Proven Ways to Improve Profits and Lower Customer Acquisition Costs

Proven Ways to Improve Profits and Lower Customer Acquisition Costs

Proven Ways to Improve Profits and Lower Customer Acquisition Costs

Proven Ways to Improve Profits and Lower Customer Acquisition Costs

The fun part of digital marketing is brainstorming strategy, writing engaging copy, and creating beautiful graphics then launching a new campaign into the world. It’s what makes me want to come to work every day. But digital marketing isn’t just about the specific campaign. It’s about creating profit for our clients. One way to improve your profits this year is to lower your customer acquisition costs.

Customer Lifetime Value

During our first conversation with a prospective customer, we start by talking a lot about their business. We also ask about the cost of an average sale and their customer’s lifetime value. Many businesses haven’t really thought about either. 

Let’s break it down. 

For many businesses, their sales vary. Think about a flooring store for example. They might sell a hundred square feet of vinyl flooring to a customer whose bathroom flooded. Ten minutes later, they could start a plan for a new home construction with three-thousand-square-feet of flooring including hardwood and ceramic flooring, a tile shower, and a backsplash. The cost between the two projects is huge. That’s why we talk about average sales costs.

The other number, customer lifetime value, goes a little deeper. That customer who bought a hundred square feet of vinyl flooring will likely return when they’re ready to replace the carpet or decide to build a new home if they find value and good customer service with the company. If a company sees customers return multiple times throughout many years the value of that customer isn’t in their first purchase but in all the repeat purchases.

Customer Acquisition Cost

To find real profit, you must make more money from a customer’s purchases than you spent wooing them to buy from you. Here’s where we do a little math. 

Cost of marketing + Cost of sales/New customers acquired

In order to know your Customer Acquisition Cost (CAC) you’ll need to know how much you’re spending on marketing and sales and divide it by the number of new customers you have in that time period. Marketing includes all the money you’re paying to reach your customers and sales would include the staff costs of closing the sale. If your CAC is $100 and a customer’s lifetime value is $100 then your ratio is 1:1 and you’re not making any money. Ideally, you’d want to see at least a 1:3 ratio where your CAC is $100 and your customer’s lifetime value is $300.

So how do you lower your CAC?

Testing

Before you launch any new marketing initiative, know how you plan to test the new channels. Some marketing channels take a little while to start pumping in new leads. Give it time before you pull the plug. Know your CAC ahead of time, then factor in the new marketing initiative. Track where you get new leads and how many of those leads close. Set a specific amount you intend to spend on any new marketing initiative and make sure it’s sufficient to actually draw attention to your brand. Not every advertising opportunity is a good one for your business. Keep track every month of how your CAC changes. If you’re seeing higher costs without more customers after three to six months it’s time to change the ads or pull the plug on the new advertising avenue.

Spruce up your website

Sometimes the problem with your CAC isn’t your ad or the tactics you’re using, it’s your website. Never send prospects to the main front page of your website. Typically you have more information than they need there which only creates confusion. Create a landing page that drives your customers to leave their contact information, ask a question, or visit your store. If you’re getting a great click-through rate from your ads, but are not converting visitors on your website, you may be sending them to the wrong page.

Also take a look at your About Us page. Do you have detailed bios on your top staff members? Have you summarized your company’s history? Can your website visitors easily tell where you are located? Transparency on your website builds trust. Your prospects want to know who will manage their account even if they never meet you in person.

Customer Retention & Referrals

We all know it costs more to close a customer than to keep a current one. What are you doing to keep your customers happy? How can you upsell them without making it feel like you’re nickel and diming them? If your product or service is a “one-time” purchase, is there a way to keep those customers engaged so they refer you to their friends and family?

For instance, if you are a realtor, your buyers most likely won’t come back to purchase another home two months in a row. However, they probably know friends and family who are looking to purchase another home. By keeping those past customers engaged and remaining top of mind, you have a better opportunity to receive repeat business later and you can be the recipient of their referrals.

Asking current customers for referrals can be awkward. Don’t let that stand in your way. If your industry allows you to reward customers for the referrals, create a program with rewards your clients will want to win. One of our clients offers weekend getaways, designer women’s handbags, and electronics as referral program giveaways. Each time their customers referred a new client, they were entered to win that month’s drawing. The lifetime value of their customers was over $3000 so they could afford to giveaway a gift worth a few hundred dollars.

Digital Marketing Tools and Tactics

E-mail marketing — It’s one of the most economical ways to reach out to current and past customers or those who have shown an interest in your company. Offer value in these emails to increase open and click-through rates. Test your headlines and send dates/times to see what influences engagement. Your email list is one of the most valuable tools you have.

Marketing Automation — This fits right in with email marketing. Create a drip campaign that automatically sends out emails to prospects or customers when they take action on your website or at a specific point in your business relationship. This saves you on staff time because no one is having to manually reach out every few days.

Retarget — Use your email list to target your paid social media ads. Set up social media ads and Google display ads to retarget people who visit your website. Create ads that specifically mention the service or product people viewed on your website. They’re already thinking about you. Take advantage of that to move them further down the sales funnel.

Cross-promote — Few people think about how they can benefit another business or how that business can benefit them. Think about what products and services your clients also use. Could you share their posts on your business Facebook page? Could you take a picture of a product you bought from them to share? Could you share about them on your email list? In return, ask other businesses to do the same for you. Sure, you’ll likely have some of the same customers, but you each have different customers you can reach.

All of these options allow you to spend less on paid advertising and invest less of your sales staff time with more customer conversion. If you’re struggling to find creative ways to lower your customer acquisition costs, we’re happy to help you create a strategy to increase lead generation and sales conversion.