What are Customer Acquisition Costs?

Digital Marketing

Customer acquisition costs refer to any expenditure your business makes to gain a new customer. Like any business or marketing metric, knowing the total cost of gaining a customer will be highly beneficial and enable you to adjust your goals and strategies for a competitive advantage.

The Costs of acquisition

When you think of the costs of acquisition, it’s easy to think about direct expenditures such as paid marketing, but in actuality, there are a lot of costs of acquisition that you need to consider. Any expense tied to your efforts to gain new customers is a customer acquisition cost.

  1. Special Offers: If you offer discounts to a new customer, a free trial or even an introductory service, for example, a free consultation, this needs to be considered!  
  2. Content Marketing Efforts: Every digital marketing channel you use comes with a cost that must be accounted for! If you have an email newsletter, you must pay a designer, a content writer and perhaps even a strategist. The same goes for your social media, SEO, and influencer efforts.
  3. Sales Team: Another acquisition cost will be your sales team. You have to account for their hourly rate and any commissions or bonuses they receive when they achieve a sale or sales goal.
  4. Equipment: Small business owners regularly forget to consider equipment costs! If your sales team has an office, how much does it cost to run the electricity? If you use email marketing software, how much does it cost you each month? If you are printing flyers, how much does the ink, running of the printer and paper cost? Every possible acquisition cost needs to be accounted for; the more accurate the data, the bigger the advantage you’ll have over your competitors. 
  5. Paid Marketing: On top of all overheads, discounts and content creation efforts, you’ll need to include your paid marketing efforts. Everything from Google keyword ads to Facebook videos.

The Customer Acquisition Costs Formula

To calculate your business total cost of acquiring a new customer, you will need to divide your total costs related to acquiring a new customer by the total number of new customers.

Reducing your customer acquisition costs

Reducing the costs of customer acquisition should be a primary objective for any business owner there are several ways you can do this.

  

  1. Focus on retargeting: If you lose a potential sale because a website visitor abandoned their cart or didn’t get past your landing page, don’t give up! Retargeting your advertisements is an incredibly effective way of reducing your advertising expenditure and, at the same time, building valuable brand awareness. The more a customer recognises you, the more likely they are to click on your advertisement and thus convert. The average CTR on a regular display ad is ten times less than that of a retargeted ad.
  2. Look for cheaper alternatives: If you are a small business in a highly competitive industry, paid marketing or even SEO might not be a cost-effective option. You should consider other marketing channels, such as affiliate marketing.  
  3. Split Test: A great way to reduce customer acquisition costs is by finding out what works and doesn’t. Try split testing your paid and content marketing efforts to determine what yields the best conversion rate for your business.  
  4. Using marketing automation: If one of your highest customer acquisition costs is staff, you should weigh the benefits of using marketing automation software. Plenty of marketing software is very affordable, and reducing pressure on your staff members might just help elevate some of that cost. 
  5. Improve Tracking: Tracking data is a valuable commodity to any business; the more tracking data you have, the more you’ll understand your ideal customer and how you can further improve their customer journey. You should do your best to monitor every business metric relevant to your company, from social media communications to your cart abandonment rate.
  6. Optimise your website: An unoptimised website is another common cause of expensive customer acquisition. A high-quality, intuitive and fast website with an incredibly designed landing page plays a vital role in your bottom line. If many of your visitors leave your website without making a purchase, you’ll likely need to improve your website. If you are unfamiliar with the world of website design, you can always contact us for a free consultation, and we’d be happy to find the right solution for you.  
  7. Improving the lifetime value of a customer: Although improving your customer's lifetime value doesn’t reduce the cost of acquiring a new customer, it does help reduce your overall customer acquisition costs because you will yield a higher return from your pre-existing clientele. You can click here to learn more about improving the lifetime value of a customer.
  8. Prioritising the right audience: If your customer acquisitions costs are above industry standards, a likely cause is that you aren’t targeting the right audience. Take some time to consider who your target demographic is and whether your marketing efforts could be better spent elsewhere, for example, a different social media channel with a different age group. 

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