In the last five years, the cost of acquiring new customers has increased by over 50%. Marketing is becoming more expensive, customers are becoming less trustworthy of brands, and companies should just give up … right?
Well, the first two statements are unfortunately correct, but rest assured, the last one is wrong. Companies shouldn’t give up — they should simply get smarter. (You have heard the saying, “Work smarter, not harder,” haven’t you?)
If you're looking for ways to improve your customer acquisition, you're not alone. Reducing the costs of customer acquisition and proving the ROI of marketing efforts are two of the most commonly cited marketing priorities among companies.
In this guide, you’ll learn the basics of customer acquisition, how to lower the cost of acquiring new customers, and how to leverage your loyal ones. By the end, you’ll be able to build an acquisition strategy so agile, it’ll withstand the test of time and ever-changing trends.
Keep reading or use the chapter links below to jump ahead.
- What is Customer Acquisition?
- Customer Acquisition Cost (CAC)?
- Improving Your Customer Acquisition Strategy
- Methods of Acquiring Customers
- Customer Retention as an Acquisition Method
- Customer Lifetime Value (LTV)
What is customer acquisition?
Customer acquisition is the process of bringing new customers or clients to your business. The goal of this process is to create a systematic, sustainable acquisition strategy that can evolve with new trends and changes.
Customer acquisition is important for businesses of any age and size. It allows your business to 1) make money to meet costs, pay employees, and reinvest in growth, and 2) show evidence of traction for outside parties such as investors, partners, and influencers.
Being able to systematically attract and convert new customers keeps companies healthy and growing — and investors happy.
At this point you may be asking, “What’s the difference between lead generation and customer acquisition?” Well, let’s break it down.
In the business world, we visualize the customer journey typically with a funnel or a similar graphic that highlights the stages in the buying process and the mindset of the prospect.
As consumers move through the funnel (as part of their journey as a buyer), they:
- Gain awareness of your brand
- Add your product or service to their consideration pool, and
- Make a decision to become a paying customer of your business.
To simplify the process, lead generation typically happens at the top of the funnel, lead acquisition happens in the middle, and lead conversion happens at the bottom. And customer acquisition typically refers to the funnel as a whole.
For the sake of this guide, we’re going to use customer acquisition in reference to the top and middle of the marketing funnel — lead generation and acquisition combined. This is because the bottom of the funnel (conversion) typically requires more dedicated, customized methods to convert customers, such as lead scoring and closing tactics.
Here’s another way to visualize it, in a less funnel-like fashion:
In the example above, customer acquisition lives in the attract phase, where consumers become readers and visitors.
So, now that we’ve defined customer acquisition and its place in the overall marketing process, let’s dive into how to measure it.
What Is Customer Acquisition Cost (CAC)?
You’ve heard the buzzword: customer acquisition cost, otherwise known as CAC. Customer acquisition cost (CAC) is the cost associated with bringing a new customer or client to your business, such as marketing costs, events, and advertising. It’s typically calculated in reference to a specific campaign or window of time.
CAC is important because it assigns real value to your marketing efforts and allows you to measure your ROI — a metric inquired about by CEOs, managers, and investors alike.
How to Calculate Customer Acquisition Cost
High-level customer acquisition cost is calculated by dividing marketing costs associated with a specific campaign or effort by the number of customers acquired from the said campaign.
This CAC formula is
CAC = MC / CA, where:
- CAC is the customer acquisition cost
- MC is marketing costs
- CA is customers acquired
To get a more in-depth, accurate look at CAC, you must include all costs associated with marketing spend, including everything from campaign spend to marketing salaries to the cost of the staples used to create those lengthy contracts.
This CAC formula looks like:
CAC = (MC + W + S + OS + OH) / CA, where:
- CAC is the customer acquisition cost
- MC is marketing costs
- W is wages for marketing and sales
- S is marketing and sales software
- OS is outsourced services
- OH is overhead for marketing and sales
- CA is customers acquired
Where the simple CAC metric might apply to a single campaign, the more complex CAC formula should be calculated within a given window, such as one month or fiscal year. For example, if Company A spent $10,000 on customer acquisition in Q4 of 2017 and acquired 100 customers, the CAC would be $100.
