As ad costs continue to rise, many companies are starting to look for different ways to acquire new customers.
Some of the most successful businesses in the world have cracked the code of growing organically and spending as little as possible to grow their customer base.
In this article, I’ll show you 10 different marketing initiatives you can start implementing this year to start lowering your customer acquisition costs and drive profitable growth for years to come.
But first, let’s talk about what customer acquisition cost really is.
Customer acquisition cost (CAC) is the amount of money your business needs to spend to acquire a new customer. This can include marketing and advertising costs, salaries of employees, commissions, and other operating costs that keep your business running.
CAC is an important metric for any business because it can help you understand which marketing initiatives are giving you a positive or negative ROI.
For example, if your CAC is higher than your average customer lifetime value (LTV), your business will lose money in the long run because the cost to acquire a new customer is more than what that customer will bring you in revenue.
This is why it’s crucial to understand and manage your CAC when operating and growing a business. And without knowing how to calculate your CAC, it’s going to be tough to understand how to lower it.
Calculating your CAC is the first step to knowing how to lower your customer acquisition costs, both in the short and long term. Knowing this number will help you iterate quickly when investing in new sales and marketing programs.
To calculate CAC, you need to divide all the costs associated with acquiring new customers by the number of customers acquired.
For example, if you spend $1,000 on Google ads and get 10 new customers, your CAC is $100.
This is the most basic way to calculate your CAC and the one that most marketing teams use.
However, you can get even more specific. You can go as far as also including expenses such as salaries, commission fees, and overhead costs of your business.
For example, you could be paying a Google PPC ads consultant $500/month to manage your campaigns. Now, if you spend $1,000 on Google ads to acquire 10 new customers, your CAC from Google ads would come out to $150.
Adding in operating costs on top of your marketing costs can help you get an overall CAC that will help you manage cash flow better.
It’s also important to note that CAC is a fluid number. It can go up and down on a quarterly, monthly, and even daily basis depending on the marketing channel. So it’s important to create a system or OKR around measuring your CAC by channel to get more clarity on which initiatives are driving the most ROI for your business.
Okay, with that, let’s get into how to actually optimize and reduce your customer acquisition costs in 2023.
Here are 10 ways you can start lowering your CAC in 2023:
Okay, let’s dive a bit deeper into each of these.
This one may surprise you, but the best way you can lower your customer acquisition costs is to focus on your existing customer base.
Brian Balfour, former VP of Growth at HubSpot, famously said, “retention breeds acquisition, not the other way around.”
This simple quote has changed the way many businesses in Silicon Valley, and even around the world, think about growth and customer acquisition.
What Brian means is that if you focus on creating a great customer experience, one that keeps customers constantly engaged and coming back for more, your brand will eventually grow organically from word of mouth.
Think about a time when you bought something and loved it so much that you caught yourself expressing your experience with friends, family, or co-workers.
This is a bit overgeneralized, but the main takeaway is that you need to focus on decreasing customer churn in your business and find ways to increase the value of your existing paying customers.
How you approach this is going to be different if you’re an ecommerce store, SaaS business, marketplace, or any other type of business. But a great place to start is to ask yourself, “how can I make my existing customers feel valued and appreciated for their continued support?”
This can be as simple as sending a personalized email, or even a letter, to your customers after they purchased your product or services. You could also send them discounts on other products you sell or incentive them to spread your brand through word of mouth.
This first way to reduce your customer acquisition costs will help you create a strong brand and loyal customer base, which in turn is going to help all of your other marketing efforts run more efficiently.
The next way you can lower customer acquisition costs is to focus on an outbound marketing approach. But I’m not talking about spamming through cold outreach and hoping that someone will bite.
We want to be strategic here and proactively engage with people we know are in our target buyer persona.
By reaching out to people who are not customers yet, you can build relationships and foster trust that will eventually lead to higher conversion rates and lower CAC.
To do this, you need to first understand your target customer profile and know where they hang out. For example, if you’re an ecommerce brand that sells beauty products, you can go on TikTok and search for videos with beauty-related hashtags. From there, you can interact with commenters on those videos, using your company’s social media account, and engage with people.
The goal here is to just bring awareness to others on social media that you exist. And interacting with people in the comments section is a great way to do this, as people who comment on videos tend to be engaged in the community they are in.
The only downside is that this can be very time-consuming. You don’t want to use AI tools that automatically respond to people, as responses won’t be genuine and might sound robotic. And using software to “game” social media platforms could potentially get your account banned.
