stage has already been crossed. Therefore, the chances of conversion are significantly higher, and thus, the CAC is much lower for these groups of people.
4. Referral and affiliate programs
Apart from traditional channels to acquire customers, you can also acquire customers by incentivizing existing customers to sell on your behalf. This is usually done with the help of referral programs. Typically, customers are offered a discount or freebies if they refer another person to make a purchase, and the reward is only given when the purchase is complete.
Another way to outsource acquisition is through affiliate programs. Here, third-party publishers are incentivized for generating leads and acquiring customers for you. The third-party may include renowned personalities, influencers, and generally anyone who is able to draw an audience. The reward is offered in the form of a commission for every purchase made through the affiliate’s channel.
5. Optimizing content
Content plays a major role in any customer acquisition exercise. Therefore, when attempting to reduce CAC, you must optimize your content strategy and leverage it to improve conversion.
Everything from ad copy to blogs on a website and even the product description are important when acquiring a customer. Also, bear in mind the fact that organic channels are equally important in customer acquisition, and usually offer a significantly lower CAC. Engage people with contests, quizzes and tons of interactive content on social media. Keep your email marketing highly relevant to the audience segments you create. Use WhatsApp as a promotional channel, but do not overdo the messaging here. When it comes to a content marketing exercise, always consider what you’d like to see if you were your own customer, and tune your campaign frequency and content accordingly.
How the Shoptimize Growth Platform helps
At Shoptimize, we help you understand and implement a robust growth strategy, and optimize your spending across multiple channels to yield the best return on investment. Here is how the Shoptimize Growth Platform helps reduce CAC.
1. Granular data
The Growth Platform helps you track CAC by delivering detailed insights into expenditure in terms of both spending and efforts. As a result, you can track exactly where your CAC stands, and why.
The platform is able to break information down into granular data, providing information on everything from the campaign level to the ad-set level, and even the individual ad level. The platform also allows you to understand the cost of acquiring customers through organic channels.
2. Insights and recommendations
The Growth Platform’s state-of-the-art AI engine assesses every aspect of a campaign for your brand, and based on a multitude of factors, delivers recommendations to optimize expenditure.
The Platform delivers insights and recommendations to make adjustments to a campaign based on the geography, demographics, source, catalog, preferences, and incentives. The platform tracks the performance of every aspect of the purchase of a customer and delivers information along with the ideal action items to reduce CAC and improve your revenue numbers.
In perhaps the most important area for CAC reduction, the Platform helps you create different cohorts among your customer base, and helps you identify who are the ideal customers, and how these customers are different. Based on these differences, ranging from the location to the preferences of the customers, you can decide what kinds of campaigns to run.
If you’re looking to significantly reduce your CAC and gain better revenues, talk to us about signing up for the Shoptimize Growth Platform.