Customer Acquisition is exactly what it sounds like: It’s how companies acquire new customers. Customer Acquisition Management is the set of tactics and strategies managers use to find new customers. Those can include advertising, word of mouth, inbound marketing, and any other channel that allows a company to find new customers.
Sophisticated customer acquisition programs closely monitor their customer acquisition cost (CAC) and make sure to keep that cost well below the lifetime value (LTV) of the customers they acquire.
Cost per acquisition is sometimes conflated with the more common advertising term, cost per acquisition (CPA), but the cost per acquisition expressly refers to acquiring a new customer, where CPA refers to action like an app download or completing a lead generation form.
Customer acquisition programs often involve two distinct phases of turning individuals into customers. They are:
Some people (or businesses, in the case of B2B) are more likely to become customers than others. Being able to identify and isolate who is most likely to buy is an essential tactic for reducing customer acquisition costs.
Also known as lead nurturing and lead qualification, this includes all the messaging used to move a prospect through their buyer’s journey. Part of that is verifying that individuals who have shown interest actually have the potential to become customers.
It’s not hard to see the benefits of customer acquisition: Every business wants more customers. But, simply getting more customers usually isn’t enough.
Companies also need to find customers affordably. They can’t spend $20 to acquire a customer that is only worth $10.
While it’s good to get “more customers”, sophisticated businesses hone their customer acquisition efforts based on what they believe each prospect will ultimately be worth. Smart customer acquisition managers don’t just track the first sale – they look at customer lifetime value as well.
With campaign tracking set up, acquisition managers can estimate potential customers’ value based on many different factors, like:
Effective customer acquisition doesn’t just get you “more” customers: It gets you, higher-value customers, ideally for the same price or less than what you were paying for just any customer.
When your advertising budget is a little tight, you’ll be able to run a specific campaign to “buy” customers for the maximum possible return on investment. You won’t be bringing in as many customers as you could with a full budget, but you’ll keep your cash flow stream going, maximizing every dollar you spend on customer acquisition.
Later, when you have more budget, you can open up other marketing campaigns to bring in even more customers. These second-tier campaigns may not be as super-profitable as your top tier ones, but they’re still profitable enough, and so long as you have the budget, you can amp up the volume of your new business.
Being able to turn different customer acquisition levers on and off, adjusting for budget or other factors, is powerful. It gives you a level of control that is not possible when your marketing is less sophisticated, and you can’t track customer value or you don’t have the ability to cherry-pick your highest-value, lowest cost customers.
This level of sophistication also allows you to think long-term. For most companies, their highest-value customers are the people most likely to be loyal. Customer retention is often the real profit engine of a business.
If your program is smart enough to find the people most likely to be loyal, your business can be far more profitable. You’ll be able to spend more to get these types of super high-value customers, and that means you can afford to outbid your competition.
This isn’t the only trick really good customer acquisition managers use: They can target for other attributes, too. Like customers’ likelihood of referring to other customers. If your marketing is sophisticated enough to find people who are 10x more likely to refer another customer or another 10 customers, clearly that’s a formidable competitive advantage.
How much you spend to acquire customers is one of the fulcrums of your business, so we have to measure it.
Calculating customer acquisition cost:
Here’s how that might look in action:
Long Term Benefits of CAC
It’s critical to know your company’s average customer acquisition cost, but that number alone won’t tell you if your efforts are successful. To know that, you’ll need to know the lifetime value (LTV) for your average customer.
In the example above, if the CAC is $30, and the LTV is $20, you’ve got a serious problem. You’re losing $10 on each customer you acquire. But if the CAC is $30 and the LTV is $50, you’ve got a very profitable customer acquisition machine. You’re making $20 on each customer.
There are, of course, many ways to acquire customers – everything from a lemonade stand to Super Bowl ads. But social media advertising is an especially effective way to get more customers… if you know how to do it right.
Here are just a few of the types of social advertising campaigns available:
Again, that’s only some of the ad types available. And we haven’t even mentioned audience targeting or how to test creative.
Each type of social media advertising campaign may have a very different average customer acquisition cost for your company. This isn’t because one type of ad is “better” or “worse” – it’s just what works best for your product and your audience.
Those are simplistic examples, but you get the idea. Using the right type of social media ad campaign can make all the difference. It’s not enough to say “social media doesn’t work for us.” It’s not really even safe to say “social media advertising doesn’t work for us” until you’ve tested different campaign types, different audience targeting, and a whole lot of creative.
Sun Basket is a subscription-based food service that delivers weekly meals. They had done some Facebook advertising but wanted to profitably scale their advertising on the platform.
By working closely with the Sun Basket team, we were able to reduce their cost per acquisition by 42% and get them 447% more subscribers.
The magic recipe for their ads was to use mobile and desktop newsfeed ads on Facebook and Instagram, targeted at thousands of custom and lookalike audiences and interest groups. To make the campaigns work, we also had to create hundreds of original ads in order to find the handful of super-high-performance winners that ultimately delivered most of the gains.
This is one of those ads:
MyHealthTeams creates social networks for millions of people living with chronic conditions. They reached out to Consumer Acquisition to reduce their cost per acquisition and scale their Facebook advertising.
We dropped their CPA by 27% within the first 60 days with video ads, and then ultimately brought their CPA down even further (by 36%) with aggressive creative development and testing combined with carefully targeted website conversion ads on Facebook and Instagram.
Social media advertising (or Google’s UAC) can work very well for customer acquisition. You just have to know how to find the right mix of campaign types, audiences, and creative.