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CAC can a fickle metric and shouldn’t be the only number used to evaluate marketing efforts. Why? Well, here are a few things that could throw off the value and application of your CAC:
- On average, how often do your customers make purchases? There’s a major difference between the CAC of an Audi dealership and a Starbucks.
- Does/did your company spend money on marketing efforts that are slated to pay off in the far future? Say you invest in a Q3 campaign but pay for it in Q1. You aren’t necessarily going to see new customers right away from that investment, and that might skew your Q1 CAC.
Regardless, CAC is a critical number to calculate (and constantly recalculate) when acquiring new customers and employing new acquisition methods.
How to Minimize Customer Acquisition Cost
Here’s a simple truth about marketing: You can always do better. You can always reach new audiences, market with better messages, and minimize associated costs.
Depending on your outlook, this could be good or bad news. Personally, I find it motivating. There’s always something to learn and always something to improve upon. Better yet, you aren’t stuck with a subpar metric that your executives or investors aren’t quite happy about.
If you’re looking to improve your CAC, here are a few ways to minimize the cost of acquiring new customers:
- Improve your website conversion efforts. Enhance your calls-to-action, ensure your site is mobile and tablet responsive, optimize your landing pages, and clean up your copywriting. Consider A/B testing a landing page or shopping cart to see if a certain design or copywriting angle works best.
- Boost the value of your current customers. This may involve releasing a new product or upgrade in which your customers can also invest in. User value can also skyrocket when they refer to other customers or simply act as promoters for your business. (We’ll touch on more of this below.)
- Adjust and optimize your customer acquisition strategy. Take some time to layout your acquisition blueprint and see what each method is costing you. Where could you cut back on extra marketing spend or manpower? Costs for specific channels can rise over time, and you can always minimize CAC by finding newer, cheaper channels to invest in. This process also ensures your strategy reflects the most recent marketing trends and remains agile.
These will make sure any customer acquisition methods you’re already employing are working as perfectly as possible.
How to Improve Your Customer Acquisition Strategy
Every business needs new customers to grow and succeed, so whether you’re a company of five or 5,000, having a roadmap for customer acquisition is a smart move.
A solid customer acquisition strategy should be four things: sustainable, flexible, targeted, and diversified.
1. Sustainable
A sustainable customer acquisition strategy is one that works in the long run. This means that the investments you make (whether money, time, or human) can be upheld for the foreseeable future. For example, if you plan to acquire new customers through a blog, you should have the tools and resources in place to ensure content production lives past one or two posts – effectively bringing in organic traffic for months or years to come. This is why inbound marketing is effective –– it creates sustainable traffic and, therefore, a sustainable source of new customers. Consider this in comparison to ads, which can be an effective way to acquire customers … as long as the ads are live.
2. Flexible
Your customer acquisition strategy should also be flexible because marketing and sales, and the way people respond to them are always changing. While salespeople were once the gatekeepers of information about a product, that’s no longer the case. Consumers are increasingly skeptical of brand claims and anything said about a product by the company or its reps. In a recent HubSpot Research study, we found that 81% of consumers trust the advice of family and friends over businesses. Creating a customer acquisition strategy that only relies on salespeople would put your company in a tough spot. Keep your strategy pliable, and you’ll always be ready to respond to market trends.
3. Targeted
All consumers aren’t your best consumers, and customer acquisition can result in a crazy waste of resources if not pinpointed toward the right people. Before you invest in any customer acquisition methods, you must define who you’re targeting with said methods. The process alone of defining your buyer persona can help weed out any unnecessary or wasted acquisition efforts as well as alert you to specific needs or desires that some channels may meet. For example, businesses targeting millennials might consider creating videos as part of a content marketing strategy, given that 91% of adults ages 18-29 use YouTube.
A targeted customer acquisition strategy requires taking a step back and figuring out what’s best for your business, resources, and audience. Then, you can expect to see real responses to your customer acquisition efforts.
