How to lower customer acquisition costs

Woman learning How to lower customer acquisition costs
October 09, 2023
Written by
Twilion
Reviewed by
Twilion
Twilion

How successfully are your marketing efforts reaching customers? One of the best ways to gauge this is through your customer acquisition costs (CAC), which can tell you a lot about how your marketing efforts perform with your target demographic.

While retaining existing customers is also a great way to sustain company progress throughout the year, gaining new customers is necessary for meaningful growth. Without new customers, any company will stagnate.

However, growing your customer base is not only challenging but also expensive. Here, we'll learn about CAC and how to use this metric to develop low-cost solutions to bring on new customers without straining your budget.

What is customer acquisition cost?

Customer acquisition cost refers to the expenses associated with acquiring a new customer. This includes everything from your marketing personnel's salaries to your budget for various advertising categories, such as social media marketing, Google Ads, and billboards. Did you recently hire someone in your marketing department or spend $3,000 to purchase a brand-new laptop for your social media manager? You must include these when calculating CAC.   

How do you calculate CAC?

While many expenses fall under the customer acquisition costs heading, calculating your overall cost is necessary to understand how they affect your business. To see how much you pay to acquire each customer, add the costs of your marketing efforts, then divide that number by the total number of customers acquired.

CAC = total marketing cost / total number of customers acquired

For example, say that between salaries, office space, ad spend, equipment, and overall office costs, you spend $250,000 per year on marketing. In that year, your company acquired 2,500 new customers. In that case, your cost to acquire each customer is $100. If each customer spends well over $100 on your products or services, your CAC is good. However, if each customer spends under $100, your CAC metric might indicate a problem for you to address. 

Top 9 tips to reduce CAC

The following nine tips will help you reduce CAC, improve the customer experience for new and existing customers, and make your company more resilient to changing demands.

1. Personalize your marketing efforts 

One of the biggest marketing mistakes that businesses can make is to be too general. Even if you have a niche product, it's unlikely that customers will fall into only one demographic. Generic marketing campaigns that lack personalization will struggle to attract (and retain) customers. In fact, 75% of Gen Z customers will leave a brand that doesn't personalize their experience.

To successfully personalize your marketing and customer experiences, you need high-quality first-party data—data that comes directly from customer interaction with your business. Without it, it's difficult to segment your audience effectively and understand how your customers found you. 

Getting quality data through a customer data platform can help ensure more personalized and strategic marketing.

2. Focus on your existing customers 

It sounds counterintuitive, but focusing on your existing customers lowers CAC overall. Taking steps to improve customer retention can reduce your overall marketing costs, which lowers your customer acquisition costs.

Here are two ways to tackle common customer challenges to improve your existing customers' experience:

  • Safeguard their data privacy: Reassure customers that you prioritize their privacy to increase their confidence and trust in your business.
  • Reward loyalty: Consider the fact that 75% of consumers would switch brands if they discovered one with a superior loyalty program. If you don’t have a loyalty program in place, this is an excellent reminder that customers reward brands that reward their loyalty.  

3. Build a stronger community 

Cultivating a robust customer community can offer meaningful benefits to businesses looking to lower CAC. Creating a sense of belonging and encouraging engagement within a company's customer base provides ongoing opportunities for organic advocacy. 

Satisfied customers who feel connected to the community are more likely to share positive experiences of the brand, recommend products or services, and offer personal testimonials. These organic endorsements carry much more credibility than any marketing campaign and can lead to increased referrals, reducing your overall customer acquisition costs.

Additionally, having a responsive and engaged customer community can provide valuable insights into consumer preferences and pain points. This real-time feedback allows businesses to fine-tune and further personalize marketing efforts. As a result, conversion rates improve, lowering your cost per acquisition.

4. Retarget customers 

Sometimes, customers just need another nudge to complete a desired action. For example, they browse your site but don’t make a purchase or sign up for a newsletter. Retargeting ads can help you give these would-be customers the push they need to convert.

