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Marketing: This is how you calculate —and reduce— customer acquisition costs

Do you have the best word-of-mouth marketing strategy in the world?

If not, you are like the rest of us mortals who spend money on getting new customers in order to grow profits.

Of course, spend too much, and you ain’t profitable. Spend too little and you don’t grow. So where’s the middle ground?

Thankfully, Gareth Hanckock explains the math in his CXL article, so let’s go over the basics…

Why is customer acquisition cost (CAC) so important? Knowing how much you spend to get a customer can help you determine areas of opportunity and growth.

For example, if your TikTok CAC is too high, you can move to a more profitable channel.

How to calculate CAC: Add up all acquisition expenses over a period, and divide them by the number of new customers acquired during that time.

If you’ve spent $5000 on Google Ads and $2000 on content, and brought in 500 new customers, then your CAC would be $14. Simple.

Also keep in mind the customer’s lifetime value, or the total revenue you’ll ever make from a single customer.

Maybe $200 CAC sounds high. But if a single customer spends $2,000 with you, then it’s money well spent.

Also, measurement is crucial. It helps you get a clear picture of your spend across platforms and whether you can reduce costs even more. So create a simple CAC sheet and keep tabs on campaign performance.

Once you’ve figured out how to calculate and measure CAC over time, you should look to gradually reduce it. Gareth provides an extensive list of tips, but we’ll cover just two:

  1. Optimize targeting. If you’re not converting at the volume you’d like, you might be targeting the wrong audience. Or the existing audience might be too small and you need to broaden it.
  2. Use conversion rate optimization to improve shopping experience. Speed, convenience, good copy, and smooth checkout can all help you acquire customers easier.

There’s more to it, of course. Make sure you check out the entire article, because it dives deep into extracting maximum value out of your customer acquisition efforts. Happy “acquiring!”



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