5 Proven Strategies for Ecommerce Brands to Reduce Customer Acquisition Costs
Nov 1, 2024
Over the last 10 years, the ecommerce industry has witnessed a major change in its infrastructure and sales have increased exponentially. Today, brands are drastically shifting to meet consumer expectations and preferences.
A research by Statista confirms that ecommerce sales across the US, especially D2C (Direct To Consumer) ecommerce sales, are projected to hit $182.62 billion in 2023. Despite this growth, expensive customer acquisition costs (CAC) continue to be a major problem that brands confront. Most ecommerce owners are currently left in a position where CAC is a greater expense than the lifetime value of customers (LTV) that follows.
It’s a sign that the cost incurred while acquiring customers is trending higher than the amount customers spend at a retailer, resulting in wasted marketing efforts.
However, any business that uses ecommerce can dramatically boost its net income by reducing customer acquisition costs, achieving an ideal balance. This article will discuss CAC, how to calculate it, and 5 strategies that you can use to keep it under control.
What is Customer Acquisition Cost (CAC)?
Customer acquisition cost is the total sum of marketing expenses needed to gain a new client. It includes the costs associated with acquiring customers, and the ongoing value of optimizing a customer's lifetime value.
The cost of acquiring customers can be divided into two components: 1) the cost involved in finding a customer; and 2) converting a customer lead into a paid customer.
Once you’ve acquire customers, here’s how you can calculate CAC:
Customer Acquisition Cost = Total marketing spend / Total number of new customers
Suppose you’ve spent $10,000 on a marketing campaign and you’ve acquired 200 new customers; your per customer acquisition cost is $50. If each customer, over their lifetime with your business, generates $150 in revenue then your CAC to LTV ratio is 3:1 (150/50), or three times Customer Acquisition Cost. If your ecommerce operation has an LTV ratio of 3X or greater above CAC, you’re headed in the right direction.
However, if your LTV to CAC ratio is less, then you may have to work on your customer retention strategy. Now let’s look at the 5 techniques you can apply to reduce your customer acquisition costs.
How can eCommerce brands keep CAC under control?
Reduce Customer Churn
The rate of customer churn (or customer turnover) is excessive across many ecommerce companies, and it’s a primary reason why customer acquisition is so costly.. A high churn percentage indicates that although a retailer may constantly acquire new customers, it’s not able to keep them active for long periods of time.
As an ecommerce merchant, having an effective customer retention strategy is the best way to prevent churn.
You can use applications such as Bloom Analytics to analyze your existing customer data, deriving insights about which customer segments may become ideal customers in the future. Based on this data, you can formulate a growth strategy by identifying the segment/s you want to target for marketing.
For instance, if your most valuable customers are likely to leave for other brands or categories of products within a short time after being acquired, then It’s best to prioritize them by creating discount loyalty campaigns.
Work on Your Customer Feedback ASAP
When it comes to brand advocacy, your customers take the top spot. If they had a great experience with your brand, they’ll introduce you to their near and dear friends, industry colleagues, social followers, and family members. In fact, they’re the force behind a wave of future referral opportunities.
Therefore, quickly responding to their direct feedback while resolving their issues with dexterity makes them feel valued and heard. This increases their loyalty, perhaps inspiring them to become your brand's ambassadors, which will greatly lower the cost of customer acquisition. Just remember: referred customers typically have a higher LTV (Lifetime Value) due to lower acquisition costs and peer-based brand trust.
Also, never forget to thank your loyal customers with rewards and encourage them to share the latest news about your brand.
CSAT (Customer Satisfaction Score), NPS (Net Promoter Score), and other feedback surveys can help you strengthen customer relationships. Any well-designed survey tool can help engage your customers for the long haul.
Make the First Best Impressions
Onboarding is a crucial factor to affect whether a customer will return to your store. It’s the introduction to your brand that can make or break repeat purchases. However, ecommerce stores often struggle to make effective first impressions.
Onboarding customer pain might be due to a confused first-time user experience, tedious steps to complete a transaction,, missing self-guided help documentation, and perhaps intrusive marketing messages that are more annoying than they are persuasive.
To prevent such poor customer experiences, you can devise a smooth onboarding journey: make signing up easy, without asking for too much information.
You can utilize interactive (optional) screen tips to lessen navigational friction and if necessary, use tutorials to enhance awareness of your user interface. Provide the best customer experience in the shortest time possible, getting buyers to that "aha" moment when they’re ready to purchase.
Reduce Cart Abandonment
A well-planned cart abandonment strategy is one of the best ways to increase the retention of your customers, thereby cutting down the costs associated with customer acquisition. Helpful tip: purchase conversion rates for abandoned cart emails are 10% higher than more traditional marketing emails.
When a buyer goes through the effort of adding items to their shopping cart, it’s increasingly likely they’ve considered buying something. All they require is a gentle nudge to encourage them to purchase your product.
It’s vital to send relevant and personalized cart abandonment emails that may highlight the following: products remaining in the cart, possible discounts, and out-of-stock items that are now available for purchase. Cart abandonment emails are an excellent method to engage customers, encouraging them to complete their transaction.
Improve Average Order Value (AOV) using Cross-Selling
Cross-selling is a great method to increase sales, boost revenue, and meet growth objectives. By using contextual prompts, you can show related products that potential customers might like as they browse your listings. The goal here is to ensure buyers remain on product pages, and eventually add more items to their shopping cart. Boosting Average Order Value (AOV) is the name of this game.
You can use a wide range of products offered at your store and cross-sell them depending on the customer's requirements, similar customer purchase behavior, and even the IP-based geographic location of their internet connection.
You can also find your most profitable customers by analyzing customer lifetime value and revenue data, with the intention to cross-sell them related products. Cross-selling also helps increase customer lifetime value, which negates cost of customer acquisition.
Customer retention is far cheaper than acquiring customers. It's also easier to keep an engaged customer, rather than acquiring new ones.
Make Necessary Decisions to Reduce Your CAC - Use Bloom Analytics to Reduce Decision Making Time
Customer acquisition costs can be a significant challenge for ecommerce retailers. However, by optimizing your customer retention strategies, you can offset those costs and increase revenue.
Concentrating on interactive processes for onboarding, personalized messaging, targeted cross-selling techniques, prevention of user churn, and rewarding loyal customers will lessen the impact of customer acquisition and boost customer retention.
You can use applications such as Bloom Analytics to make data-backed decisions to help improve your customer retention and reduce customer acquisition costs.
Sign up for our free trial today and make informed decisions about your customer acquisition and retention strategy.!
November 12, 2024
October 22, 2024