These ads tend to be cheaper than prospecting ads—those targeting brand-new customers—and can yield higher comparable conversion rates. That’s because retargeting focuses on a narrower audience and warmer leads, which can help you use your resources more efficiently. This precision leads to a reduction in CAC, making your marketing budget more cost-effective.

However, this strategy only works if a high number of people visit your website and a lower number takes the desired action. Better user experience metrics can help you get a more accurate read on these numbers and give you better data to use in retargeted ads.

5. Create value with great content 

Content marketing is an incredibly valuable resource that can boost your company profile and deepen relationships with customers. Depending on your audience, you can publish blog posts on your website or focus your efforts on social media.

Whichever platform you use, publishing dynamic and interesting content regularly helps build your brand’s social profile, attracting and engaging potential customers. When you generate interesting content consistently, you establish your brand as an authoritative resource within your industry, building trust and credibility with existing and future customers.

This increased visibility also drives organic traffic to your website or social media accounts, which can reduce your need for paid ads and lower your overall marketing spend. 

6. Try A/B testing 

If you spend more money than expected without the results desired, your current message isn’t likely resonating with the intended audience. In this situation, A/B testing can offer valuable insights into your audience's preferences.

A/B testing is a process where you make minor changes to messaging, layout, calls to action, and other elements systematically to determine which version performs better. Harnessing a platform like Twilio Flex that offers access to zero-party data—data that customers share with your organization—allows you to be even more specific in creating customer cohorts, which can shape the results more accurately.   

Choosing this data-driven approach allows you to optimize your marketing efforts by focusing on what works, enabling you to allocate your budget more efficiently.

7. Experiment with different types of advertising

It’s easy for marketers to stick with the familiar instead of branching out and trying new things. Unfortunately, this can lead to rising ad costs based on market conditions while results stagnate. Plus, seeing ads from the same companies in the same locations can lead to ad fatigue, which further decreases the return on investment (ROI) from your current ad spend.

Instead, to boost marketing ROI, focus on experimenting with different types of advertising. For example, if you’ve traditionally opted for Facebook and Instagram ads, try TikTok. If you’ve only used social media, branch out by exploring emerging avenues, like native advertising, partnership deals, or newsletter and podcast sponsorship. Each platform offers unique advantages and reaches different segments of your target audience.

By diversifying your advertising portfolio, you not only reduce the risk of ad fatigue but also increase your chances of finding the most cost-effective channels for customer acquisition. Just be sure to monitor and analyze the performance of these new channels continuously to ensure your strategies work as expected. This flexibility in advertising strategy can be instrumental in lowering CAC and achieving better results in the long run.

8. Start an affiliate marketing program 

How many customers do you bring into your business through referrals? If the number is low, it may be time to explore an affiliate marketing program. This type of marketing uses affiliates to raise brand awareness in exchange for a commission on sales. Sometimes, affiliate marketing involves influencers and other paid social media figures, but not in every situation.

While companies get to dictate ad cost, affiliate marketing allows them to specifically allocate spend to acquire a new customer. This creates a more predictable outcome while increasing positive awareness of your brand, both of which can help lower CAC.

9. Offer a more seamless experience

Think about your customer experience from your customers' point of view. Does your current system require customers to jump through hoops to place an order or speak to a customer service agent? This friction can negatively impact your customer experience, affecting sales and increasing customer acquisition costs.

Focusing on omnichannel engagement can make it easier for customers to navigate your content, reach a human faster, or place an order when they’re in a hurry. Investing in more user-friendly interfaces, responsive web design, and a more frictionless contact center experience isn’t just a long-term growth strategy—it can also make a meaningful difference in customer acquisition and retention.  

Lower customer acquisition costs with Twilio Flex

The tips we offered above are crucial to helping you lower your customer acquisition costs, but marketing is just the first step. Your contact center needs to be ready to support your new customers once they arrive. We can help.

Twilio Flex is a flexible, comprehensive solution that helps businesses streamline customer engagement, enabling customers to connect with your business more efficiently. By optimizing customer interactions with tools like live chat, you can improve retention while lowering CAC in the long run.

Discover how Flex can help you start your journey to more cost-effective customer acquisition.