Have you ever wondered how much it costs for someone to buy one of your products?
SummaryWhat is customer acquisition cost?How to calculate customer acquisition costHow to reduce customer acquisition costStreamline your customers' buying experienceMake your business easy for local customers to find online Embrace relationship management customerImprove your customer acquisition costThen you've come to the right place.
Customers have a price called customer acquisition cost (CAC), and it's one of the most important pieces of information for business owners who want to get more customers without breaking their marketing budget.
So how do you get more customers without breaking the bank? We've broken things down into three categories:
Let's dive!
Your customer acquisition cost is defined as the cost it costs your business to attract a new customer.
CAC is calculated by adding up all your marketing and sales costs and dividing them by the number of new customers acquired during a certain period of time. Here is the formula:
For example:
Let's say you spent $5,000 on marketing and sales expenses in October. That same month, you received 1000 new customers (that is, only customers who have never visited or made a transaction in your store before).
Sum of all marketing and sales expenses = $5,000.00
Total Newly Acquired Customers = 1,000
ACC = $5
In this example, it costs you $5 to acquire a new customer.
The next question you should ask yourself is "What is the average value of my transaction?" If your POS system's sales reports tell you that your average transaction value (ATV) for October is less than $5, that means you are indeed spending more than you earn per sale. Not good. Your MTB should ideally be higher than your CAC.
Let's say you fall into the above category:your CAC is higher than your MTB. How do you lower your CAC?
A great way to reduce your acquisition cost? Remove as many barriers to purchase as possible.
Help customers easily find and buy what they are looking for in your store or on your website. The easier it is for them to find and complete a purchase, the more transactions your store can make (which is why online vendors are developing click-to-buy technology).
The same can be said for physical transactions:every retailer's goal should be to remove as many friction points as possible from their buying process.
Imagine being a customer ready to buy something, only to find yourself in a long queue to pay. Most customers will completely abandon their purchase if the wait time is too long. Research from Irisys has found that Americans will leave a queue after waiting just six minutes.
The best way to stop losing sales due to long lines? Eliminate them completely.
Barbara Thau, a Forbes writer, suggests brick-and-mortar retailers “banish queuing, once and for all” to avoid losing sales.
A cloud-based POS effectively removes the need for traditional queues and cash registers. Sellers can make sales from anywhere in the store and accept any type of payment. Only if the transaction is cash, you should move the transaction to your cash register, but consumers are using cash less and less these days.
If you want to increase your average transaction value, we suggest updating your store merchandising and POS displays to sell more items. For more on how to increase in-store sales, check out a list Lightspeed curated with other retail experts, How to Increase Retail Sales – 11 Tips.
The next step is to get more customers to find your store or website for free. To do this, we suggest you do the following:
The concept here is simple:focus your marketing on the people who live near your business. If they can find you online, check your inventory, and get directions quickly, the likelihood of them visiting you increases dramatically.
That's why we've created a step-by-step guide to creating a GMB profile and optimizing your business' Facebook and Instagram profiles so more local customers find you online for free. With a little work, you can attract customers for $0.
If you consistently have what customers are looking for in stock and your customer service is personalized, friendly and helpful, customers are likely to return to your store again and again.
The more they come, the more they buy. Commonly referred to as Customer Lifetime Value (CLV), the metric looks at the estimated revenue you make from a customer over the length of their relationship with the company.
We mentioned ATV earlier, you can think of this as a micro view of your sales. CLV, on the other hand, is the macro view – the big picture.
In an ideal world, you want a 3:1 CLV/CAC ratio. In a nutshell, this means you generate three times more revenue from a customer than it costs you to acquire them.
But how to achieve this ratio? In part, by leveraging loyalty programs, referral programs, and customer retention.
Loyalty programs
A loyalty rewards program incentivizes members to make more purchases, eventually earning points they can redeem for exclusive rewards. In a nutshell, it motivates repeat visits and purchases. The more purchases they make, the more points they redeem for exclusive offers, promotions and gifts.
For the retailer, the loyalty program helps grow their CLV. It's a win-win scenario.
See also:Will your customers buy from you tomorrow?
Referral Programs
Your existing customers are your store's greatest brand ambassadors. If they are satisfied, they are more likely to recommend your store to friends.
Believe it or not, brand ambassadors and referrals are one of the most effective ways to attract new customers. 77% of customers are likely to buy from a business that was introduced to them by friends.
Rather than investing tons of money in marketing to acquire customers, the most profitable (and financially viable) way to acquire new customers is for your happy customers to spread the word and recommend your business to you.
It's a genuine trust signal that marketing alone simply cannot replicate.
Consider encouraging your customers to recommend your business to friends and family. For every customer they refer, they get more points that they can use in your rewards program.
Customer retention
Did you know that it is 25 times more expensive to acquire a new customer than to retain an existing one?
That means one thing:if you focus on keeping your existing customers happy (happy enough to recommend your store to friends), you can get them to find new customers for you. It's cheaper and more efficient.
Want to know what your company's current customer retention rate is? Just use this formula:
Customer retention brings a ton of ROI:
See also:12 tips to retain customers and boost sales
Improving your customer acquisition cost is a process that must start from within.
Before you focus on finding new customers and launching fancy marketing campaigns, you need to make your existing customers happy. When your customers are satisfied, they voluntarily recommend your business to their friends and family. Your customers turn into brand evangelists; Walking Trust reports that you find new customers for free.
The next step is to increase your customer lifetime value. With loyalty and referral programs, you can increase your customers' in-store spend and achieve the 3:1 CLV to CAC ratio we mentioned earlier in the article.
But it all starts with customer satisfaction. When customers are happy, businesses don't need to spend so much on marketing to convince people that their store is worth visiting and spending their hard-earned cash.
