Bijgewerkt: 14 July 2023
For many companies, customer acquisition costs take a big bite out of their budget. These are the costs of attracting new customers. But to turn them into loyal buyers that keep them coming back.
You may be spending too much money on customer acquisition. In this article I show you how to calculate customer acquisition costs and how to reduce costs.
What is Customer Acquisition?
Customer acquisition is also known as customer acquisition. It is the activities to attract new customers. This is always part of your marketing efforts. More customers means more growth and more sales.
Not every entrepreneur is busy with customer acquisition. I mainly see freelancers who launch a website and think that customers will come to them automatically. On social media, they mainly deal with colleagues or competitors, not with potential customers. These are wrong strategies that yield little.
Different types of costs
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First, let’s look at customer acquisition costs. This consists of several parts:
- SEO (search engine optimization)
- To advertise
- Social media activities
- Sales team costs
- Stock maintenance
- Production costs
- Technical costs
- Customer service
The costs of attracting customers have increased significantly over the years. In the period 2020-2023 alone, costs increased by more than 60%.
Average customer acquisition cost (CAC) by industry
A copywriter who writes the texts for his website, social media, newsletters and advertisements himself has lower customer acquisition costs than an entrepreneur who has to outsource all this. The same is true for the bookkeeper who conducts his own administration, which is cheaper for the bookkeeping than the entrepreneur who has no understanding of this type of business.
As a result, customer acquisition costs differ per company. But also per sector, because one sector has to invest more than the other.
The costs are influenced by the purchase value, lifetime of a customer, how often they buy something and how long a sales cycle lasts.
I researched the average customer acquisition costs by industry. Although this may vary individually, the costs below still give a good picture. The cost is per customer, so what it costs to attract one new customer.
- Online marketing companies: €10 to €90
- Retail: €15 to €140
- SaaS companies: €150 to €300
- Consulting and coaching: €250 to €500
- Financial services: €500 to €700
- Education: €650 to €900
Providers of expensive products or will often incur higher costs to attract new customers.
Customer lifetime value
Customer lifetime value is the net profit you get from a customer’s relationship. This starts with the first purchase, continuing until the customer buys or orders more. The ratio should be 1:3 or higher in the most favorable situation. This means that a customer generates at least three times as much turnover as it cost to acquire this customer.
Calculate the customer acquisition costs
It is important to regularly calculate customer acquisition costs. This gives you insight into the total marketing costs, and whether this is in proportion to the profit you make. But it gives you another valuable insight: you discover whether you are not spending too little money on marketing. By not being involved in marketing much, you will not attract new customers and your company will come to a standstill.
In fact, you divide the marketing costs by the number of customers you attract. Unfortunately, this is not as easy as thought.
Just a simple example. You spend € 500 annually on marketing. Nowadays this is not a high amount, companies often lose even more. But let me assume that you carry out a number of marketing techniques yourself and that you have lost a total of € 500 (per year). In the same year you attract 200 new customers. This means that the CAC or customer acquisition costs amount to € 2.50.
The disadvantage of this calculation is that you may invest in SEO, something that will only have an effect in a few weeks or months. As a result, the CAC can be higher and in the future considerably. This gives a distorted picture.
That’s why I recommend calculating the CAC quarterly, not once a year. Once a month is also possible, but when you invest in SEO or social media, you will only see the effects a few weeks later.
But the numbers are still murky. Because what do you do when a new customer buys multiple times? Then the costs per customer are no longer correct.
Calculate the Customer lifetime value (CLV).
If you want to calculate the customer acquisition costs, you have to deal with Customer lifetime value (CLV). This stands for the lifetime of the customer (also described above).
It’s about reducing acquisition costs, but also doing everything you can to retain customers. Only then will you get the best out of your acquisition activities.
It is best to use an online calculator to calculate the CLV. Use your favorite search engine to find it. I have already put forward a CLV calculator for you here.
- Enter the average selling price of your product or service
- Indicate the costs per sale (think of personnel, storage, energy or other costs)
- Indicate how many sales per customer realizes in one quarter or year
- Costs to attract new customer (e.g. SEO, social media, advertising)
An amount now appears (in dollars, but when you have entered everything in euros, you can replace $ with €).
What is a good CLV?
Maybe you have a $50 CLV, or a $296 CLV. Lower is better, right? No, in this case a higher CLV is better. This is because CLV is not equivalent to CAC:
- CAC are costs you incur to attract a new customer
- CLV is the net profit a customer generates over its lifetime
Looking for the channels with the lowest CAC
If you want to reduce customer acquisition costs, it is important that you look for channels with the lowest CAC. In other words, the lowest costs to acquire new customers.
Map out everything from hiring a copywriter to advertising in search engines. It concerns all the costs you incur to acquire new customers. List all costs, do this per year or per quarter.
Keep in mind that it can sometimes be difficult to determine which channel brought in new customers. In this case you have to estimate the value. For example, it is very lucrative for web shops to use pay-per-click advertisements. This is less interesting for companies that offer services.
When you invest a lot in SEO and you know how to work your business up in search engines, this will provide many new customers. But if you let a SEO-copywriter write texts and these texts do not score in Google, then that copywriter has little value.
Do you want to achieve the highest turnover at the lowest possible cost? Then it is important that you improve the customer acquisition costs (CAC). In other words, decreases. You do this by communicating clearly with potential customers. Show what added value your product or service has. When the audience knows what you have to offer and why it’s important to them, they’re more likely to buy.
In addition, it is good to answer all questions from potential customers. You do this through good customer service and by being present on social media. You can also place an FAQ page on your website. This way you don’t have to answer the same questions over and over again.
Also look for testimonials or positive reviews. When a customer leaves a good review on social media or a review website, show it on your website. For small businesses and unknown brands, negative reviews can sometimes turn into positives. Unknown companies can grow their turnover by more than 50% thanks to negative publication.
Also use comparisons, especially important when you offer products. By showing the potential customer what the advantages of the different products are, he can make a better choice.
CLV and CAC
As you have understood by now, it is important to look at both CLV and CAC. The CLV should be as high as possible, the CAC as low as possible. By understanding these statistics, you better understand whether your marketing strategies are effective enough.
New and existing customers.
The best way to increase your sales is to focus on one or two of the following three strategies.
- Increase the value of each sale (raise your prices)
- Encourage existing customers to purchase a product or service more often
- Attract more new customers
It is almost impossible to follow all three strategies. This is because you can’t increase your prices and at the same time encourage existing customers to buy more often. Your existing customers will not be happy with price increases. New customers are still in the exploratory phase and will see that your competitors are cheaper.
Usually it comes down to either increasing your prices or rates, or encouraging existing customers to buy more often and/or attracting more new customers.
Nevertheless, it is certainly possible to apply all three strategies. You do this through upsell. Here you let customers who buy something, buy something else. For example, batteries with electronic toys, or a social media post with their blog. You see that upsell can be applied to products or services.
Make sure you stay in touch with existing customers. You do this by sending them personalized offers, or by encouraging repeat purchases through rewards programs. Remember that attracting a new customer costs more money and energy than getting an existing customer to buy something again.
Bianca schreef meer dan 50.000 artikelen voor het internet. "SEO is mijn missie, ik help anderen om hoger in Google te komen". Met zoveel geschreven onderwerpen, SEO- en marketingkennis is ze het startpunt voor elke (nieuwe) website. Een opdracht plaatsen of meer weten over de voordelige tarieven? Vraag vandaag nog de tarievenkaart aan.