So it’s best to do this manually, as a real human.
Luckily, Chatdesk has US-based support agents that can do this for you. For example, Chatdesk helped the famous ecommerce brand, Mented, increase their organic revenue by driving pre-sales on social media.
If you’d like to learn more about this, be sure to schedule a free demo!
If you’re currently spending money on ads, then you probably know how volatile digital ad costs can be on platforms like Facebook, Google, Instagram, and YouTube. Historically, these have been the main platforms companies use to acquire new customers from ads.
However, these platforms are starting to become less effective for many businesses. As ad costs go up, and conversion rates drop due to ad fatigue, many businesses are finding that they’re just not getting the same returns as they used to.
But this doesn’t mean advertising is dying, far from it.
What this does mean is that if you want to continue investing in ads, it’s probably a good idea to find less saturated places to spend your ad dollars. If everyone is spending their money on Google ads, then maybe there’s a hidden opportunity waiting for you to discover elsewhere.
Here are a few places you can experiment with:
These are just a few ideas.
But the main goal is to create an “experimental marketing budget” where you can test as many of these as possible and compare your CAC per channel with your existing baseline spend on larger ad networks.
If you find that CAC is lower on newsletter sponsorships, you can start allocating more of your overall marketing spend there. This will then lower your overall CAC when it comes to paid advertising.
If you’re looking for ways to acquire new customers without spending money on ads, investing in content marketing and growing your website’s SEO traffic is a great place to start.
However, note that SEO may not make sense for every company. SEO tends to work best with companies that solve a specific problem for people. This is because people tend to go to Google when they have a problem and are looking for a solution.
This means SEO can be great for B2B companies, some ecommerce companies, and even marketplaces when done correctly.
SEO is such a powerful marketing channel that some businesses are built on this channel alone. Amazon is a great example of a marketplace that has grown from SEO. HubSpot is a great example of a B2B company that has grown from SEO. And Medium is a great example of a media company that has grown from SEO.
To get started with SEO, you need to understand the problems your target audience is looking to solve. These search queries, also known as keywords, are your starting point.
From there, you want to identify what landing pages and blog posts you need to create to target these specific keywords.
Your goal then is to create SEO-optimized content that satisfies the search intent of each keyword. For example, if you want to rank for the keyword “best dog toys,” you should first Google that term and see what comes up.
If you do that, you’ll notice that Google likes to show listicle-type blog posts giving a roundup of the best dog toys.
If you go out and create a landing page dedicated to this term, or even an article that teaches people how to create a dog toy, you won’t rank well for that given keyword.
So for SEO to work, you need to identify the search intent of each keyword and create similar content to what is already ranking — as Google has deemed what type of content it likes to rank.
This section can be a whole blog post on its own so feel free to check out this article on SEO if this is something you want to dive deeper into.
Investing in retargeting ads on Google and YouTube can be a great way to reduce your CAC on paid ads. This is because retargeted ads tend to be cheaper compared to prospecting ads (advertising to people who have never heard of you before).
When using retargeting ads, you’re essentially targeting people who have previously interacted with your website or content. This means there will be a higher likelihood of someone revisiting your website and possibly purchasing something for the first time.
Because of this, retargeted ads tend to yield a lower CAC compared to prospecting ads.
However, retargeting ads only work well when you have a large audience to retarget to. If people don’t visit your website that often, then there won’t be a lot of people to retarget to.
Nevertheless, it’s still a good idea to keep these ads running with a relatively low budget, as they’ll only spend when people are visiting your website and not converting on their initial visit.
One of the best ways to acquire customers is through referrals. However, for referrals to work well, you need to incentivize people to help you spread the word about your brand.
This is where an affiliate program can come into play. Platforms like PartnerStack, FirstPromoter, Refersion, and many more make it easy for companies to get a partner program up and running.
The great thing about an affiliate program is that you get to decide how much your CAC is. For example, if you sell a product for $100 and set up an affiliate program to give out 20% commissions on each sale, your CAC will be $20.
From a CAC perspective, an affiliate business model lets you create a highly predictable outcome. Instead of letting ad platforms decide how much ad costs are, you set the rules for how much you’re willing to spend per customer.
Affiliate programs also let you spread your brand message through word of mouth. Partnering with influencers, bloggers, and media websites will not only help you reduce customer acquisition costs, but it will also help spread awareness about your products and services.
Building a community of people that care about what your brand stands for is important for any business.
