What Is Customer Acquisition Cost And How To Reduce It?

Acquiring new customers is the most promising way of growth for a business. However, the cost of

... acquisition can make a significant dent in the cas...
What Is Customer Acquisition Cost And How To Reduce It?
ANTOINE FRASER Image
ANTOINE FRASER
Friday 7th of July 2023
Strategy

Acquiring new customers is the most promising way of growth for a business. However, the cost of acquisition can make a significant dent in the cash flow. Making a new buyer purchase your products requires attracting, engaging and informing them to get the desired action. All the 4 Ps of marketing – product, place, price and promotion – come into the picture to persuade the prospective buyer, which requires considerable investment.

Many small business owners cannot bear the high cost of grabbing new customers and focus on retention rather than acquisition. However, expansion and systematic growth require acquisition. So, let us help you understand the cost of customer acquisition in detail and how it can be reduced to increase profits. These tips will guide you to create a winning growth strategy for your business that is not restricted by expenditure.

What Is Customer Acquisition Cost?

Customer acquisition cost is the amount the business spends on influencing a buyer to purchase their products. These include acquisition and retention expenses, such as print advertising to grab attention, retargeting ads on social media to remind about abandoned carts, and email marketing for follow-up. The customer acquisition cost includes the salaries paid to marketing team members and payments made to advertising and digital marketing companies. The formula for calculating the expense is as follows:

Cost of Customer Acquisition = Total Marketing Expenditure / New Customers

Entrepreneurs who purchase a business for sale in Canada must calculate this cost to understand how much they spend on getting new customers. It helps determine whether the income produced through the customer managed to generate the desired return on investment or not. For example, if the business loses a customer after the initial purchase, it cannot recover its acquisition investment. Thus, it is vital to reduce customer acquisition costs to increase profitability.

How To Reduce Customer Acquisition Cost?

Customer acquisition costs can spiral because of high competition in the marketplace and lead to losses due to customer churning. Thus, entrepreneurs must use the tips below to reduce this expense.

1. Encourage Existing Customers To Promote the Brand

The existing customer base can help to bring new customers through word-of-mouth publicity. Thus, it is necessary to satisfy them by providing a delightful experience that makes them loyal to the brand. It requires adopting sales skills that make them feel valued, such as sending customised messages, listening to their feedback, promptly responding to questions and problems and taking care of their needs.

Another way to increase brand advocacy is to introduce customer loyalty programs that offer discounts to existing buyers. They can get freebies and other incentives for getting referrals and providing testimonials for the company website and social media profiles. They can be encouraged to post positive reviews for the brand and its products online to attract new customers without spending anything on marketing.

2. Utilise Different Advertising and Marketing Techniques

Increasing use of social media and Smartphones has made people addicted to digital content. Thus, it is vital to create advertisements and marketing campaigns for all types of media and channels to capture the attention of the target audience. Using social media channels extends the advantage of reaching a wide audience and targeting segmented customers.

Businesses can utilise different marketing methods, including YouTube videos, Instagram Reels, Facebook posts, website blogs, newsletters, podcasts, infographics, paid ads on Google and Facebook, affiliate marketing, influencer marketing, email marketing, etc. These are more affordable and measurable compared to traditional media campaigns.

3. Pay Attention to Organic Marketing Initiatives

Organic marketing depends on the creation of high-quality and valuable content that is needed by the target audience. It helps to attract and engage prospective customers and build website traffic to generate leads and maximise conversions. Since Google lays emphasis on content, it is imperative to make it desirable and relevant.

Search engine optimisation and content marketing help in generating traffic organically, which is also helpful in increasing the credibility of the brand. SEO is beneficial in achieving better search engine rankings and online visibility. It increases brand awareness and gets more likes and followers on social media pages.

4. Measure Your Performance and Make Improvements

Customer acquisition costs can be effectively reduced by monitoring the performance of each marketing tactic. Entrepreneurs must determine metrics like increase in revenue, conversions, lead generation and customer retention to identify the return on investment. If the current marketing strategy is able to meet the business goals, it must be continued without changes.

However, if the marketing efforts are not resulting in the desired sales, it is vital to change it. Entrepreneurs who purchase businesses for sale in Canada must conduct market analysis and competitor analysis to identify problems in their campaigns and ways of improving them. It helps to reduce the wastage of the advertising budget and brings better returns.

5. Take Advantage of Retargeting Ads on Digital Media

Retargeting ads are directed towards potential buyers who have visited the company website or added products to the cart but have not purchased them yet. These customised ads remind the buyers about the products they abandoned in the cart. It is useful in acquiring new customers by driving conversions.

Business owners can utilise emails with links to landing pages or call-to-action buttons to retarget customers. They can also use retargeting ads with destination URLs to influence customers to purchase. The campaign should be enticing and must be focused on customers who are likely to purchase.

6. Invest in Technology to Leverage Marketing Automation

Customer acquisition becomes easy when businesses know the customers want. They can understand their buying behaviour and patterns through historical data, and investing in technology can help in assessing it successfully. Marketing automation tools allow business owners to streamline high volumes of customer data to increase the efficiency of the department.

These tools help to focus on the sales targets and provide reports to measure performance. They help nurture leads and increase the conversion rate without wasting the time and effort of marketing professionals, reducing the acquisition cost.

Wrapping Up

Finding new customers can be challenging for businesses because of the costs involved. Thus, reducing the costs associated with acquisition can help in making the business profitable and growth-oriented.

Author Info
Antoine Fraser

Antoine Fraser (born in 1981) is a writer and guest lecturer of Masters in Business Administration in different Universities of Ottawa. He was born and raised in Belleville, Ontario and moved to  Ottawa, Ontario, to attend the most prestigious Carleton University. He also holds a PhD degree from School of Management, Branford. The interest of his research has been in the field of small business programming, public policy and small firm growth. He has also published in trade publications with insight from globalisation and finance. His affiliation with Business2Sell is a matter of pride for us. 

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