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Understanding Cost Of Customer Acquisition
What is “cost of customer acquisition?”
Cost of customer acquisition (COCA) is a measure of the resources a company must expend in order to gain a new customer. It is a critical metric for businesses because it helps them understand the cost-effectiveness of their marketing and sales efforts.
Digital marketing has become a key driver of customer acquisition for many businesses due to its reach, targetability, and cost-effectiveness.
A high cost of customer acquisition indicates that a company is spending a lot of money to acquire each new customer. A lower cost of customer acquisition indicates that a company is acquiring new customers at a lower cost. This will make it more profitable in the long run.
In digital marketing, the cost of customer acquisition is typically calculated as the total cost of a marketing campaign divided by the number of customers acquired as a result of the campaign. For example, if a company spends £10,000 on Google Ads and acquires 100 new customers, the cost of customer acquisition would be £100 per customer.
Digital marketing channels often have lower costs of customer acquisition compared to traditional marketing channels like television and print advertising. This is due to the ability to target specific demographics, geographic locations, and interests. Digital channels also have the ability to track and measure the performance of campaigns in real time.
In addition to campaign expenses, digital marketing COCA also includes the cost of website development and maintenance, marketing automation tools, and other technology-related expenses.
It is important for businesses to monitor and optimise their digital marketing cost of customer acquisition regularly. You can then ensure that you are getting the best return on investment.
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5 reasons you should know your cost of customer acquisition
Knowing your cost of customer acquisition is important for several reasons:
- Budgeting and planning: Understanding your COCA helps you determine the budget you need to allocate for customer acquisition activities. It also helps you plan future marketing and sales efforts by providing a baseline to compare against and measure success.
- Profit and ROI: COCA helps you determine the profitability of your customer acquisition efforts. If your COCA is higher than the lifetime value of a customer, it means you’re spending more money to acquire a customer than you’re making from them. That is not sustainable in the long term.
- Allocation of resources: COCA helps you allocate your resources effectively. If you find that one customer acquisition channel is more expensive than others, you can adjust your strategy and allocate more resources to channels with a lower COCA.
- Comparison with industry benchmarks: Understanding your COCA in comparison with industry benchmarks gives you a better idea of where you stand relative to your competitors. It will also help you identify areas for improvement.
- Continuous improvement: Regularly monitoring and tracking your COCA helps you identify trends and make data-driven decisions to continuously improve your customer acquisition efforts.
What decisions can cost of customer acquisition help me make?
Knowing your cost of customer acquisition provides valuable insights that can inform a variety of business decisions. By understanding the cost associated with acquiring new customers, businesses can make informed choices about their marketing and sales strategies, resource allocation, and budgeting.
For instance, a business with a high COCA might decide to re-evaluate their customer acquisition channels and focus on optimising or shifting their efforts to channels that have a lower cost per customer. They may also consider adjusting their pricing strategy or product offerings to increase the lifetime value of a customer, making their customer acquisition efforts more profitable.
Moreover, a business with a low COCA might decide to increase their investment in customer acquisition to accelerate growth. They may also decide to use their advantage to enter new markets or expand their product line.
In addition, COCA can be used to evaluate the efficiency of different marketing campaigns, sales channels, and promotions. A business can make decisions about which campaigns to continue or discontinue, which sales channels to prioritise, and which promotions to run based on their COCA.
Furthermore, COCA helps businesses make informed decisions about staffing and technology investments. If the cost of acquiring new customers is high due to the cost of sales personnel, for example, a business may consider investing in technology solutions to automate the sales process and reduce their COCA.
How can I lower my cost of customer acquisition?
Lowering the cost of customer acquisition is crucial for a business to achieve sustainable growth and profitability. Here are some ways businesses can lower their COCA:
Optimise marketing channels
Evaluate the performance of your different marketing channels and allocate resources accordingly. Consider investing in channels that have a lower cost per customer acquisition. Consequently, you can then discontinue or reduce your investment in channels that are less cost-effective.
Enhance website experience
Invest in website optimisation to improve the user experience and increase conversion rates. A user-friendly and fast-loading website can reduce the COCA by reducing bounce rates and increasing the number of leads generated.
Use marketing automation
Automating repetitive marketing tasks can save time and reduce the cost of customer acquisition. Tools like email marketing automation, lead nurturing, and lead scoring can help streamline the sales process and reduce the cost of sales personnel.
Leverage referrals and word of mouth
Encourage customer referrals and word of mouth by offering incentives and providing excellent customer service. Word of mouth is a powerful marketing tool that can significantly lower the COCA.
Target the right audience
Target the right audience by using accurate customer data and demographic information. By reaching the right audience, businesses can reduce the COCA by avoiding wasted spend on ineffective marketing campaigns.
Offer value-added services
Offer value-added services such as free trials, demos, or webinars to increase customer engagement and build brand loyalty. Providing value-added services can increase customer retention and lower the COCA over time.
Partner with complementary businesses
Partner with complementary businesses to cross-promote each other’s products and services. This can help increase brand exposure and lower their COCA by leveraging each other’s customer base.