13 Strategies to Reduce Customer Acquisition Cost
June 25, 2023 Edwin Kooistra
Table of Contents
- What Is Customer Acquisition Cost?
- Why It’s Essential for B2B Marketers To Measure CAC?
- How to Calculate Customer Acquisition Cost?
- CAC comparison by marketing channel
- Steps to compare marketing channels for CAC
- How Customer Lifetime Value (CLV) Metric is linked with CAC?
- Ways To Reduce Customer Acquisition Cost
The SaaS sector is experiencing phenomenal growth, with Gartner predicting the industry will be worth a mammoth $172 billion by the end of 2022. Attributed to both the pandemic and changes in corporate behaviors, cloud based services will see consumer spending up to $480 billion.
As the industry continues to grow and SaaS organizations acquire new customers, they must understand the importance of reducing the customer acquisition cost (CAC). CAC is critical for B2B companies for several reasons, but especially when talking in terms of ROI.
What Is Customer Acquisition Cost?
The customer acquisition cost is the sum of all costs incurred in the process of securing new customers. CAC calculations include all the expenses that were incurred in onboarding additional customers including advertising, marketing resources, sales teams, creative & content, and production costs.
Being a very popular and essential metric for cost efficiency and streamlined operations, the CAC is measured along with the customer lifetime value of individual accounts. Since it includes all marketing & sales costs, B2B organizations must strategize to lower the cost of acquiring new customers consistently.
Why It’s Essential for B2B Marketers To Measure CAC?
B2B marketing teams must regularly measure their customer acquisition costs. These may include data-driven sales planning, measuring marketing campaign efficiency, identifying successful marketing channels, gauging the efficiency of customer experience initiatives, and analyzing the overall sales strategy.
Data Driven Sales Planning
B2B SaaS businesses usually set targets for the marketing & sales teams to achieve over the year. The CAC is an excellent metric that allows a product marketing team to identify various costs including that of resources, advertising, content etc. of acquiring these new customers.
Sales teams can then plan better through data driven strategies, allowing them to focus on ideal customer profiles. Marketing & sales teams can also identify cost variations in acquiring different buyer personas.
Marketing Campaign Efficiency
The CAC is an excellent metric that allows marketers to understand the efficiency & effectiveness of their various marketing campaigns. The acquisition costs from different efforts including email, social marketing, events, inbound marketing, and other initiatives allows SaaS businesses to identify what they are doing right or what needs to change.
The modern B2B customer demands a better experience with the product and customer support. The CAC is a great way to measure the success of experience initiatives like live events and virtual conferences.
Marketing teams can readily measure the return on investment (ROI) of customer experience initiatives by comparing the CAC before and after implementing a queue management system.
This allows them to determine whether these activities were indeed productive and whether the solution positively impacted the overall customer experience.
Identifying Successful Marketing Channels
The CAC is an excellent indicator of successful marketing channels. For instance, B2B marketing teams can instantly identify which social platforms, forums, communities, email techniques, blogs, and promotions are the most efficient in terms of acquiring new customers.
Analyze the Overall Sales Strategy
The customer acquisition cost is a great measure to analyze the overall sales strategy. Sales teams can identify inefficiencies in the process, and determine which actions allow them to more effectively onboard new customers. B2B companies can analyze and optimize their sales process to reduce the cost of acquiring a customer.
How to Calculate Customer Acquisition Cost?
The customer acquisition cost formula is given as the total sales & marketing expenses divided by the number of new customers acquired.
CAC = Total Sales & Marketing Costs / New Customers Acquired
Sales and marketing costs can include various expenses including those for advertising, events, commissions paid, bonuses, marketing & sales salaries, and general marketing & sales overheads.
Latest Average CAC Numbers for B2B Businesses
According to recent research, the latest average customer acquisition cost estimate for B2B SaaS providers stood at $660. Other sectors like cybersecurity ($1,970) and IT services ($1710) have a much higher cost of acquiring a new customer due to the dynamics of that industry.
CAC comparison by marketing channel
For more meaningful analysis, customer acquisition costs are measured by which marketing channel the customer approached through. This is further branched into “first touch” or “last touch attribution”.
