Customer acquisition costs (CAC) is a metric that’s so important. It can kill your online business. In fact, high CAC is considered the top reason why online startups fail.
That’s because the costs to acquire a customer are not only high, they’re soaring every year. If you’re not making your money back, you’re running an unprofitable business. Here are eight ways that help get you startup ready.
1. Efficient Business Model
You’re not in business unless you’ve found an efficient business model. CAC, alongside customer lifetime value (CLV), are the two key metrics to watch.
Often businesses start spending money on new marketing channels without knowing the values of their CAC and CLV. That’s one of the deadliest mistakes an entrepreneur or a marketer can make.
Why? Because if you don’t get it right, at best you’ll limit your potential to grow and at worst you’ll bankrupt your business.
Customer acquisition cost refers to all the sales and marketing costs required to get a new customer. CLV, on the other hand, is your ability to monetize that customer over his or her entire lifetime. That is until they stop being your customer.
To have a healthy business model, you want to make at least three times what it costs you to get them. You should also be able to recover your CAC in less than a year if you want to avoid cash flow problems.
Moreover, to run a profitable business model, you need to actively work on bringing your CAC down and making your marketing more efficient, while simultaneously making your CLV higher, through upselling, improving your profit margins, and so on.
2. Improve Your Conversion Rates
You have a leaky funnel, you’re leaving money on the table. The higher your conversion rates, the more customers you’ll get for the money you spend.
Conversion optimization is not a one-time thing; it’s a mindset. As Peep Laja states, “Real estate is about location, location, location. Conversion optimization is about testing, testing, testing.”
3. Get Your Customers to Sell For You
In a standard funnel, let’s say you get ten prospects in and the best thing that can happen is that you convert all of them. That’s utopia, by the way. But how about converting ten customers and getting them to bring you five more?
That’s the power of word-of-mouth, referrals, and viral features. Companies like Instagram, Facebook, and Snapchat never had to spend a dollar on marketing. That’s because they used their users to recruit more users (i.e. features like import your contacts).
Even companies like Uber and Airbnb actively promote referrals and get a lot of new business from it.
4. Invest in Support and Onboarding
Poor onboarding is another way to lose new customers and make your customer acquisition expensive as a result. In fact, customer retention is hard.
How you onboard them can be a decisive factor in your future business growth. For example, Dropbox has found out they’re most likely to retain users if they save at least one file in it. So, they made it part of their tutorial.
Offer your customers a helping hand. Have great support and actively reach out to them. Doing this, however small the gesture may be, can make a dramatic impact on your CLV, as well as your conversions.
Automated marketing is a great way to save money. If you can automate something, you’ll save money on paying for manual work. You’ll also save time and time equals money.
Even more importantly, automation, if done right, makes your marketing more efficient and prevents mistakes. All of this brings down your cost to acquire new customers.
6. Implement Pareto Rule
The Pareto rule is the concept that ~20% of your actions deliver ~80% of your results. For example, Microsoft once found that by fixing the top 20% of the most-reported bugs, they could eliminate 80% of the related errors and crashes in a given system.
It’s the same with your sales. Probably a small percentage of your customers deliver most of your revenues. Find out who they are, what they have in common, and fine-tune your campaigns towards targeting similar personas.
7. Double Down on Free Channels
Paid advertising works great, but there are some ways to get customers free or very cheaply. Press marketing is one of those ways.
There’s also content marketing, link building, guest blogging, which costs time and sometimes money but delivers long-term, organic results.
Then there are partnerships and publicity stunts. Spotify took off by partnering with Facebook in the early days. Richard Branson has built a billion-dollar empire on the back of his publicity stunts.
8. Always Innovate
Never stop testing, never stop improving. That’s the mantra of innovation and you want to get that in your company mindset ASAP.
Any entrepreneur can’t express enough the importance of developing a solid plan. And the planning never stops but the startup phase is critical to the stability of your company’s first few steps.