We are living in times when business competition has moved a notch higher, and it’s important for every business to keep track of all costs going towards Marketing. It is shocking to realize that a lot of entrepreneurs out there still don’t have an idea of what customer acquisition cost is.
Customer Acquisition Cost otherwise known as CAC is a measure of your sales and marketing methodology. This is the amount of money a business spends on getting leads, which then paves the way for new customers to patronize a business. CAC should not be confused with the effectiveness of a marketing campaign but is rather the total investment amount a business incurs to acquire a new customer.
It is critical for businesses to understand that customer acquisition costs are an investment and not expenditure. Sustainable and effective marketing practices demand that a business should ensure that customers are retained until the return on investment is achieved.
Business clients are an asset because there is potential that a business will keep earning money from them for a long period of time. As a business, if your customer acquisition costs aren’t focused on gaining and retaining customers, investing in such a marketing strategy is waste of company funds. It’s essential for entrepreneurs to understand that marketing is not only a buying customer strategy, but a channel of building sustainable client relationships.
Therefore, if a business is spending money to gain a customer, it has to maintain and nurture the relationship with a client if a recoup of investment is to be realised. A lot of enterprises fail to track customer acquisition costs and, therefore, have no idea whether they’re regaining their investment or not. Online marketing is the new kid on the block but, unfortunately, a number of business enterprises still have no idea how to determine the cost of getting leads and converting them into sales.
How to Measure Customer Acquisition Cost
Evaluate costs based on a marketing segment
It is critical to measure what you’re spending in each marketing area. In this respect, a business must take into account how much value a customer is bringing in from each segment. For instance, if you put R20 000 into a specific online marketing campaign and you only manage to get 10 customers paying R1 500 for your product or service; does this really give you back the money you invested?
There are two possibilities to this scenario; if customers pay only R 1 500 and go away, you’d have lost your ROI. On the other hand, if they’re repeat customers, possibilities are high that you will realize and even exceed the initial investment made to acquire them. This is the only way to track specific marketing segments and determine if they’re working for your business or not.
Measuring customer acquisition costs based on changing trends enables a business to determine whether it’s obtaining any value from the investment. Ideally, the cost of gaining new customers needs to reduce over time. Increased brand awareness should widen your market scope and reduce the effort and investment business is required to allocate. If you realize that your process of getting leads is becoming expensive over time, there is a problem, and the entire marketing campaign needs to be re-evaluated.
Offering Special Promotions
There are specific marketing campaigns that don’t require continuous investment. For instance, making a business website is considered to be a one-time investment. However, if a site fails to yield the desired results, a business must think of a makeover especially if the changes will reduce customer acquisition costs.
Track Important Customer Data and establish their value
The best way to reduce customer acquisition costs is by determining where your customers originate from. If you discover that you have returning customers who are increasing business revenue margins, try to establish where they came from and concentrate your marketing and expenditures on that segment.
It is critical for firms to learn how to measure online marketing customer acquisition costs because it is a necessary step to increase revenue and widen profit margins.
However, it’s good to mention that traditional marketing methods can also be measured though not as easily as online marketing. For instance, call tracking facilities can be used to document the number of customer calls in response to print media adverts such as newspapers.
It’s Impossible to manage what you can’t measure
Using the internet as a marketing medium has many advantages because it can be easily tracked and measured, and it’s easier for businesses to determine whether they’re making profits or not. A lot of focus is now aimed at platforms such as social media, link building and other online marketing strategies that are known to be quite effective for getting leads.
However, it is good for business enterprises to benchmark their customer acquisition costs in order to come up with budgets and implement sustainable strategies that will realize reduced marketing costs.