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How to Lower the Customer Acquisition Cost for Your Service-Based Business

The greatest challenge for most businesses is to acquire new leads and turn them into paying customers. To check the success level of your marketing efforts, you have to look at one important measure – customer acquisition cost (CAC).

Customer acquisition cost is an essential metric for two reasons. 

First, if the cost of acquiring new customers is high and your client’s lifetime value is low, your company is not operating optimally. And second, by just reducing your customer acquisition cost, you can significantly optimize your budget and increase your company’s revenue. 

However, the trickiest part here is how to strike a balance.

Although each service-based business is unique, four simple yet very effective strategies can significantly help your brand reduce its customer acquisition cost. In this blog post, we will explore them in more detail.

What is a customer acquisition cost (CAC), and how to calculate it correctly?

A customer acquisition cost is a cost related to acquiring a new paying customer. 

No standard determines if your CAC is good or bad. It all varies from industry to industry and the lifetime value of your customer. A customer spending $500 in your business is different from a customer spending $50 000; the last one would need more time to convince. 

Before calculating your CAC, you should start with a targeted customer acquisition cost that will serve as a benchmark for your marketing efforts.

You can use the following formula to find what your CAC is:

Customer Acquisition cost = Total Cost of Marketing / Number of Customers Acquired. 

The total marketing cost includes:

  • Any advertising costs.
  • The amount spent on social media and other marketing strategies.
  • Your marketing team’s salaries.

Once you know the total marketing cost, you can divide it by the number of customers acquired, and you will get your customer acquisition cost. 

How to reduce the customer acquisition cost for your service-based business?

Now that you know the cost of acquiring a client, you might consider applying the following strategies to reduce it while continuing to make sales.

One of the easiest ways to bring users back into your funnel is to use the helpful technic of retargeting (or also known as remarketing in Google Ads Platform). 

1. Retarget

Many times customers leave your website without taking any specific action (booking a session, or whatever your call to action is). Although there might be many reasons for that, sometimes a gentle nudge is all that is needed to convert them into paying customers.

Retargeting is the way to convince your customers that the offer you have is valuable for them. 

You can leverage Facebook Ads or Google Ads Platform to use this tactic. Or better, you can use both platforms. This way, you will increase the likelihood of converting.

To increase the chance of converting, it’s a good idea to gather as much information about your leads as you can get – their behaviors, motivators, and preferences. The more information you have, the easier it will be to retarget them and convince them to purchase.

2. A/B Tests

It’s crucial for marketers to A/B test different parts of their landing pages, web content, emails, etc. 

A simple test like changing the background color of your buttons or the fonts on your landing page can significantly impact your conversion rates, which on the other hand, affects the customer acquisition rates.

However, when deciding to apply some changes on the landing pages, it’s important to avoid dramatic changes – minor changes can have a positive impact, but dramatic changes might irritate the user.

You might run a split test on:

  • Your landing pages;
  • Your emails;
  • Your call-to-actions;
  • Your copy/content.

The list is endless when it comes to testing, and you should keep looking for different variations. Sometimes, by just changing a word, you can drastically improve your conversion rates and convince your customers to buy from you. 

The best way to learn what works and what doesn’t is to make a trial and error and record when conversions are going up. A good rule of thumb is to run an A/B Test for around two to a maximum of four weeks. This way, you will have enough data.

3. Marketing Automation

If you are not already doing it, it’s a good time to start using some marketing automation tool. These tools are very powerful. They automate and save some of the human output needed and provide you with analysis, reporting, lead generation, and so many other robust features.

4. Tap into the power of the word of the month

Referrals are especially important for a service-based business. They are also a powerful free way to reduce your CAC. With referrals, you can significantly reduce your customer acquisition cost, increasing your sales revenue. 

All you have to do is providing a top-notch experience for your customers. Make sure that they are receiving exactly what they have paid for. You can go the extra mile and deliver a little more. 

Always ask for an honest review, seek ways to improve your services, and make sure to incentivize your current customers for any referral they bring.

In a nutshell

Customer acquisition cost is an important metric that can help your business maintain the balance between acquiring a new customer and customer lifetime value. 

You can apply many tactics to your business strategy to reduce the cost of acquiring a new paying customer. We have set the foundation with the four strategies above. They are easy to incorporate, applicable to any business regardless of the industry, and can significantly reduce your CAC, especially in the long run. Now it’s time to implement them and reduce your marketing expenditure.

If you have any questions related to customer acquisition cost or we can help you in any other way, we are here for you. You can contact us here.