We know effective marketing can be expensive, with driving increased footfall into your store (or more traffic to your site) the overall aim and a constant challenge.
Indeed, acquiring new customers is key to any successful retail business. While maintaining outstanding customer service to engage and retain existing customers will always be important, getting new customers through the door should be a priority too.
But improving customer acquisition can be easier said than done. Let alone while trying to keep your new customer acquisition cost down.
Whether you call it CAC (customer acquisition cost), CPA (cost per acquisition) or you don’t really have a term for it, this guide will talk you through strategies to help you keep these costs down to boost your returns.
The importance of keeping acquisition costs low
Keep your transactions as profitable as possible by reducing how much you spend on acquiring customers. It’s obvious, but you simply can’t run a successful business if you’re spending so much on acquiring customers that you’re not making the money back from their transactions.
Of course, if you spend too little you might miss out on valuable customers too – so it’s all about striking the right balance.
Everything from ad spend to your sales team’s wages contributes to your acquisition costs. Note down every cost included in engaging a customer to get a real overview of how much your business in spending on acquisition. The calculation is simple: divide the total of new customers acquired with your total marketing spend to get a customer acquisition cost.
You can use this same calculation to find out the average cost for each of your different marketing channels and campaigns, helping to give you a clear idea of which channel works best for your brand.
9 ways to lower your new customer acquisition cost
1. Provide excellent customer support
Customers are more likely to be converted by businesses who are there for them when they need it – and it might not cost you the earth, either. Offering live chat support, for example, might feel time-consuming but studies suggest that visitors are 2.8 times more likely to end up purchasing a product after engaging with a live chat agent. Having an FAQs page on your site is also particularly effective, improving SEO and helping your customers easily find the answers they need.
While some shoppers know exactly what they’re looking for, others are simply browsing or looking for a product to solve a particular problem. By engaging with your customers from the get-go and answering their questions quickly and effectively, you’ll be able to show you’re the right business to meet their needs. This will improve your conversion rate and likely boost customer loyalty, too.
2. Harness the power of retail finance
It’s proven that customers are more likely to make a purchase if retail finance is available. Point of sale credit gives customers the confidence to checkout without needing to part with a large sum of money upfront. And, with cost-neutral finance solutions available, it can be a particularly low-cost way to improve retail conversions.
Here at Novuna Consumer Finance, we take things one step further thanks to our tailored decisioning. We know how disheartening a declined application can be – so we allow customers to change the loan amount, term or deposit to turn those potential declines into accepts. This helps to make your products and services even more accessible, thus increasing the number of customers who make a purchase.
3. Build relationships with your ideal target demographic
Most businesses will post on their social media channels to make sure their key messages are put out there into the world, but it’s also important to spend time actively engaging with your target audience.
The first step is to figure out where your customers spend their time. If you know your target demographic are posting more frequently on TikTok, experiment with commenting on popular TikTok videos and engaging with your customers there. However, if you’re in the B2B space, it’s likely LinkedIn might be one of the most effective social channels for your business. Again, find popular, relevant posts and offer up your views to get your brand name in front of your target audience.
Encourage customers to interact with you and create content about your brand, too. User generated content is particularly powerful way to generate social proof, which reaches and engages new customers. Simple steps such as running a competition asking social followers to share photographs of your product can really benefit your brand. Plus, given your customers will be generating the content for you, it can be a low-cost marketing strategy.
4. Focus on owned marketing
Owned media helps you to drive traffic to your website, without directly paying for every click that comes your way:
- Organic SEO helps your business to appear in the search results, boosting the number of new customers who click onto your site
- Content marketing helps your customers during the decision-making process. From case studies and product descriptions to guides and articles, you can use content marketing to persuade customers why they should buy from you rather than your competitors
- Email marketing puts your brand front and centre of your target audience’s inbox. Use email marketing to share key information or offers, ultimately helping to convert leads
While owned marketing can be a cost-effective way to boost traffic and brand awareness, don’t forget to include resource as part of your acquisition cost calculations. Even drafting up a simple blog or sending a promotional email to your customers can take a large chunk of your team’s time, so don’t make the mistake of viewing ‘owned’ as ‘free’ marketing.
5. Test and learn
Experiment with new marketing techniques to compare your customer acquisition cost across different channels. This will help you to discover the most cost-effective strategies for your specific business. For example, does collaborating with several micro-influencers drive more traffic than spending all your budget on one macro influencer campaign? Does sponsoring a sector-specific podcast or YouTube videos drive more conversion than traditional digital ads?
