Getting new customers in an online business is a strenuous task in an e-commerce business, especially in a subscription-based business model. Yet it’s among the topmost priorities for an online business and they perform various activities to get new customers to become aware of their brand let alone buy their products or services.

Apart from carrying out such activities, companies also analyze their efforts using certain metrics to ascertain what their efforts are bearing and how they could better it. One such important metric is the Customer Acquisition cost (CAC). 

CAC is money spent by companies in their efforts to acquire new customers for their products or services. It is an important metric to judge the performance of a company as it affects its profitability. Every company aims to spend its money efficiently and CAC gives them a fair idea of the ways for saving and assists them in curbing overspending. 

‍Why is it important to understand CAC?

If CAC is on the lower side, it implies that you are on the right track in terms of your marketing strategies. On the other hand, if the CAC is high and it supersedes your Customer Lifetime Value, it indicates that your spending on customer acquisition is more than the profits incurred after acquiring them.

In simpler terms, it means that if the cost incurred by the company in acquiring is higher than its Average Revenue per User (ARPU), it implies that the business is unable to generate enough revenue from each customer in comparison to its spending on acquiring him.

Also, CAC helps businesses determine which marketing channels are working better for the company compared to others so they can plan their future marketing strategy in terms of allocating resources more effectively.

Best Ways to lower CAC for online businesses

Set up a target CAC

CAC is your total sales and marketing cost divided by the number of new customers added to the business. It is always advisable to start with a plan which in this case would be to set up a target CAC. It will act as a benchmark for companies to keep the CAC under the benchmark through their sales and marketing efforts. It’s an important step for a company to move toward earning positive returns on their investment.

Leverage your social media strategy

In today’s day and age when social media has become such an integral part of people’s lives, it has become imperative for businesses to have a presence on it and use it to maximize their profits. Nowadays, almost every business wants to grow their social media presence which also helps to keep their CAC in check which in return has a positive impact on a company’s profits.

Content plays an integral role in the organic social media growth of a company. Therefore, to get more followers which could translate into customers, brands always focus on creating valuable and customer-centric content to which their audience could relate. 

Businesses should also focus on leveraging user-generated content to further strengthen their organic reach. The positive feedback from a business's current user base in the form of reviews, photos, and testimonials creates a positive image and credibility around the brand. 

For example, if you are in the business of selling pet food. Through social media, you could encourage your existing customers to give their feedback on social media and even share constant pictures and videos of the growth of their pets which would create a reliable image of your brand and would convey how your brand is a critical partner in the relationship between the pet owner and their pets.

Credits: Google Images

Lastly, it is also important to constantly monitor and analyze your social media content to gauge which type of content is working for your brand and resulting in engagement and reach for your brand. You can further refine your social media with this information and eventually reduce your CAC.

Optimize your top-performing locations

The key to getting new customers at a lower cost is targeting the people purchasing your products or services. In place of treating everyone equally and displaying ads to everyone, it is crucial to collate data and prioritize those locations where your product and services are bought more. 

Once you know who they are, you can focus your marketing on reaching more people like them. Think of it like fishing - the right bait attracts the right fish, and you waste less time and money.

For example, Despite being headquartered in the US, if the data shows that some other country is where your products or services are more popular the campaigns there give you 23% more ROI. In this case, it will be the best option to prioritize that particular country to reduce your CAC. You can take the following steps such as: 

• Allocating more advertising budget to campaign more aggressively in that country
• Make your connection stronger to that location by localizing your marketing and social media strategy.
• Smoothen the payment processes by accepting those payments that are popular in that location.

Leverage sales funnel data to reduce CAC 

It seldom happens that the customer buys your product or service in a single session just after being directed to the landing page. He will often do his due diligence such as going through the reviews or checking your social media presence and then they might opt out of the page. This whole journey of the customer being aware of your product or service to purchasing it is called the sales funnel.

Optimizing the sales funnel leads to a reduction in CAC for companies. They have the task of analyzing the sales funnel and finding out where customers drop off. The companies can then use the learnings to optimize the sales funnel and increase the conversion rate. 

For example, if you find out that the customer drop-off rate is the maximum between your product and cart pages, then your topmost priority would be to optimize your product pages to increase the conversion rate. You can further take the following steps to optimize your sales funnel:

• Analyse heat maps: You can have a close look at the heat map to find out the pages that customers go to immediately before dropping off.
• Do an on-site survey: You can add a quick on-site survey to your online store and ask customers what features matter to them, how you can improve your product, and what they want. Then, test this out to see if it makes people find what they need faster and leave happier.
• Set up timer: To nudge the customers to subscribe to your products or services, you can add countdown timers to your offers. It keeps the customers on their toes and may lead to them buying the products or services.

