Customer acquisition costs can make or break an ecommerce business. Spending too little could result in no new customers. Spending too much could bankrupt the company.
In 2019, global financial services group Nomura estimated Apple Card spent $350 acquiring each new cardholder — an amount that could take years to recover. Acquisition costs vary immensely across business sectors and analysts. For example, First Page Sage, a search-engine-optimization agency, reported a CAC of $84 for retail and ecommerce; digital marketing firm Chatter Buzz says it’s closer to $45.
Computing the CAC is straightforward: Divide total promotional costs by the number of new customers. Take all costs into account, including overhead and labor. The final result may shock you — it’s common for companies to post losses when spending heavily on acquisition.
Say an ecommerce company’s CAC is $210, and its average sale is $45. How long it takes to recoup the costs depends on the profit margins of the products and the number and value of repeat purchases. The calculation gets complicated as it requires estimating the average percentage of customers who make any repeat purchases and then how often for those who do.
Thus acquiring customers at the lowest possible cost is essential. Here are nine pointers to help.
- Focus on the right audiences. Target the folks most apt to buy.
- Retarget prospects who show interest. Remarketing to people who visited the website from an initial outreach is relatively inexpensive — and productive.
- Optimize the site for conversion. Spending money to drive traffic to an unattractive or confusing store is a waste. If the website needs an overhaul, consider pausing all campaigns until the work is done.
- Amp up retention efforts. It costs less to retain customers versus acquiring new ones. Plus, loyal shoppers will likely refer prospects to you.
- Use the right tools. Automated email, text, and other tools can save on labor costs, while customer retention systems can keep customers happy and identify retention weak spots.
- Analyze the purchase journey. Rely on website analytics and shopper feedback to improve someone’s trek from brand awareness to buyer. Understanding where and why shoppers drop off is essential.
- Send abandoned cart emails. One of the most effective ways to consummate a purchase of items left in the checkout process is to reach out to the shopper. Most carts include this feature.
- Publish relevant content. Gain the attention of prospects by producing content relevant to your brand. A blog, for example, can spotlight how customers use your products, the causes you support, and the company’s values. User-generated content such as product reviews and social media posts can provide testimonial-like benefits.
- Define acquisition targets. Rather than look at CAC as a whole, consider the amount per demographic, geolocation, or product line. You may find excessive spending culprits.
Not Easy or Cheap
Attracting new customers is rarely easy or cheap, but you may be spending money in the wrong places. Once you realize the actual cost of acquisition and how it translates to long-term profit, you can plot an effective strategy.