How Do You Reduce Customer Acquisition Cost?

How Can You Reduce Customer Acquisition Cost Without Hurting Customer Quality?

The way to reduce customer acquisition cost (CAC) without hurting customer quality is to measure it by channel and by type of customer first, so you can see which costs are winning valuable customers and which are winning poor ones. Then fix the steps between the click and the sale before you touch the budget, because those fixes lower the cost of every customer you already pay to reach.

1. Calculate last quarter’s CAC for each channel and each type of customer, from your CRM rather than the ad platforms’ reports, and label it as ad spend only or fully loaded. How to calculate customer acquisition cost covers the formula and what to include.
2. Put each figure beside what those customers are worth in gross profit, because a channel with a high CAC can be winning your best customers and one with a low CAC can be winning your worst.
3. Time the first reply to your recent leads, since a slow reply raises the cost of every customer and is the cheapest thing to fix.
4. Check where your paid traffic lands and what it’s asked to do, looking for ads that send people to the home page and pages whose only offer is “Contact us”.
5. Change one thing at a time and give it a full sales cycle, so you know which change moved the cost.
6. Only then move budget, away from channels whose customers are worth little and toward the ones that win your best-fit buyers.

Steps 1 and 2 are where efforts to cut CAC go wrong in the accounts we review, because the number being cut blends good customers with poor ones, and the Channel Selection step shows how to set up a source of truth that gives you cost and value by channel.

How Do Your Landing Page, Offer and Reply Speed Lower Customer Acquisition Cost?

Your landing page, offer and reply speed lower customer acquisition cost by turning more of the visitors you’ve already paid for into customers, so the same spend is divided by more sales. In our experience this is where CAC falls furthest, because every improvement multiplies the budget you’re already spending.

The fixes are a page written for the buyer who clicked, an offer that buyer wants before they’re ready to talk to sales, and a person who calls each lead the same day, and the Prospect-to-Lead Conversion step covers all three and the order to fix them in.

The full before-and-after, with leads and site visits at each stage, is in why is my website not converting.

Should You Cut the Channel With the Highest Customer Acquisition Cost?

You should cut the channel with the highest customer acquisition cost only after checking what its customers are worth, because the most expensive channel can be the one winning your most valuable customers, and cutting it would lower your average CAC while taking away the customers who earn you the most.

Dropping LinkedIn would have cut the contractor’s average cost per agreement by about a seventh and given up its two most valuable agreements, since LinkedIn reaches property managers by job title, and its agreements averaged five buildings against Google’s two. The lowest CAC was never the goal, which what is a good customer acquisition cost explains, and are LinkedIn Ads worth it shows what happened when the contractor raised that spend. What to cut instead is spend that wins customers for more than you can afford to spend to win one.

Will Cheaper Leads Lower Your Customer Acquisition Cost?

Cheaper leads lower your customer acquisition cost only if a similar share of them become customers of similar value, and in the accounts we review cheaper leads usually come from buyers who are easier to reach and less likely to buy. A lower cost per lead that brings more poor fits can leave the cost per customer the same or higher, and fill the sales team’s week with calls that go nowhere, which is why how much you should pay for leads depends on each source’s close rate.

Two changes lower the cost of the right leads rather than leads in general. The first is telling the ad platforms to count qualified leads instead of every form fill, through offline conversion tracking, because they learn from whatever you count, and we’ve seen counting low-value actions teach a platform to find people who look and don’t buy. The second is copy and pricing signals that turn poor fits away before they click. How to generate high-quality leads covers both.

Do Referrals, Retargeting and SEO Reduce Customer Acquisition Cost?

Referrals, retargeting and SEO can each reduce customer acquisition cost, but each one carries costs that are easy to leave out, so judge them on fully loaded cost per customer, by customer type, like any other channel. They work best on top of a page and a follow-up that already convert, since otherwise they send more people into the same leak.

• Referrals and associations often look free because no platform reports them, while events, dues and staff time are real costs that belong in CAC. Ask every new customer how they heard about you, because no tracking tool sees these channels, and how accurate self-reported lead source is covers how to ask.
• Retargeting, showing ads to people who already visited, is often skipped in the accounts we review, and it’s worth testing once the page it sends people back to converts.
• SEO lowers CAC most when it targets the searches your paid campaigns have already shown produce customers, which is why we use paid search to find those terms first.

The conversion-first answer also changes in two situations. If the clicks your best buyers make cost more than a customer can carry even at good conversion rates, the fix is a different channel, which the Channel Selection step helps you choose. And if CAC is rising because you’re growing, each added customer costs more than the average as spend rises, which can be a price worth paying, and the Marketing Action Plan step shows how to read it.

If you run a smaller business, start with the reply and one page for your best buyer, since neither needs more budget. If you lead marketing at a larger company, the bigger win is usually agreeing with finance on one CAC by channel and customer type, so the budget conversation is about which customers to buy rather than how to make the average smaller.