Once you know which channels drive the largest number of conversions, you can make sure you spend more in the most effective areas to avoid wasting budget on channels that simply don’t work for you.
It's also a good idea to A/B test marketing campaigns, to make sure you’re running with the most effective option. Try out different headlines or CTAs across your website or Google Ads, then track which versions generate the greatest amount of engagement. This will help you to be confident you’re making the most of your marketing activities rather than wasting your all-important budget on techniques that aren’t driving conversions.
6. Focus on retargeting
People who’ve previously interacted with you are more likely to recognise your brand and buy from you. So targeting these people will likely be much more effective than simply advertising to ‘random’ people who haven’t heard of you before.
Even better, retargeted ads can be cheaper to run which could make acquisition cheaper too.
7. Encourage referrals
Existing customer recommendations are one of the cheapest ways to secure new customers. While organic recommendations are always appreciated, you can gently encourage your existing customers to recommend you by offering ‘refer a friend’ discounts or sending a link to your TrustPilot or Feefo page and asking for a review.
It’s a good idea to place real-life reviews and customer case studies on your website or product pages to highlight other customer experiences. This will build trust with new customers and may well lead to a higher conversion rate.
8. Prevent abandoned baskets
Analyse your cart abandonment strategy to ensure you’re doing all you can to avoid customers clicking off your site without making a purchase. These are customers who’ve browsed your website, chosen a product and even added it to their basket – they’re so close to becoming converted customers, so don’t miss out on your opportunity to close a sale.
Offering free delivery at the checkout or displaying which finance options are available to help customers spread the cost can help to entice customers to buy instead of bounce. But, if you do find your customers are disappearing without checking out, it could be the ideal opportunity to send out a personalised email reminding your customers that they’ve still got items in their basket. It’s far easier – and much cheaper – to convert a customer who’s already familiar with your brand and your products.
9. Automate what you can
Use marketing automation tools to streamline processes. This can reduce the time, effort and money spent on manual, repetitive tasks. From analysing customer data to providing personalised recommendations to customers browsing your website, there are many ways retailers can leverage AI to improve customer acquisition.
How to offset a high customer acquisition cost
If your customer acquisition cost is high, this doesn’t necessarily mean your marketing strategy needs a complete overhaul. While, of course, it’s a good idea to analyse your investment and try to bring costs down where possible, you can offset a high spend by focusing on improving your average order value, customer lifetime value (LTV) and customer re-engagement.
If you can ensure each customer you acquire spends more with you both now and in the future, that particular customer will be much more valuable than one who pops in and spends a tenner, never to be seen again. It’s recommended that your LTV to CAC ratio is around 3:1 – put simply, a customer’s lifetime value should be worth three times more than it cost you to acquire them.
Increase your average order value
There are several ways to improve your average order value, from enticing customers with limited time only prices to creating product bundles to encourage customers to add related products to their basket.
We specialise in helping retailers improve their average order value through consumer finance. Giving customers the opportunity to spread the cost of a big purchase might persuade them to upgrade or add extra products they otherwise might not have been able to afford.
Our max loan technology tells you what finance a customer is eligible for, too, giving you the ideal upsell opportunity. Once a customer knows they could borrow just a bit more and get the item they really had their eye on or an accompanying product, they’re a lot more likely to increase their transaction value by taking out extra finance.
Improve customer retention
Acquiring customers is one thing but keeping them coming back time and again is quite another. Work on your customer retention strategies, such as offering loyalty discounts, to improve the chances of repeat custom.
We also find that offering an outstanding finance experience boosts customer loyalty, too. Customers are much more likely to return to a retailer that offers the finance options they’re familiar with and that worked smoothly for them in the past. That’s why it’s so important to partner with a reputable finance provider such as Novuna Consumer Finance, whose outstanding customer service will reflect positively on your brand.
Re-engage old customers
Experts suggest a new customer can cost up to seven times more than retaining an old one. Therefore, if you’re trying to keep your costs low, you could find that re-engaging past customers might help you to win new business.
It’s also a good idea to take proactive steps to keep new customers engaged, to avoid them falling into the ‘lost customers’ category. Asking for feedback, encouraging them to sign up to your newsletter or offering up a discount for their next order can help to keep your brand in the front and centre of their minds.