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How to Calculate “Cost of Acquisition” and Optimize for It

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Updated December 18, 2019
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Cost of acquisition, or acquisition cost, can be interpreted in a few different ways. First, it can often be referring to the total cost that a company recognizes on its books for property and other assets after adjusting for expenditures but before sales tax. Secondly, it can be a customer acquisition cost or CAC. CAC is simply the evaluation of the cost that goes into sales, marketing, and other operating expenses to convert one new paying customers

Evaluating CAC

A great way to quickly evaluate your business’s CAC is to take the total cost to attract, engage, and convert a new paying customer by the total number of new customers converted. This gives you the cost to attract one customer or client.

Depending on the type of business that you’re involved in this cost is going to vary, fluctuate, and change. As you use different tools to attract new customers, new costs will arise.

Where is the Money Going?

You might find that your cost of acquisition is high. What can you do about that? First, you’re going to have to figure out where the money is. Today the top 6 things used by companies to generate leads are websites, email, social media sites, direct mail, SEO/PPC, and web banners. These different marketing techniques all play into one end, customer acquisition. But it all costs money and if you’re going to be spending money then it might be good to decide where it can best be spent.

Where is the Best Place to Focus?

If we’re going to do customer acquisition well, we have to be smart about where our money goes. For small businesses starting out it might be simpler but as your business begins to grow and generate more revenue it becomes easier to let money slip through the cracks and your cost of acquisition go up. 

Analytics are Key

When we’re working to cut costs or to keep costs low analytics are going to be so important. We have to know how customers are interacting with our online presence so that we know what they want to see and what we can do better to keep them involved in what we’re offering. If you’re looking to take a deeper dive into analytics, check out this article on the basics of Google analytics.  

Cutting Costs

One of the greatest ways to cut acquisition costs and to generate some great leads is to build up a great system for referrals. This list of 79 referral programs is killer and might help breathe some life into how your business could build up a referral program. 

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Just like referrals, social media sharing can bring some really great leads and in most cases, is completely free. There are plenty of ways to incentivize sharing and liking posts including giveaways which almost always generate great traction. 

Optimizing Flow

Building clear and concise funnels is going to be extremely helpful as you work to optimize your cost of acquisition and profit throughout. A good funnel is going to allow you to use your resources in the most efficient way so that every encounter with a potential customer turns into a conversion. A smooth process between team members internally and for your prospect externally will pay off big time.

Repeat Customers

If we’re talking about optimizing flow and cutting costs, then we definitely are going to want to look into the benefits of repeat customers. Stat’s show that you there’s a 60-70% that you can do business with a past customer and only a 5-20% chance that you’ll be able to do business with a new customer. Doing business with past customers and clients will not only cut your cost of acquisition and your margins it will also make your business far more profitable.

If you’re trying to keep customers coming back, then you need to make sure you’re treating them right. Work hard to keep them coming back so that you’re always leaving people feeling very satisfied and excited about the work that you’ve done for them and the investment you’ve put into them.

Understanding the Value of a Customer

At times it can be hard to see but the value of a customer staying with your company for the long term can pay off in loads. There is no cost to retention, just intentionality by you towards the customer’s needs. At Hook Agency we practice this by working hard to develop quality relationships with each one of our customers. We want to know the ins and outs of how you do business so that we can help market your business in the most efficient, affordable, and successful ways possible.

We understand the value that you bring to us and in the same way, we understand how much each and every customer means to you. That’s why we’re committed to the long term good of your company.

Cost of acquisition and customer acquisition cost is no easy task to tackle. There is a lot of hard work that goes into not only understanding these concepts but also calculating them and then optimizing your strategy for them. As we head into the beginning of 2020, I’d encourage you to look at your CAC and set some goals for yourself. How can you cut costs, be more successful, and grow your business? Maybe it’s time to find a new agency to partner with on your marketing needs or to make sure you’re putting your money in the right place. Whatever you find it to be, make sure that you’re sticking with it and pushing your business to the next level.


 

Watch this quick video to see how savvy businesses save time and hook better leads:
 

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