Customer acquisition cost. If you have a poor marketing strategy, this cost can end up being a lot.
However, most small businesses in the United States do not use a large number of their resources towards marketing. The average amount of money spent on marketing is around 1% of a business’s revenue.
With this in mind, the acquisition cost could be holding businesses back from investing more.
How do you fix this? What are the best methods to use to approach this?
This is your guide.
What Is Customer Acquisition Cost?
Customer acquisition cost is the amount of money that you spend to acquire each new customer that you have. To do this, you have to divide your marketing expenses by the number of new customers that were added as a result of those expenses.
This gives you a good idea of your marketing ROI (return on investment). You need to know this to have an idea of if your marketing strategy is working.
For example, let’s say that you spent $10,000 on a marketing campaign but only got 10 new customers as a result of it. That would mean that your customer acquisition cost was $1,000 per customer.
Some businesses may feel like that is too much money to spend on one new customer. So, they can go one of two ways.
They can spend a smaller amount of money on the campaign. If they got their marketing budget down to $4,000 and got two fewer customers because of it, then they only spent $500 per customer.
This may be something that a business can live with. Another way some businesses go is by trying to change their strategy. As a result, maybe they get 20 customers instead of 10 with $10,000, resulting in an acquisition cost of $500 per customer.
Why Does It Matter?
So, why does your customer acquisition cost matter? Because you need to know where your marketing expenses are going.
Like everything else in your business, marketing is an investment. The customer acquisition cost gives you an accurate assessment of if your investment is seeing positive dividends.
It can be a signal for what marketing strategies are working and what marketing strategies are not working. If you have data to compare two different strategies, you can get a much better idea of the direction that you need to go in.
Lastly, it helps you determine if it is worth the cost of acquiring a certain number of new customers. For some businesses, their budgets may be stretched pretty thin. If they are not seeing great returns from a marketing campaign, customer acquisition cost can be the signal they need to consider adjusting their marketing budget.
Minimizing the Cost
If you are reading this article, you may realize that you are spending too much money acquiring new customers. You want to expand but you do not know what to do. Well, there are ways of minimizing the cost while still getting the results that you desire.
Retaining Current Customers
One of the best ways to minimize your cost of acquiring customers is to put every effort into retaining the current ones you have. This way, there is less need to market to a large number of new customers.
Not only does this help keep your business steady, but it also can save your business a lot of money. Studies show that it is at least five times more expensive to acquire a new customer than to retain a current customer. That number can be up to 25x as expensive.
What this means is that for customer acquisition, you can potentially reduce that cost by 80% just by being able to hold onto the vast majority of your customers. Put practices into place that allow you to check up on them and be proactive when it comes to their needs.
Look at Current Marketing Tactics
Next, take a hard look at the current tactics that you are using for marketing. Do not be afraid to be harsh on yourself, you need to see objectively what you may be doing wrong.
For example, let’s say that you are evaluating your business website. Is there easy navigation to each page on the website? Are there fast or slow download speeds? Is the website design inviting? Does it send the right message?
These are the questions that you need to ask yourself. If you think you have too much bias, try to get a neutral party to take a look at your current marketing tactics.
Outsourcing Customer Acquisition
Finally, if you are someone that is just not confident in their marketing skills, there are still options for you. What you can do here is outsource this acquisition to a third-party company.
How does this benefit you? These companies are professionals at what they do and their entire business model is centered around generating leads and getting new customers for you.
Yes, there is an extra expense attached to this option, but your customer acquisition cost is very likely to decrease going this route. The reason is that the money you do invest towards this will likely be used more wisely.
Get Help With Acquisition Cost
These are some of the things that you should know about acquisition cost. It is important to be aware of this cost to know what marketing strategies are effective and what expenses are necessary. Then, you can work on minimizing the cost.
Do you need help with customer acquisition? Message us today to see how we can help you.