Customer Acquisition Cost is the cost associated in convincing a customer to buy a product/service from your business. This cost is inclusive of the product cost as well as the cost involved in research, marketing, and accessibility costs. In this post, you will find some tips on how to optimize the cost of acquiring a new customer.
This is an important business metric. It plays a major role in calculating the value of the customer to your company and the resulting return on investment (ROI) of acquisition. The calculation of customer valuation helps you decide how much of its resources can be profitably spent on a particular customer. In general terms, it helps you decide the worth of your new customer to the company.
It doesn’t take a genius to understand that business failure comes when it costs your business more to acquire new customers than the lifetime value of a customer which is the gross margin that you expect to make from that customer over the lifetime of your relationship. For example, according to Optimize Magazine, at one point CDnow Online was spending about $40 to acquire each customer, although the average lifetime value of a customer to them was only about $25. The Optimize article suggests that it is not good business sense to spend more acquiring a customer than the amount that customer will net the company in return.
Failing to control the cost of acquiring a new customer can kill your business. To avoid this pitfall, your digital marketing program needs to be carefully planned and monitored. The costs can quickly get out of control if they aren’t monitored. In other words, you need to be certain that you are getting your money’s worth, and that you aren’t paying more to acquire a customer than you are receiving in return.
Generate awareness of the value your product or services offer
Automate your marketing efforts such as lead nurturing process
Constantly measure and analyze your marketing efforts and spend time figuring out the causes of results
Test & Analyze, A/B testing is a great way for doing this
Revise, Improve and repeat
Identify your buyer persona and constantly refine it by research and interviewing your customers
Identify and target key players (Influencers) that will influence your buyers persona
I hope I've managed to answer your question of what is customer acquisition cost? and I would love to know your thoughts and experience on how do you calculate the cost of acquiring a new customer. Share your ideas in the comments below.