The Cost of Acquiring New Customers Explained

The Cost of Acquiring New Customers Explained

Acquiring new prospects is not an easy task but it’s what every successful business needs to do constantly to scale. The goal is to have a steady influx of new customers because it eventually translates to bigger revenue. Yet research shows that customer acquisition is more expensive than retaining new ones. This sounds about right, as a lot of work and money comes with pulling in new clients.

Loyal Relationships

According to research by bestselling author and business strategist, Fred Reichheld, existing customers generate increasing profits each year they stay with a company. This is because loyal customers buy more from a company over time. When this happens, the cost in operations decreases compared to when you’re trying to get new clients.

Another upside with having loyal customers is they turn into your best marketers. This is via the power of word of mouth. Many are not aware that building and ingraining loyalty into your customers can translate into your company acquiring new clients without you shelling out a dime.

 

Acquiring New Customers

Growing your client base means one thing — business expansion. But you have to face the music, it’s not an easy feat. If it were, everyone would’ve opened a business and done it.

Knowing your Customer Acquisition Cost (CAC) will get you on top of things. Calculating how much you spend on acquiring new customers will let you know what you need to prepare to make more profit with your growing company.

 

Customer Acquisition Cost

How much does it really cost for you to acquire a new customer? How long does it take until they’ve become a profitable revenue stream for you? Customer acquisition cost gives you insight into this. It’s the costs of getting new customers through sales and marketing. Now we calculate your spend vs your return.

The formula you need to follow is:

Costs on a campaign or marketing ÷ Customers Acquired

 

Add all the expenses on acquiring customers (marketing, renovation or web redesign, employee salaries, ad spend, publishing, etc), and divide by the number of customers acquired for the duration of the campaign. This will yield the overall CAC.

Let’s take a made-up SAAS company as an example. It offers services and packages ranging from $50 to $1000. For a one-month campaign, it spent about $50,000 on the following:

  • Marketing
  • Ad Spend
  • Employee Salaries 
  • Content Creation
  • Publishing
  • Production

 

Following the campaign, the sales team reported 15,000 new customer sign-ups and purchases. Using the formula, the CAC will be $3.33 per customer.

So, how long will it take until you generate a profitable revenue stream? It depends on what kind of business you’re running. It’s different for mobile phone companies, or a monthly subscription-based business, or SAAS. Ultimately, the goal is to reduce acquisition cost while maintaining the conversion of leads.

Tips on  acquiring new clients while reducing CAC:

1. Use Social Media

Social Media is key nowadays. There are a number of platforms that allow you to directly connect with new prospects. Just by creating and optimizing your Twitter, Instagram, Facebook, and LinkedIn profiles, you have more opportunities for increasing your company’s online visibility.

2. Update your content

“Content is king” is a phrase that will forever ring true. But, keep in mind that users are constantly looking for new and fresh content. They want new information. As the digital landscape evolves, so do new problems and challenges that users face.

3. Use testimonials

The voice of the customer is stronger than any statistics or strategy. A recent study revealed that 88 per cent of buyers are influenced by reviews when it comes to their buying decisions. The purchase for a product with five reviews is 270 per cent greater than a product with no reviews. In another article, we explain how to use testimonials in your local SEO strategy. 

4. Optimize your site and grow your online presence

Search engine optimization is key here. It’s now the eCommerce era, which means ranking high on Search Engine Page Results should be at the top of your priority list. According to a 2019 survey, 60% of millennials make their purchases online. Those who fail to adapt lose that number. You must have heard stories about billion-dollar businesses closing down partly because they didn’t know the value of growing their online presence. It’s not that difficult to do, considering there are local SEO services readily available for businesses nowadays.

5. Get referrals from existing customers

Nurturing your customers has its perks. Existing customers generate increasing profits the longer they partner with you in business. They can get you new clients through referrals if they continue to advocate your brand.

Think about the customers you want to work with and understand that what you need to happen is to acquire these people. 

What a company aims to do is to lower how much they spend on acquiring new customers. This is because it signifies that the company is booming and thriving.

Just remember that the main goal for any business – whether you’re an internet service provider, software as a service company,  or a digital marketing agency – is not just to obtain new clients but to turn existing customers into lifetime clients.

 

SEO brief

Author

Marcus W K Wong is the Head of Marketing at SEOReseller.com. A digital marketing weapon with a passion for SEO, Conversion Rate Optimization and User Experience – Marcus brings over a decade of selling on the frontlines to empower a new wave of digital marketing agencies around the world. 

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