Put your best-selling products in the spotlight

It’s basic human psychology to follow something popular and in demand. Similarly, if you have one or multiple best-selling products that sell more in comparison to the others then you should highlight them on your website as it gives social proof to them. 

Highlighting your best-selling products enhances your brand perception among buyers. It would also validate the quality of your product as people associate quality with things that are liked by others. You can always find out your best-selling products with the help of your e-commerce analytics and once you get the data you can:

• Highlight the product as a best-seller with a sticker
• Create a best-seller category on your website so that customers can easily locate the best-selling products
• Place the best-selling products on the high-traffic pages of your website such as the home page or landing pages
• Run advertising campaigns for your best-selling products 
• Give your best-selling products to influence who will then promote them

Engage retargeting strategies

Sometimes it is important to give timely reminders about your products or services to potential customers who once showed interest in them but still haven’t made the purchase. You can do so by retargeting them through personalized ads or sending follow-up emails to these customers. These people can be termed as high-intent customers and by focusing on them businesses increase their chances of conversion and reduce CAC. 

Both Google Ads and Facebook Ads are good mediums to help you reach everywhere online. With their help, you can jog the memory of the potential buyers and get them back on track to purchasing what they like. It is a cost-effective method to get new customers at a lower cost.

Streamline checkout process 

Another prominent method to reduce CAC and generate revenue is by designing your checkout process in an optimized manner. The company’s CAC tends to go down if an outstanding checkout process design is in place to resolve the problem of high card abandonment rates. With an abandoned cart recovery campaign in place, you can easily bring the customers back to your site without even following them. Some of the effective ways to optimize your checkout process are:

• Guest checkout facility: Sometimes people don’t want to get involved in the hassle of creating an account just because the site wants them to, which is why one-quarter of buyers abandon their carts. A streamlined checkout process requires the bare minimum of buyer information such as filling in their name, shipping address, and payment details.

• Build trust among buyers: 18% of the buyers abandoned their cart because of a lack of trust in the site which is why it’s important to build trust among the users for any business to succeed. It can be done through positive reviews, five-star reviews, and endorsements by reputed influencers and celebrities.

Acquire new customers through customer loyalty and referrals

A happy customer is the key to success for any business and is the ultimate goal of any business. A satisfied customer buys more of you which makes him a repeat customer and increases the revenue of a business. Therefore, it is important to treat your customers as royalty, listen to their needs, and always retain your customer base by reducing the churn rate.

When you create a loyal customer base, they become your ideal promoters and advertise your products to others. Businesses can incentivize their customers to do so by giving them discounts, free stuff, and exclusive offers. Everyone wins in this as existing customers save something in their next purchase whereas businesses get new customers at a lower cost which reduces their CAC and increases their profits.

Keep Optimizing your Ad copies

It’s always important to keep playing and optimizing your ad copies even if they are successful and getting some clicks. Keep analyzing them and compare those ad copies that are working to those that aren’t. Take cues from whatever ads are working and plan future ads along the same lines. The more you refine your ads, the less you spend getting new customers. 

Regularly A/B test your marketing campaigns and landing page for better conversion

The online space is a dynamic place and things here change pretty quickly. From customer preferences, and market dynamics to the policies everything changes and evolves which keeps businesses on their toes. 

Therefore, in this dynamic environment, A/B testing keeps you ahead of the curve. A/B testing is the process of showing two slightly different versions of the same thing to different people to find out which one is better. These little tweaks, like changing a button color or the words on it, can lead to more conversions for a business.

Through this strategy, you can split test various elements which enables you to foresee certain trends and patterns in the market and give you the leeway to plan targets and plan your marketing campaigns accordingly. It gives you a competitive advantage and also plays a big role in getting new customers at lower costs which reduces your CAC and increases the revenue.

With the ever-growing popularity of e-commerce, it’s becoming increasingly harder and costlier to acquire new customers. However, it doesn’t mean that your revenue has to take a hit. No matter how intense the competition gets, you can always take a multifaceted approach to reduce your CAC by choosing the right shopify subscription app which will assist you in following the above strategies along with its other features such as cancellation flows and smart dunning management. 

A right shopify subscription app will further assist your company in subscription management as well which in turn will lead to increased revenue and will give you a competitive edge over your competitors. So what are you waiting for? 

Book a demo now and harness the full potential of your business.