First touch attribution
First touch attribution simply refers to the marketing touchpoint that the new customer came into contact with. Professionals generally argue that first touch attribution is not the ideal metric to choose for reducing customer acquisition costs. It is however an excellent attribute to enhance the customer journey for your audiences.
First touch attribution can identify crucial failings of marketing campaigns. Marketing teams can identify if certain parts of introductory emails, or blogs are not working. They can improve the content, design, and even tone of the campaign to make it more appealing through first touch attribution analysis.
Last touch attribution
Last touch attribution refers to which touchpoint encouraged the new customer to purchase the SaaS product or service. It is the preferred attribute to gauge CAC, marketers are more interested in which stage encourages the lead to convert. The last touch attribution model for CAC calculations provides a clearer understanding through A/B testing.
Multi touch attribution
A multi touch attribution model generally means that all sales & marketing efforts carry equal weight when a lead converts. The multi touch model enables marketing teams to clearly map out a systematic customer journey, supported by data based analyses.
The multi touch attribution model for CAC is a great way to optimize the entire marketing journey for your audiences. From improvement to primary touchpoints, negotiations, conversions and customer services, each element of the customer journey can be streamlined by evaluating what google also terms ‘Linear attribution model’.
2 Steps to compare marketing channels for CAC
1 – Define your channels
Usually B2B businesses strategize marketing initiatives based on data driven analysis to define the channels they will approach audiences over. It is essential to understand your ideal customer profiles, since this research offers deep insight into which platforms your target audiences prefer.
Using historical data, marketing teams must separately identify the CAC for email campaigns, events, blogs, ebooks, social media, and other marketing activities. This comparison of different marketing channels identifies critical metrics like conversion rates and ROI for these channels.
Once marketers understand the channels that drive high quality conversions, teams can focus on the most effective ones.
2 – Decide expense of each channel
Once different marketing channels are categorized by the customer acquisition and ROI, it is time to decide the budget breakdown. Deciding which channel gets how much investment is merit-based and is decided in accordance with the go to market strategy.
If email is the most cost effective means to acquire new customers, a B2B company can invest in enriching their email campaigns with better content and design. If paid ads are the best channel to reach target buyer personas, then more is invested in advertising budgets.
How Customer Lifetime Value (CLV) Metric is linked with CAC?
Customer lifetime value is an estimate that determines the estimated purchases that a customer will conduct during their time with your product. The number is also referred to as the present value of future purchases.
The customer lifetime value (CLV) has an inverse relationship with customer acquisition cost. This means that the CLV will always be a larger number compared to the CAC. Reducing the cost of acquiring new customers who purchase more from your business over time simply means better profilts.
The comparison of CLV to CAC is an ideal indicator for B2B SaaS businesses to determine if their sales process is expensive or even has failings. It is usually a great idea to segment CLV analysis by product type, for example, a basic subscription and a premium subscription for the SaaS product.
Marketing teams can determine critical factors including which subscription converts more customers, and which product offers lower CAC. When CLV is low, marketing teams can instantly identify that the cost of acquisition is high and conduct in depth audits to streamline the customer journey through the CLV/CAC analysis.
13 Strategic Ways To Reduce Customer Acquisition Cost
- Target right customer profiles
- Focus on organic channels
- Analyze customers journey
- Optimize on-site for conversions
- Rethink your pricing
- Introduce affiliate program
- Retarget specific customers
- Improve customer retention
- Customer feedback loops
- Customer loyalty program
- Educate your customers
- CAC/LTV of Customer Segments
- CAC of Marketing Channels
1 – Target Right Customer Profiles
The simplest way to minimize the costs of acquiring more customers is by conducting an in-depth analysis of your ideal customer profiles. A perfect customer profile template helps you identify the audiences interested and willing to buy your SaaS product.
Identifying these profiles allows marketing teams to build segmented buyer personas to create better content, customer journeys, and simplify sales processes. Targeting the right customer profiles is one of the most pursued strategies to reduce your customer acquisition cost, since it cuts down several stages of the conversion process.
2 – Focus on Organic Channels
Focusing on organic channels and inbound marketing techniques is an excellent strategy to reduce the customer acquisition cost. Although it may take time to nurture and convince leads to purchase, it considerably alleviates marketing costs.