4. Diversified
Ever heard of cross-pollination? It’s when bees spread pollen between a variety of plants, bringing about variations of species that better withstand time and nature. In this case, marketers can be compared to these well-traveled bees. When you diversify your acquisition strategy and use various acquisition methods, you have a greater chance of reaching new audiences and generating new leads. For example, research has shown that combining paid and organic SEO efforts result in over 25% more clicks and a 27% increase in profits over isolated efforts.
Also, diversifying your customer acquisition strategy creates a balance between risk and reward, meaning if one channel begins to fail (see: salespeople example above or the declining effectiveness of organic Facebook reach), it’s easier to reallocate funds for a new, better-performing method.
Now that you know how to approach and organize your customer acquisition strategy, let’s dive into some ways to acquire customers.
How to Acquire Customers
Customer acquisition methods can be broken up into a variety of different types: paid and free, inbound and outbound, etc. The best methods for your business, however, will depend on your audience, resources, and overall strategy.
Below, we’re going to review four commonly used methods of acquiring new customers along with some helpful tools. We employ all of these methods — come at a small scale, and some at much larger scales.
Using Content Marketing to Acquire Customers
Content marketing is an effective customer acquisition method for all types of businesses. Creating new, exciting, and relevant content is a highly effective way to snag your audience’s attention and send them to your website.
Also, in a world full of false advertising and dwindling consumer trust, content marketing extends an olive branch by saying, “Here. We love what we do, and we want to share our expertise with you — for free.”
When it comes to content marketing, there’s really no wrong type of content you can create. Here are some of the most popular types and the resources needed to create them.
Blog
Blogging is a highly recommended acquisition method for businesses of all sizes, industries, and audience types. Running a blog allows you to explore different topics, flex your knowledge in your industry, and build authority among your readers. Blogging also continually gives you new opportunities to engage with your audience, whether through a graphic they can bookmark for later, a question they can answer in the comments, or an enticing call-to-action they can click.
Like I said above, if you choose to start a blog, be sure to have sustainable resources in place. Your blog writers can be dedicated employees, freelancers, or guest writers. Having a graphic designer and editor on board can help ensure your content is optimized for both search engines and reader experience. Lastly, adding a blog to your website is relatively easy, depending on your hosting platform.
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Ebooks, Guides, and Other Content Offers
Ebooks, guides, and other types of gated offers represent a different type of content marketing because they typically involve created more in-depth, valuable content. To compare, where a blog post might be about five different email subject lines that increase open rates, a similar guide would take a step back and cover the basics of email marketing strategy. See how the latter offers greater, more in-depth value for readers? That’s why these types of content are also gated, meaning that readers must exchange personal information like emails and names to access the content. Content offers are an important part of customer acquisition and the conversion funnel and can help you get more leads out of your blog and content marketing strategy.
The process of creating content offers is similar to that of the blog but might require more specialized resources. Whereas blog posts typically revolve around a repeated writing and design process, ebooks, guides, templates, whitepapers, and other downloadable content all carry their own purpose and production process. Again, you can create these with in-house or outsourced resources, but be aware that they might require an extra set of eyes and a unique promotional plan.
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Video
Video is one of the more complicated forms of content to produce, but with higher-quality cameras becoming cheaper and a plethora of freelancers available, creating videos is easier than you think. Video marketing as part of a broader content strategy is more about content than quality, though the latter does help in the long-run. Video production typically involves script writing, editing, production, and animation — all of which you can outsource through freelancers or production agencies. Video tends to be the most expensive of the content types, so be sure to preserve your very best content for video ideas. If you simply want to visualize an idea for your audience, you can create a Slideshare as an alternative to video.
The heart of content marketing is connecting with and converting your audience. Because of this, each and every piece of content should be relevant to your readers and include a clear call-to-action. Content marketing is also partially content creation and partially content promotion. Keep reading to learn more about how to combine customer acquisition methods with highly effective promotion tactics to get better results.
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Using Social Media to Acquire Customers
Social media marketing is comprised of two methods: organic and paid. Organic social media is most useful for boosting brand awareness, developing a company personality, and sharing content you’ve published elsewhere (like from your blog or videos). Consider it the gasoline for a fire you’ve already started using other acquisition methods.
Organic social media also capitalizes on the virality factor, inspiring your customers and followers to help you advertise (as we’ll discuss later on).
