Brands spend an average of 12-15% of their annual revenue on customer acquisition. And since acquisition costs can quickly get out of hand and eat into the bottom line, it’s no surprise that most brands are looking for ways to reduce customer acquisition costs.
Everything from product pricing and sales to marketing spend can affect customer acquisition, making it a difficult metric to stay on top of.
Fortunately, brands that are diligent in their efforts can follow a few proven methods to reduce the cost of acquiring new customers — allowing them to boost overall margins and business growth.
Here we’ll define customer acquisition costs, then give you 10 suggestions on how to reduce these costs for your DTC eCommerce business.
What Is Customer Acquisition Cost?
Before we dive into these ten strategies, let’s define customer acquisition costs. In short, this term refers to the cost of bringing in each individual new customer.
You can calculate customer acquisition costs by adding up the total amount spent on sales and marketing, then divide that number by your total customers. (Don’t forget to consider the cost of sales team members, production, publisiong, inventory upkeep, etc!)
CAC = Total spent on sales and marketing / Total customers
Ideas for Reducing Customer Acquisition Costs
Ready to start increasing those profit margins? Check out these 10 proven strategies to reduce customer acquisition costs at any business.
1. Segment Audiences
By segmenting your audiences into smaller groups based on attributes and characteristics, you’ll create more relevant and effective marketing messages. Experts at Gartner recommend creating 4-7 segments based on needs and values. From there, you can tailor the website experience, email marketing, and social media or digital ads to reflect those needs and values.
2. Bundle Products
Effective pricing can increase sales returns by 2-7%, making it a vital part of any eCommerce marketing strategy. Product bundling is one of the proven ways to boost sales and reduce customer acquisition costs, since it simplifies the buying process and reduces the costs associated with marketing and selling the product. Try this strategy by bundling similar or complementary products, then price based on the overall value of the bundle.
3. Use Decoy Pricing
Decoy pricing is another strategy that can significantly alter consumer behavior—and thereby reduce your customer acquisition costs. Here’s how it works: If you have a product that comes in three sizes or levels of quality, price the middle-grade product just a little bit less than the highest-grade product. This will sway the customer to choose the most expensive product, since they’ll perceive that this option has the greatest value.
4. Hone Your Target Audience
The more time you spend defining your target audience, the less you’ll spend acquiring customers. Why? Because when you have a well-defined target audience, you’ll be able to more easily create a tone of voice and message that resonates with your customer. You’ll meet their needs, solve their problems, and know what will motivate them to buy — without wasting money on low-performing ads and email campaigns.
5. Work with Micro Influencers
Companies spent 3.7 billion on influencer marketing in 2021, making it one of today’s most popular and relevant forms of social media marketing. However, the cost of this type of marketing is rising, with 17% of brands spending more than half their marketing budget on influencers. Fortunately, eCommerce brands can get in on the action at a lower price point by working with micro influencers. Not only will these influencers promote your brand at a fraction of the cost (or even for free!). They’ll help you reduce your customer acquisition costs, too.
6. Use A/B Ad Testing
A/B testing is one of the most common and effective ways to increase conversions and reduce customer acquisition costs. But if you ran A/B tests a year ago, you’re already overdue. A/B testing is an ongoing process that will help you weed out your lower-performing ads or landing pages and save your ad spend for the most effective campaigns. When you run A/B tests, don’t forget to identify your goal, choose a control ad and challenger ad, and create equal, random sample groups.
7. Update Your Retargeting Campaign
About 92% of the consumers who visit your website for the first time aren’t ready to make a purchase. But by targeting those customers who leave without making a purchase, you can reduce customer acquisition costs and drive traffic back to your website. In fact, combining retargeting ads with your other marketing efforts could help you sell 50% more. Use retargeting campaigns to promote best-selling products, introduce new items, and move slow inventory.
8. Create a Loyalty Program
Loyalty programs have been a long-used strategy for eCommerce brands looking to retain customers and reduce acquisition costs. However, the trends in customer loyalty programs are shifting and in a way that may seem counter-intuitive. A recent McKinsey survey found that members of paid loyalty programs are 60% more likely to buy more after they subscribe, while members of free loyalty programs are 30% more likely to buy more.
9. Build an Affiliate Program
An impressive 40% of U.S. merchants say affiliate programs are their most effective customer acquisition channel. The marketing strategy blends with influencer marketing and social media marketing. It is a powerful tool to boost sales and increase conversions at a low cost. Whether your affiliates are making YouTube videos, blog posts, or podcasts, there are many affordable ways to get in the affiliate marketing game.
10. Optimize Your Website Experience
Many eCommerce brands spend too much money driving traffic to a website that’s confusing or difficult for customers to navigate. Don’t throw away your marketing budget. Optimize the website experience to keep customers around and reduce your overall acquisition rates.
Reduce Customer Acquisition Costs with Air360
Customer acquisition costs have a serious impact on the success of any DTC eCommerce brand. And though reducing the cost of bringing in a new customer may seem challenging, it doesn’t have to be. These 10 strategies can help any brand reduce customer acquisition costs and increase business growth.
Looking for more ways to reduce customer acquisition costs? Air360 by Scalefast can transform your website data into actionable insights that reduce your marketing costs. On-page analytics, smart funnels, session replays, and more help you experience your website through the eyes of your visitors, helping you increase conversion rates. Request a demo today.