Having sound SEO management, email marketing strategies, blogs, and social feeds is essential for SaaS companies to reach target audiences through valuable content. Ranking on the right keywords, sending out emails to target customers, publishing creative social content, and valuable blogs allows the customer to learn on their way to converting.
3 – Analyze Customers Journey
Analyzing the multiple stages of the buyer journey is critical to identify the failure of a campaign, especially for B2B businesses. This crucial step allows marketing teams to take a step back and discover why audiences are not converting.
Sales consultants can also analyze if they need to focus more on leads, to nurture them and provide them the value they seek in a SaaS product. Marketing teams can also improve their content while analyzing if they are marketing on the correct platforms.
4 – Optimize On-site for Conversions
Having an optimized website is simply critical to the success of a SaaS business. The first step is to have an easily searchable website, SEO optimized for relevant keywords. Second, a B2B service website should delivery all necessary information and links for customers to learn more.
Providing customers access to support and after sale services over the website is becoming very common, while Live Chat is a permanent feature for SaaS. Your website should be optimized for all devices, in addition to being enhanced for faster load times.
5 – Rethink your Pricing
Your pricing strategy may be a significant factor that makes the cost of acquiring new customers more expensive. It’s a great idea to evaluate competing services and determine the optimal pricing strategy for your SaaS service.
6 – Introduce Affiliate Program
Introducing an affiliate program is an excellent way to approach new audiences with the support of an influencer or external marketer. Affiliate programs usually entails paying out commissions for acquiring new customers, and hence cost less since leads are pre-qualified and ready to purchase.
7 – Retarget Specific Customers
Retargeting a specific bunch of customers with special offers, and upgraded service features is a great way to reduce the customer acquisition cost.
8 – Improve Customer Retention
Having strategic customer retention plans is a necessity for SaaS businesses with increasing competition and homogenous services flooding the industry. Customers have already identified that they convert majorly based on poor prodcut experience and customer support.
Improving customer churn rate offers B2B companies the ability to increase customer lifetime value while upselling to retained customers later in their lifecycle can boost the profit margin.
9 – Customer feedback loops
Capturing customer feedback regularly is a great way to solve issues even before they become bigger problems. Customer feedback loops enhance sales processes, marketing collateral, and products based on reviews, recommendations, and opinions of ideal customers.
This collaboration can provide real time insights that can reduce attrition, encourage upsells, and engage new customers reducing CAC.
10 – Customer loyalty program
Loyalty programs are quickly becoming strategic ways to keep your customers engaged with the product for longer. Offering discounts, promotions, and hidden features to participating customers can have an overall reduction in customer acquisition costs.
Loyalty programs are a great way for existing customers to purchase premium subscriptions, in addition to attracting new customers to join the program for better prices & features.
11 – Educate your customers
Educating the customer through blogs, whitepapers, ebooks, videos and events is a popular way to attract new customers. Understanding your audience’s pain points and solving them through valuable content is a critical strategy to engage future customers.
Inbound marketing remains one of the most popular ways to attract interested prospects, educate them, and convert them at the ideal times. SaaS providers even offer trial subscriptions to let audiences discover their product in real time.
12 – CAC/LTV of Customer Segments
Segmenting CAC for different segments can provide important insights on which subscription works with which buyer persona. Segmenting this analysis in association with the customer lifetime value can identify which customers have larger lifetime value. Sales teams can focus their attention on these segments to reduce CAC for the overall process.
13 – CAC of Marketing Channels
Measuring the CAC for all different marketing channels is a great idea as it identifies the right platforms and audiences interested in purchasing your services. For some paid advertising would be effective, for others it may be expensive.
Marketing teams should consistently analyze the CAC of different marketing channels including advertising, emails, ebooks, social feeds, and events etc. to make more purposeful decisions when acquiring new customers. Marketers can then focus more on channels that deliver lower CAC and higher conversions.
Managing the customer acquisition costs for different product marketing initiatives and customer profiles is critical to the success of SaaS/tech startups. As businesses usually grow they tend to reduce their MRR and ARR. With smaller SaaS B2B service providers it is essential to keep in check if the cost of acquiring a new customer is less than the profit they make.