Some companies consider organic social media a waste of time (13% of marketers have reported that it’s the most overrated marketing tactic), and it can be if you don’t develop a solid game plan for its use.
- What networks are you going to leverage, and which ones are you going to avoid?
- What’s your social brand voice, and who on your marketing team will be tasked with developing and managing content?
- Do you have a crisis plan in place?
If these questions seem intimidating, don’t fret. Posting organically on social media may seem like shouting into a void, and with 2.3 billion active users, it can sure feel that way. The key is accessing the right networks — and this all comes back to a well-defined audience.
For example, if you’re targeting an audience mostly comprised of men, Pinterest would have little value for you as only 16% of men use Pinterest. If your audience is made up of millennials, you should definitely include Facebook, Instagram, and Snapchat in your playbook.
Consider using social media management tools like Hootsuite or Buffer to help you curate and post content on your networks.
On the other hand, leveraging paid social media may be a better tactic for your business, depending on your budget and audience type. Paying for social media advertisements and exposure is a surefire way to get content in front of your audience, without having to build up a network of loyal followers. (But don’t get me wrong, that’s important, too!)
Whereas sponsored posts on Facebook, Twitter, or Instagram simply get your content in front of the right eyes, Facebook Lead Ads allow you to advertise on social media and gather customer information such as email addresses and names. This information can make the difference between a follower and a lead, so if your business is looking to build its list, this might be the acquisition method for you.
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Using Search Marketing to Acquire Customers
Just like social media, there are also two sides to the search marketing coin: organic and paid. Organic search marketing is also known as SEO or search engine optimization. SEO, like social media, complements content marketing efforts by optimizing your content so it’s more easily found by your target audience.
Think about it: When you Google something, you typically click on one of the first results (if not the very first result), right? The idea behind SEO is to create content that shows up high in the search engine results page (SERP) and makes searches want to click on your content.
SEO is far from an exact science, but there are some proven methods to help your content rank better. SEO best practices involve creating indexable content – content that search engines can read, decipher, and index within a SERP. You can increase your content’s “indexability” (no, I cannot say for certain if that’s a real word) by:
- Putting your main keyword in the post title
- Adding alt text to your images
- Uploading transcripts for video and audio content
- Linking internally within your site
There’s a lot that goes into SEO, but these are a few basics to get you started.
SEO is a popular customer acquisition method for a couple of reasons: It’s relatively easy, and it’s very cost-effective. SEO and organic growth have also been reported as the number one inbound marketing priority for companies around the world. Put in the time to learn SEO strategies, stay up to date with trends, and optimize your blog posts — and you’ll find your content ranking better than before.
On the other hand, paid search marketing (pay-per-click, or PPC) is advertising on a Google SERP itself. Instead of (or in addition to) organically optimizing your content, PPC allows you to create a search result and pay for it to show up alongside organic results, theoretically increasing your chances of being found by searchers.
Learn more about search marketing as a customer acquisition method and equip your content and ads to perform best in search engines by using tools like Google Keyword Planner, SEMRush, Open Site Explorer, and Ahrefs.
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Using Email Marketing to Acquire Customers
What do marketers do with all that customer information they collect through other customer acquisition methods? They build an email list, and they leverage that email list to connect with and convert their customers.
Email marketing might seem like an outdated acquisition method, but it’s actually a highly effective way to stay in front of your customers and promote quality content, product information, and discounts and events. Email is also a great way to simply connect with your audience, whether by sending a happy birthday email or a valuable promotional email.
But what you send isn’t the only important part of email marketing. It’s also helpful to keep an eye on list behavior. For example, when you get a new subscriber, it’s safe to assume that consumer is interested in your company and wants to learn more. Certain link clicks in your email can alert you to what your subscribers are most interested in. Furthermore, people that unsubscribe altogether can give you insight into how your subscribers view your emails and the content you share.
Email marketing is one of the few ways to monitor consumer behavior without having to ask too many questions. It also provides a direct line into your consumer’s inbox (though it’s not guaranteed they’ll open your emails), unlike social media, search, or content marketing. Outside of direct sales, there’s no better acquisition tactic than email marketing that gets to the heart of the individual customer.
