8 Proven Ways to Reduce Customer Acquisition Cost (CAC)

Effective tactics for eCommerce brands to reduce their customer acquisition cost (CAC) — like leveraging referral rewards & building an affiliate program.

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    While repeat customers may be the fuel of subscription eCommerce businesses, acquiring new customers is still an important element for growth — and we know it can get expensive quickly. 

    With customer acquisition costs (CAC) at an all-time high, more and more brands are wondering what they can do to keep their spending in check while still contributing to meaningful brand growth

    We’re diving into the 8 proven strategies that you can leverage to reduce customer acquisition costs and optimize your efforts. 

    What is Customer Acquisition Cost (CAC)? 

    The official customer acquisition cost (also known as CAC) definition refers to the total price a business has to pay to win a new customer. 

    This term takes into account things like the cost of marketing campaigns and strategies (including sponsored social media posts), the salaries of the sales and marketing teams, the price of advertising and other paid initiatives, and the cost of any discounts or rewards provided as referral incentives. 

    The formula to calculate CAC is simple. All you have to do is divide the total cost of marketing efforts by the total number of customers gained in the period. 

    Calculating CAC Formula

    How to Reduce Customer Acquisition Cost: 8 Strategies  

    In general, acquiring new customers is expensive — and it’s only been on the rise in the past few years for a variety of reasons. Between a new iOS update better protecting data privacy, an increase in competition, and the dropping effectiveness of online ads overall, eCommerce businesses are having to try new strategies to maximize profits.

    Here are the tactics that your business should try to lower your CAC:  

    1. Shift Some Efforts to Customer Retention 

    There’s one thing that’s better than acquiring new customers: retaining the customers you already have. There’s a lot of evidence to support that leaning into your current customer base is an extremely lucrative strategy, and it’s worth easing off at least some acquisition efforts in favor of retention tactics. 

    For one, it can cost five to seven times more to acquire a new customer than it does to retain your current customers

    What’s more, you’re also way more lucky to successfully sell to an existing customer than you are to sell to a new customer. The probability of selling to a customer skyrockets from only 5 - 20% for new customers to 60 - 70% for loyal customers. If you need further proof, loyal repeat customers are actually worth 22x more than average customers.

    There are so many ways to enrich the post-purchase experience. Having an engaging customer account portal is one of the best places to start. This is a great spot to have one-time add-ons, trending upsells, and a strong loyalty program all to encourage subscribers to further interact with your brand. 

    Personalizing your email and SMS marketing is another impactful way to boost customer loyalty — like by providing tailored recommendations to each individual subscriber.  

    Focusing on retention is one of the best ways to help increase customer lifetime value (LTV), which is then an invaluable benchmark to compare to your CAC. This LTV:CAC ratio can help you determine if you’re spending more money than you’re earning back and ensure the long-term health of your business.  

    LTV:CAC Ratio

    2. Offer Referral Rewards

    Incentivizing referrals is one of the wisest moves you can make for your business. 

    Word-of-mouth marketing is an incredibly powerful way to get the word out about your brand, and the customers that get brought in through referrals end up being incredibly valuable. In fact, they have a 37% higher retention rate and a 16% higher customer lifetime value. They’re also more likely to refer friends of their own. 

    The best part about customer referrals when it comes to your CAC — they cost virtually nothing, and you only have to provide a perk if the customers convert. The strongest referral rewards come with perks for the loyal customer who provided the referral (we usually recommend loyalty points as an incentive, but you can also provide a discount) as well as a reward for the referred customer (usually a discount on the first order).  

    This means that you can acquire an extremely valuable customer who is already programmed to like your brand just for the cost of a one-time discount and some loyalty points. This is truly one of the easiest and most obvious avenues for decreasing your CAC — and with Smartrr, you can easily offer an engaging referral program by leveraging loyalty rewards as an incentive. 

    3. Track and Regularly Analyze Your Data

    In order to manage your costs, it is absolutely essential to have an accurate understanding of which customer acquisition channels are working best and how you can optimize the ones that are less effective. This way, you can always be utilizing your marketing spend in the most efficient ways. 

    Make sure you have proper conversion tracking in place before you launch a campaign, and regularly reassess and adjust your efforts as you gather more data. 

    4. Consider Retargeting Ads

    Retargeting ads focus on customers who have already visited your website before but didn’t convert. Rather than focusing on getting in front of people who have never heard of your brand with prospecting ads, which are less effective and more expensive, retargeting ads tend to be cheaper and typically result in a higher conversion rate — since you’re dealing with people who are already familiar with your offerings. 

    Of course, this strategy works best for brands with higher site traffic and better SEO. Otherwise, there won’t be a significant enough number of people to retarget. 

    5. Utilize an Affiliate or Ambassador Program

    If you partner with the right influencers, creators, or even enthusiastic members of your community, leveraging an affiliate program (or ambassador program) is a phenomenal method for drawing in new customers. In fact, one survey found that 60% of brands believed affiliate marketing had a higher ROI than traditional advertising.  

    Much like referral rewards, an affiliate program helps to reduce your CAC because you’re only paying for successful conversions. Affiliates receive a commission only if their followers buy from their individual affiliate link.  

    In addition to lowering CAC and boosting sales, affiliate marketing is excellent for brand awareness and can act as a strong first touchpoint for potential customers. Consumers tend to highly value and trust their favorite influencers, making them more likely to take any recommendations to heart. Even if they don’t immediately convert, the next time they come across your brand, they will have already had a positive initial exposure and will be more likely to want to check it out.

    Plus, with an enriching ambassador program, you can develop stronger customer relationships with your current audience.

    6. Ensure You’re Targeting the Right Audience

    A high CAC could indicate that you haven’t yet found your target audience. It’s important to take a step back and make sure you’re being intentional and strategic about the the customers you’re trying to reach. 

    One way to do this is to create or strengthen a buyer persona. Make sure you have a clear understanding of who you’re trying to reach and where you’ve been successful in the past — be it regarding a person’s age, gender, location, interests, etc. Look to your own best customers and where you’ve gotten high-intent leads in the past. 

    Make sure to regularly collect feedback from your current customer base as well. The better you understand who they are, the better you can target and attract more customers like them. 

    7. Study Competitors 

    Looking to competitors can give you key insight into how you can best frame your messaging. 

    By reading up on your direct competitors’ reviews, you can quickly gauge the kind of language consumers use as well as their typically praises, complaints, and values. Especially if you’re positioning yourself against a main competitor, doing this kind of research will better enable you to resonate with your target audience and more effectively bring in new customers. 

    8. Test & Optimize Your Landing Pages

    If you do get potential consumers to click on your site, it’s essential that your landing pages — and your product detail pages (PDP) — are optimized for conversions. The most effective landing pages will convert customers faster and help subsequently lower your customer acquisition costs. 

    And the way to do this is to test, test, test. 

    Try different CTAs, different colored buttons, different button placement, less text, different images — you name it. Then, measure how many conversions you get in comparison to the amount of traffic driven to these pages to figure out the optimal landing page version. Test these variations one element at a time so you can be sure which changes had the greatest impact. 

    Acquiring customers can be time-consuming and expensive, especially in today’s world. Luckily, by focusing on customer retention and utilizing a range of these strategies, you can better lower your CAC and maximize profitability. 

    And for the best suite of tools to help you prioritize customer retention and maximizing customer lifetime value, get in touch with us at Smartrr below.

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