Customer Acquisition Cost (CAC) is the cost of roping in potential customers for your software or business. It is an important metric which can govern the growth of your business and sustainability in the marketplace. In SaaS businesses, CAC plays a pivotal role and is responsible for a majority of the operational expenses.
Customers can be acquired through a variety of channels:
- Cold emails
- Targeted advertisements
- Organic methods like content marketing
- Developing partnerships
- Promotional events
- Referrals and Testimonials
Using the right channel for acquiring customers can be tricky, and choosing the wrong channel leads to loss of revenue and investments. More importantly, failing to recognise loyal customers can also hurt your business in the long run.
Customer Acquisition vs Customer Retention
Although acquiring customers for businesses is key, retaining your subscribed customers and keeping them satisfied also gives an interesting challenge. Businesses often fail to recognise the value of customer retention. According to research done by Bain & Company, it shows that increasing customer retention by a meagre 5% can increase profits from 25% to 95%. This increase in profits can help your business grow faster while keeping your budget in check.
The strategies adopted for the two are quite contrasting. Customer Acquisition strategies are focussed on:
- Identifying your market and customers
- Developing and carrying out marketing strategies
- Following up on potential sales opportunities
- Measuring the cost of the strategy adopted
Whereas Customer Retention strategies are based on:
- Having a customer-friendly environment
- Hosting programs that benefit your customers
- Customer Service and a Customer Relationship Manager to help them out
These processes keep the customers engaged in their product and help in growing healthy relations. Giving equal importance to these both can be quite profitable for your business. Finding common ground in both these strategies helps play an essential role in reducing your CAC.
Methods to Reduce Customer Acquisition Cost
There are unlimited opportunities for the company to reduce their CAC, but failure to do so can cripple your business. We take a look at some of the most important ways you can reduce your costs:
- Content Marketing: One of the easiest and inexpensive ways of reducing CAC is content marketing. Paying attention to SEO and improving your ranks on the Search Engine Result Page (SERP) can attract potential customers effortlessly. It also helps in increasing your organic traffic and create a sound knowledge base for your product.
- Targeting and Retargeting: Having a specific buyer persona for your product helps you narrow down the customers you want to target. It helps in understanding their actions and what market will you be most suitable in. It is better to target specific people who have high potential in buying your software than targeting many people.
- Keeping your customer churn rate in check: Having a significant churn rate might not bode well for your business. It is essential to keep this number in check before moving on to acquire new customers. Finding the shortcomings in your software might help you re-evaluate your growth plans and lessening the churn rate.
- Reviews and Testimonials: Another inexpensive way to reduce your CAC is through referrals and testimonials from your pre-existing customers. It helps bridge the gap between customer acquisition and customer retention. It gives your business a sense of reliability and makes the onboarding customer feel comfortable.
- Boosting conversion rate: Although driving more traffic to your software is the key, getting the right amount of customers is also essential. Having a reduced conversion rate might increase your costs substantially. On-site A/B testing significantly benefits your conversion rate.
- Automation: Automation in marketing helps in growing your business and take care of lead generation or emails. It is a cost-cutting and time-saving solution. It also helps in reducing CAC significantly as technology can help in tracking down your leads faster.
- Social Media Campaigns and Referrals: Social media can be a powerful tool when it comes to marketing. Having an influencer on board helps in gaining popularity and attract customers. Referral campaigns also help spread the word and gain traction. Building viral loops with the right incentives helps in generating exponential growth for your software.
- Defining your USP: In the present competitive marketplace, your unique selling proposition plays an important role. If your USP is not defined in the marketplace, it’ll fail to get the customer’s attention and leads in an increased CAC. Implementing your USP holds the key to faster growth and lower CAC.
- Data Analytics: Data can help you tide over churn rates, understand your customers’ actions and a lot more. There are some tools which will help you in analysing the customers coming to your software and the actions they take to evaluate your software. Softwares like UserExperior come in handy to view the actions of the user on your app and track their movement using mobile app heat maps, session video replay, crashlytics and more
Apart from these methods, another vital factor to be considered is the Lifetime Value (LTV) of the customer. The LTV drives the monetisation for your company solely based on how much revenue can that customer generate. This metric will govern your Customer Acquisition Cost as the LTV should be far higher than the CAC and at least three times as higher.
Keeping these strategies and metrics in mind will assist you greatly in reducing the acquisition cost and ensure that you achieve good returns and faster growth for your software.