The goal of a community is to build a space where people in your industry can interact with one another, ask questions, and learn from each other.
The easiest way to start building a community is to create content on social media platforms where your target audience is. This depends more on the type of business you’re running.
For example, if you’re in the B2B space, Twitter or LinkedIn might be a good place to start. If you’re in the consumer space, TikTok, YouTube, and Instagram might be good places to start.
The goal here is to consistently create content that is educational, insightful, or entertaining on these platforms. With consistency and patience, you’ll slowly start to grow a following and a community of people that believe in what you’re doing.
But to get this right, you have to focus on helping your community. If you go on social media and constantly try to sell your products and services, you’re going to have a hard time building a valuable following.
People follow accounts they can trust. And you build trust by freely sharing insights and content that will help your community. You need to give more than you ask.
Do that every day on the social media platform that makes the most sense for your business, and it’s inevitable that you’ll start to grow a nice community on your corner of the internet.
Staying on the topic of community building, newsletters are a great way to grow a following and nurture your community to the point where they’ll trust you enough to buy from you.
The great thing about newsletters is that it’s all via email. You’re not at the whim of social media algorithms or ad platforms fluctuating their ad costs.
Instead of “renting” space on third-party sites, you’re owning your own community through an email list.
To get started with a newsletter, you need to first determine the type of information you want to send to readers. Some examples include curating content in your niche, giving valuable insights on trends in your industry, or simply giving updates on what your company is working on.
Just like building a community, you want to focus on giving more than taking. Avoid sending too many company updates and information about your products or services. Try to keep 80% of your newsletter content focused on solving your reader’s problems without trying to sell them anything.
Once you have a content strategy in place, make sure to use a newsletter platform that allows you to create eye-catching visuals, polls, surveys, and templates that fit your brand voice and tone.
Co-marketing campaigns are a cost-effective way to boost brand awareness and reach new customers by leveraging the audience of another business.
By partnering with a related company or influencer, you can benefit from their existing network while also introducing your own products or services to a wider audience.
The goal of a co-marketing campaign should be to create a win-win situation for both your company and the one you are partnering with.
To get started with co-marketing, first identify potential partners who have similar target audiences as yours. One way to do this is to ask your existing customers what other products or services they use. For example, if you’re a SaaS business, you can ask your customers what other SaaS products they use — this shows that there is a mutual audience.
The next step is to create attractive offers and incentives that will motivate another company to join in on these campaigns — this could be anything from doing a newsletter swap to giving a shoutout on social media.
With a little bit of effort upfront, co-marketing can help amplify your message without spending money — making it an incredibly powerful tool for any business.
Last but not least, we have growth loops. This goes back to our first way to lower customer acquisition costs — delight your customers to retain them.
Traditional marketing says to focus on funnels. The issue with funnels is that they make marketers think about growth in linear terms. In order to get a desired outcome at the bottom of your funnel, you have to keep investing resources at the top of your funnel.
However, if you start thinking about acquiring customers in terms of growth loops, it gives you a different perspective on how some of the largest companies in the world grow.
Growth loops force you to think about how acquisition, product, and monetization all work together to create compounding growth.
The difference between a funnel and a loop is that the outcome can be used as an input to fuel more growth.
For example, a referral program acts as a growth loop, not a funnel. A potential customer visits your website, buys your product, and loves it enough to refer a friend. That friend then visits your website, buys your product, and loves it enough to refer a different friend. And the new friend visits your website… you get the point.
If you think about creating marketing initiatives in terms of growth loops, it can help you create compounding growth in your company, and help reduce your overall marketing CAC.
To get started with growth loops, first identify what kind of rewards would give your existing customers the most incentive to come back. This could include discounts on future purchases or exclusive access/privileges for loyal members.
Then create processes that make it easy for people to take advantage of these offers.
With some thoughtful planning and implementation efforts upfront, growth loops can help drive repeat sales while building strong relationships with your current customers — making them a great tool for any business looking to grow sustainably.
When it comes to reducing your CAC, there’s no one size fits all approach. You may find that the path to success is creating the right combination of the different marketing strategies mentioned above.
From providing great customer experiences to delight users, creating SEO content, building a community, using retargeting ads, doing co-marketing campaigns, and more, lowering your customer acquisition costs is a combination of a lot of different moving parts.
But the best place to start is with your existing customers. Customer retention is key to a thriving business. It’s much easier to upsell existing customers compared to acquiring totally new customers.
Bottom line, make customers fall in love with your brand and proactively engage within your industry.