What Is Customer Acquisition? How to Analyze and Optimize Customer Acquisition Cost (CAC)?

By Pratiksha Thayil | 09th November 2021 | 5 min read

Customer is the lifeline of any business. Peter Drucker, in his book ‘The Practice of Management’ accepted this and said that the sole purpose of a business is to create a customer. It is why you need a proper strategy to add new customers to your business.

It would be best to create a custom acquisition strategy from the beginning. Without a set plan, you may struggle to grow your business. But before we understand why you need a system, let’s first focus on customer acquisition.

What Is Customer Acquisition?

Customer acquisition is, as the name suggests, all the activities or actions that help acquire new customers. Every company will need to add new customers to keep moving forward and profit. With the right customer acquisition strategy, you will identify and target prospective customers, nurture them and convert them into paying customers.

Irrespective of your company’s size, a customer acquisition strategy will only create more opportunities for you to grow. It will help reach new customers and develop plans to retain them. Customers may not stay back despite the best retention strategies; you will have to find different ways to fill this gap so that your work doesn’t stop.

It is also essential that you do not confuse it with lead generation. Lead generation is a part of customer acquisition, and they are not the same.

 

 

Customer Acquisition Cost (CAC)

Over time, customer acquisition costs have increased, and the process has become more complicated as it involves a balance of online and offline methods. While one mustn’t ignore offline strategies, one needs to focus more on the online methods as today’s digital world will help attract more customers. It also means more money to be invested. Let’s understand the customer acquisition cost, calculate it and know why it is crucial.

What Is the Customer Acquisition Cost?

Every business needs to spend to attract new customers. Budgets need to be allocated to ensure they can optimise the money they are spending. The cost of research, marketing, sales, and product to get new customers is called Customer acquisition cost.

It is an important metric as it allows you to see if your business model is viable enough to achieve profit and maintain CAC at its bare minimum. It also helps you calculate the Return of Investment (ROI) for your customer acquisition strategy.

How to Calculate Customer Acquisition Cost?

Now that you understand what CAC is let’s discuss the formula you will use to calculate your CAC.

CAC= Marketing cost + Sales cost / Customers acquired

CAC of a period is calculated by dividing the sum of marketing and sales costs by the number of customers acquired during that period.

 

 

How Do You Optimise Customer Acquisition Cost?

CAC formula is vital for your company as it helps you make smarter decisions and optimise sales and marketing activities. It is crucial to optimise the customer acquisition cost as it reduces unnecessary expenses and achieves excellent results. Here are a few ways for you to optimise the CAC:

  1. Improve conversions via the website: Take a look at your landing pages and look for ways to improve or develop them. Make the website mobile-friendly and make the best use of the Digital Experience Platform. If you ensure that these are working perfectly and are in order, then the customer acquisition strategy you are using is also perfect.
  2. Turn existing customers into brand ambassadors: Loyal customers significantly influence people around them and can influence purchase decisions. You can also show them how you would incorporate their relevant changes by implementing them. And ask them to make use of social media platforms to promote your page indirectly.
  3. Adjust and try a new customer acquisition strategy: You need to adapt to changes and incorporate them into your day-to-day activities. Even if your plans are working, try out more mediums and strategies until you can achieve cost efficiency.

Why Is Customer Acquisition Strategy Important?

Now that you know what customer acquisition is and how much your customer acquisition strategy cost is, let’s understand why this is important. Firstly, a customer acquisition strategy will help you reach your goals for brand awareness and revenue growth by optimising your web content, prioritising social media advertising, and achieving stability.

Secondly, it will help you retain your customers and increase their customer lifetime value. While new customers are always beneficial, you can’t let go of the old customers as they offer stability and sustainability. The most important aspect of this is that you will be able to balance the customers you get and the customers you have retained.

It will also help you plan and build healthy financial projections. You can use these projections to get investors, allot resources and plan everything. With this, it will reduce your expenses and give you the time to prepare for your next step ahead. If there are any errors, you can plan for them in advance and reduce the chances of any mistakes.

Tips for Creating a Customer Acquisition Plan

Now that you have a better understanding of customer acquisition, you will create a customer acquisition strategy. Before that, here are a few tips to keep in mind:

  • Recruit the right people
  • Ask the right question.
  • Understand your target customers
  • Fix a budget
  • Prioritise focus audience
  • Understand different available channels
  • Create a plan in advance
  • Use creatives that will grab customer attention

With these tips and the available formula, create a plan to help you grow your business. These plans need to be focused on both customer acquisition and customer retention. What do you think is the best customer acquisition strategy?

References:

  1. Author unspecified, Consumer Acquisition (online), “How Do You Create a Customer Acquisition Strategy?” Dateline missing, Link accessed on 2021-11-09. https://www.consumeracquisition.com/faq/how-to-create-a-customer-acquisition-strategy
  2. Vivek Asrani, The CX Insights (online), “Top 12 Customer Acquisition Strategies to Win Your Customer’s Heart, “Published May 24, 2021, Link accessed on 2021-11-09. https://thecxinsights.com/customer-acquisition-strategies/
  3. Epsilon Marketing, Epsilon (online), “The essential guide to customer acquisition,” Published December 21, 2020, Link accessed on 2021-11-09. https://www.epsilon.com/us/insights/blog/the-essential-guide-to-customer-acquisition