Customers are the driving force of any successful business. A thriving business onboards as many customers as possible and keeps them satisfied so that they would come back for repeat purchases. That’s why every business, big or small, should have a strategy for customer acquisition.
To pave the way for your e-commerce business success, let’s dive into the customer acquisition topic. We will cover what is customer acquisition, how it is calculated, when it is sensible to invest more in it, and how Verfacto can improve the results.
What is Customer Acquisition?
Customer acquisition is the process of bringing new customers or clients to your business. The main goal of this process is to create sustainable strategies for customer acquisition that can evolve with recent trends and changes based on your industry.
How to Calculate Customer Acquisition Cost?
Calculating the Customer Acquisition Cost (CAC) or Cost Per Acquisition (CPA) can help you track how much you spend per customer. To calculate CAC, divide your total spendings on sales and marketing over a defined period by the total number of customers acquired over that time.
The formula for CAC calculation looks like this:
CAC = (total cost of sales and marketing) / (number of customers acquired)
For example, if you spend $25,000 to acquire 1000 customers, your CAC is $25.
CAC = ($25,000 spent) / (1000 customers) = $25 per customer
If the calculated amount is higher than your average margin or just doesn’t meet your business expectations, you need to either increase the margin or reduce CAC. Increasing the margin has one nasty downside: it may destroy your competitiveness.
Reducing CAC, if done wisely, has nothing but advantages. This is what Verfacto’s Smart Customer Acquisition is all about—reduce CAC with zero side-effects.
PS: another important metric to watch out is your LTV:CAC ratio. We’ve written an article about it here.
What are Acquisition Channels and Which Are the Right Ones for You?
Customer acquisition channels are sources where your customers come from. In most cases, they are closely related to paid advertising: paid search, ads in social media, affiliates, and so on.
Are they equally good? Definitely not. Depending on your business, some acquisition channels work better than others. Here are a few tips on how to choose the most effective ones.
Tip #1: See where your competitors excel and where they fall short. Maybe they have a strong social media following but don’t do quite as well in SEO (learn more about SEO and its benefits for eCommerce here).
Tip #2: Set your goals. Would you rather spend more on the number of customers, or spend more on fostering relationships with a smaller group of customers.
Tip #3: Consider your budget. Once you’ve done research about your competitors and set your goals and expectations for customer acquisition strategy, it’s time to assess your acquisition channel options according to your budget and start testing different channels to find the most effective ones. Keep in mind that different channels have different costs, so it is important to not go over budget and focus on 2-3 channels at a time.
You are now prepared to run experiments with different acquisition channels. If you’ve followed tip #1 above, you know your competitors and what channels they focus on to bring new customers. These channels might be places where your target audience is, so it’s good to test them and see whether they bring the desired result. Try them out!
After some time of experiments you will have enough data to calculate CAC, compare the channels and see which ones work best for you. Usually, Facebook and Instagram can bring you customers for a relatively low price, while channels like Linkedin with a more specific audience can cost far more. But does cheaper mean better? Not necessarily. This is when Verfacto’s Smart Customer Acquisition steps in.
Smart Customer Acquisition
Customer Acquisition Cost would be the only important metric if all channels bring you similar customers with similar lifetime value, retention rate, or chance of refund. However, all acquisition channels perform differently, bringing you customers with quite different profiles.
Let’s put it into numbers. Channel X and Channel Y have CAC of $10 and $50 respectively. Which one would you choose?
Obviously, no one wants to overpay. Knowing CAC only, everyone would choose Channel X—it’s 5 times cheaper!
But what if the average lifetime value of customers is $30 for Channel X and $150 for Channel Y? Will it change your decision? Probably, yes! If both Channel X and Channel Y bring customers for ⅓ of their average lifetime value, they are at least equally good.
This is exactly what Verfacto’s Smart Customer Acquisition solves. It automatically analyzes multiple customer metrics for different acquisition channels: lifetime value, retention rate, or chance of refund. Such analysis helps you understand which channels bring you better traffic and what CAC/CPA pays off for each. As a result, you can make balanced data-driven decisions to:
- Onboard the best customers,
- Spend less on the marketing budget,
- Increase Customer Lifetime Value (LTV).
Ready to try? Sign up for Verfacto right now and get a 1-month free trial!