Tips to Calculate & Lower Client Acquisition Cost in 2024
- To accurately calculate customer acquisition cost (CAC), it’s essential to consider various expenses such as ad spend, content marketing costs, employee salaries, external collaborator invoices, and software costs.
- Measuring CAC in relation to customer lifetime value (LTV) can help optimize investment efforts and identify high-performing channels; a higher LTV:CAC ratio indicates better ROI.
- To reduce client acquisition expenses, agencies should consider techniques such as automation tools, outsourcing specific tasks, utilizing chatbots, and employing smart strategies like social media marketing and referral programs.
When agencies talk about client acquisition, they mostly mean the costs associated with it. Once you dive deep into the topic of client acquisition cost, you’ll quickly notice how tricky it is to put a number to it.
Isn’t there a simple CAC formula, you ask? Yes, but it’s not that straightforward. In this post, I’ll show you that it’s not as easy as dividing the number of customers acquired by your marketing and sales expenses.
How to think about customer acquisition costs
Let’s get one thing straight of the way, the basic customer acquisition formula is the following:
CAC = marketing & sales spent ÷ newly acquired customers
It’s an easy-looking formula, but calculating the first part, the spent, isn’t that straightforward. After all, what are the associated costs with marketing and sales?
Here’s what you should put into the spent category:
ad spent
content marketing costs
employee salaries
external collaborator invoices
marketing & sales software
And these are just to name a few.
Let’s say your spent in a given period is $5,000, and you acquired six new customers—your CAC would be $833.
Here’s the problem with that number: you’ve just calculated your CAC without taking into account the actual marketing spent. How do you know if CAC for your ad investment is high or low? Should you focus on it or rather on content marketing?
As you can see, when it comes to customer acquisition cost, it’s a good idea to also look at it from multiple perspectives.
Measuring CAC based on LTV
Let’s involve another metric agencies should be tracking, the customer lifetime value (LTV). Most agencies choose a multi-year period for their LTV, for instance two years, to calculate how much value a customer brings in.
Let’s assume you’re a video editing agency and your customers are on average 18 months subscribed to your monthly recurring video editing service valued at $599. Your customer lifetime value would be $10,782.
Now, let’s use CAC and LTV to calculate LTV:CAC:
LTV:CAC = LTV ÷ CAC
In our case, $10,782 divided by $833 equals 13.
This is just your overall LTV:CAC ratio. I highly suggest calculating it based on different marketing and sales channels. Check it on your ad investments, content marketing, affiliate marketing, and sponsorships.
The higher the calculated LTV:CAC ratio, the more you should focus on it, as it gives you the best return on investment.
Optimizing CAC costs with segmentation
If measuring CAC isn’t already a challenge, digging deeper into the data and optimizing it poses more challenges. There are many perspective views you should consider, and one I haven’t mentioned yet is to look at segmented customer and lead groups.
After all, you should know if your best leads are coming from specific geographical locations, such as the United States and Canada, or if they hold a specific role in their company.
What can you do when it comes to segmentation?
split leads into groups based on location
enrich lead data with more information
attribute the spent value of the customer
check which customers need the least support
When you look at your leads, also calculate the cost per lead (CPL). This helps you eliminate lead generation channels that cost you too much money, and needlessly increase your CAC.
When it comes to processing the data, most of it you can easily hold in your agency CRM. For instance, add all your leads to SPP and update their profile with data from external tools, for instance the full name, LinkedIn profile, and position in their company.
Keep all your client data securely stored in one place.
Once they are a customer, you can see the spent value over time, assign a custom status, get an overview of the tickets they’ve created, and understand how valuable the customer is.
Techniques to reduce client acquisition expenses in 2024
At this point, you know how to calculate your CAC and check if you’re spending as much as other agencies. In any case, I’m sure you’ll want to lower the number as much as you can, here’s how:
Using automation tools
Use CRM systems: customer relationship management (CRM) systems can significantly streamline your client acquisition process. Import your leads and enrich the data to have everything in one central place.
Automate email campaigns: Automated email campaigns can reduce labor costs and increase engagement. Choose an email marketing platform such as Mailchimp and segment your leads and customers based on behavior. Analyze the results and optimize your campaigns.
Utilize chatbots: Chatbots can handle customer inquiries around the clock, freeing up your team for more complex tasks. Use them for specific use-cases, such as answering frequently asked questions from leads.
Outsourcing specific tasks
Identify high-cost and low-efficiency tasks your agency should outsource to keep costs low:
Analyze workflows: Perform a thorough review of your current processes. Document tasks and the time they take.
Calculate costs: Determine the internal cost of each task, including labor, technology, and management overhead.
Identify tasks: Focus on high-cost tasks that do not require in-depth company knowledge.
What’s next
Cutting client acquisition costs in 2024 isn't just about saving money. It’s about using smart strategies to get better results. We talked about using social media, content marketing, and data analytics. Employing automation tools and referral programs can also make a big difference.
Putting these tips into action can boost your business growth. Start by identifying which tactics fit your current strategy. Then, measure your progress with tools like CRM systems and A/B testing.
Do you have a clear view of your client’s journey from first contact to retention? Focusing on this could be your next goal to scale your agency.
