Cracking the Code for Lowering Your Customer Acquisition Cost

If you ask any marketer how many views their latest blog post received, how many Twitter followers their business has, or what the most likes they ever received on an Instagram was, it's likely that they'd provide you with a prompt response.

But what if you asked them about their customer acquisition cost?

I'd argue that half of them would ball park a number, and the other half would be left scratching their head.

While vanity metrics like views and followers are certainly easy to get wrapped up in, it's important that as marketers, we don't lose sight of the KPIs that determine whether or not our businesses can grow profitable. 

While I'd love to hear about how your Instagram likes finally reached triple digits some other time, I'd much rather help you lower your customer acquisition cost now. Here's what you need to consider. 

How to calculate your CAC:

Total sales and marketing cost, including salaries, commissions, bonuses, and overhead during any given time period divided by the number of new customers.

The problem:

Revenue and cost efficiency are the primary concern of upper management, so while Sales may be closing deals, further analysis shows that your marketing budget is rendering your customer acquisition cost high.

Perhaps it’s happened gradually, but after adding up the cost of all marketing and advertising initiatives, salaries, commissions, and bonuses, it’s become evident that new business isn’t doing enough to offset this cost.

Not only that, but it’s also taking longer for new business to become profitable given the high cost of acquisition.

Obviously, this isn’t an ideal model for growth.

The solution:

There can be several culprits here.

First off, your sales cycle may be too long and laborious, which results in your sales team having to do most of the nurturing.

Make sure Sales and Marketing have clearly defined the criteria for qualified leads, which ensures marketing can do a more effective job of educating prospects as well as nurture them with more targeted, segmented content to effectively shorten the sales cycle.

For instance, it’d be a good idea to schedule a sales and marketing alignment meeting in order for both teams to establish an understanding of how leads are organized, and also what the qualification process looks like. You may discover that marketing may need to refocus their content strategy with more service/product-focused content that appeals to your target audience more effectively.

It's also critical that you’re monitoring which marketing initiatives are delivering high (and low) conversion rates so you can appropriately allocate your resources toward the high-ROI campaigns.

For instance, you might notice leads that come from your business blog are cheaper to acquire, and easier to close; naturally, this (and other similar channels) is where you should be investing more resources -- so you can get more leads and customers from your cheapest sources.