It’s clear to see how well these customer acquisition methods work together. For example, social media marketing can promote SEO-optimized content that includes a call-to-action to join an email list. That’s a little long-winded, but you get the gist.
Mixing up and experimenting with a variety of customer acquisition methods can also help you learn more about your audience and introduce new tactics to your current strategy. Regardless of which strategies you choose, always leave room for analysis, improvement, and change — because you never know when customers may stop responding to your methods, or leave altogether.
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Customer Retention Is the New Acquisition (Method)
Despite working hard and employing new methods to acquire new customers, sometimes they do leave us. *tear*
That’s the unfortunate motivation behind customer acquisition, though, and it’s important to recognize. On that note, let’s discuss another buzzword: Churn. Yuck … the word itself doesn’t sound too friendly, much less is the definition behind it.
What Is Customer Churn?
Customer churn represents the percentage of customers that peel away from your business and opt-out of your products or services. It’s also referred to as customer attrition or turnover.
Why is churn important? Customer churn is what motivates businesses to find and acquire new customers. When you lose customers, you want to go out and find new ones, right? Historically, as businesses have experienced higher churn rates, they’ve invested in more (and more expensive) acquisition methods.
Well, my friends, it’s time to look at customer acquisition and customer churn in a new light. Instead of using acquisition methods to make up for customer churn, what if we worked to decrease churn altogether?
What if we avoided the proverbial (and pricey) band-aid of customer acquisition and went to the source of the wound — unhappy or unsatisfied customers? Those are, in fact, the customers that leave, er, churn, aren’t they?
What I’m saying here is that customer retention is the new customer acquisition. Instead of looking outward and onward for new customers to replace the old, forgotten ones, I propose that you look inward and work to retain customers using new and improved customer service methods.
Remember how I discussed the marketing funnel in the first section? While the funnel is a handy visualization of how customers come to know and buy from your brand, it’s lacking in one thing: how your current (and past) customers fuel future customers. When your business circulates around delighting and retaining customers, your marketing strategy starts to resemble a flywheel, not a funnel.
The term “flywheel” describes the momentum you gain when your company revolves around your customer, as illustrated above. See how the “service” portion of the flywheel links directly to “marketing”? That’s customer retention in action: working to retain your customers (instead of paying to replace lost ones) is actually an acquisition method in itself — and a cheaper one at that.
It’s a well-known fact that retaining customers costs much less than acquiring new ones. (It can cost up to 25X more to acquire a new customer than to retain an existing one.) But how can companies employ a retention strategy as solid and systematic as their customer acquisition one? Here’s how.
Customer Retention Strategies: Case Studies
A mere 5% increase in retention can increase company revenue by 25-95%. 90% of happy consumers are more likely to purchase again, and 93% are more likely to be repeat customers at companies with excellent customer service. These are just a few reasons to establish customer retention strategies — just like customer acquisition ones.
The customer retention strategies you put into action will vary based on your business model, audience, resources, and more. Here are a few examples of customer retention strategies that have worked for other companies.
Starbucks: Convenience
It’s hard to give something up when it’s available right at your fingertips. That’s what Starbucks marketers had in mind when they released its Mobile Order & Pay Feature within the Starbucks app. Customers can order from Starbucks wherever, whenever, and they don’t have to choose between time or taste.
TOMS: Altruism
By connecting a mission to its product offering, TOMS has effectively brought customers back for more — more shoes and more impact. TOMS has built brand loyalty through promising to donate one pair of shoes to an international child in need for every pair purchased. If you had the choice between two pairs of shoes, but purchasing one would literally go the extra mile, which would you choose?
REI: Exclusivity
Customer loyalty programs are a popular retention method among companies, but REI takes it a step further with their co-op membership. Not only does the membership offer unique discounts, pricing, and referral opportunities, but it also creates an elite community, the feeling of “are you in, or are you out?” that reaches even the digital shoppers. I don’t know about you, but the guise of exclusivity would have me coming back for more.
HubSpot: Social Proof
We’ve discussed how consumers nowadays just don’t trust what businesses have to say about themselves. They’d rather listen to friends, family, and peers, and that’s why HubSpot lets our customers speak for us. Customer testimonials, reviews, and case studies speak a lot louder — and cost a lot less — than paid advertisements. They’re also better trusted by new and returning customers.
Turning Happy Customers Into Promoters
Regardless of how you plan to retain your customers, there’s one common denominator: providing an amazing customer experience. This is a nonnegotiable and means delivering on more than the basic customer expectations.
To turn your satisfied customers into promoters, you must aim for customer delight, not just retention. Customers that stick around because they genuinely want to can provide far greater value than increased revenue — they can act as your best marketers, too.
Here’s how you can empower your customers to promote your business and help you save time and money on other acquisition methods.
1. Ask for Customer Stories
Whether through case studies, interviews, reviews, or user-generated content, ask your customers to tell their own stories of how they came to discover your business and why they love it. Instead of boasting about your own company via paid advertising or social media, pass the microphone and let your customers do it for you.
2. Make Content Easily Shareable
In the last year, 77% of consumers shared positive experiences with their friends or on social media and review sites. While a happy sentiment can get the message across, wouldn’t it be even better if your customers were equipped to directly share content you’ve created, like social posts, blog posts, or graphics?
This is called the viral loop, and it’s when your customers share content that leads their followers back to your business. Create Click to Tweet links so that your customers can easily share social posts, and ensure each piece of published content has options to share via email or social media. The more convenient promotion is for your customers, the more likely they’ll engage.
3. Inspire Referrals
Creating a referral program is a surefire way to bring in new business through your customers. Offering incentives — whether credit, physical gifts, or monetary rewards — is usually the best way to motivate a customer to share about your company (and compensate them in return). If you consider a customer referral valuable for your business, you must provide something equally valuable as a trade.
While a structured, incentive-based program typically works best for B2C companies, B2B companies might have better luck asking for direct referrals from their customers.
Whichever referral strategy you choose, be sure to provide value first and ask questions later. Give your customers a reason to want to refer you — because they’re so delighted by your business, they can’t help but share.
Let’s Talk About Customer Lifetime Value
In addition to knowing the cost of acquiring a new customer, it’s helpful to know how much value a retained customer provides your business. Both of these are important metrics to calculate and compare when reviewing marketing and sales efforts.
What Is Customer Lifetime Value (LTV)?
Customer lifetime value is the estimated net profit that an individual or business will provide over their lifetime as a paying customer.
Customer LTV is a helpful factor to consider when getting to know your customers and how they interact with your business. It also provides a clear valuation of your marketing and support efforts and helps influence business decisions across the board.
According to the Kleiner Perkins Internet Trends 2018 Report, the majority of 900 marketers and advertisers reported that customer LTV was the most important metric when considering advertising spending. Customers with high LTV are more expensive to acquire, but they provide the greatest value — in terms of revenue, feedback, and referrals — than other customers.
Calculating customer LTV isn’t difficult, but it does require defining a few metrics along the way, such as average purchase value and frequency. Even if you have to estimate these numbers, having a solid customer LTV can help you predict how much revenue you can roughly expect a customer to provide throughout their relationship with your business.
By defining customer LTV alongside CAC, companies can figure out just how long it takes to replace each investment made in acquiring new customers — and how to better spend that acquisition budget.
Over to You
Surely you’ve heard, “Make new friends but keep the old. One is silver, and the other, gold.” The same applies to customers.
Customer acquisition is the lifeblood of any company, small or large. That means you can’t quite afford — no matter the cost — to give up on marketing to new customers. But research has shown that the key to growth lies not with your marketing or sales team but your customer service team, and your customers themselves.
That’s right — companies that succeed put their customers in the spotlight, for both acquisition and retention. Set up your acquisition strategy correctly, and you can expect to not only lower your customer acquisition cost but also increase your customer lifetime value.
Customer acquisition is all about acquiring the right customers that stick around — and help you acquire more. Instead of visualizing customer acquisition as a one-way funnel, start picturing your customer’s acquisition and retention methods as a flywheel: Always work to bring new customers on-board, but don’t forget about them once they’ve joined the crew. Equip them to succeed, and they’ll go to work on your behalf.
