In eCommerce, it's vital to know the essential metrics, and CAC, or Customer Acquisition Cost, is one among them. CAC quantifies the expenditure involved in obtaining a new customer and makes understanding the effectiveness and profitability of a marketing campaign possible.
High CAC measurement results in decreased profits and slow growth rates. Therefore, it is essential to work on acquiring clients at reduced costs. But how can we reduce customer acquisition costs in e-commerce?
TechMonk is a platform built for e-commerce that offers just the right solutions to engage with customers on the sales funnel to nudge them along to improve conversion rates and reduce CAC.
TechMonk provides the ability to personalise ads to potential customers, improving click-through rates for your ads and increasing conversions. Further, it drives organic traffic through referral programs and virality created through incentives for social activities in its loyalty programs.
Let’s explore CAC more and how e-commerce businesses can reduce it.
What Is CAC In E-Commerce?
Customer Acquisition Cost (CAC) in eCommerce is the average expense a business has to spend on gaining a new customer. CAC means every expense incurred to acquire customers, including advertising, marketing, technology, and human resources. Access to CAC helps eCommerce brands determine their marketing speed and adapt to it.
Closely managing the relation between CAC and CLV, which is the amount of revenues that a business expects from a single customer, enables the control of customer acquisition costs in a way that improves organisational revenues along with profits.
Let's break down each element:
• Total Marketing and Sales Expenses:
This can comprise advertising expenses, publicity costs, the cost of campaigns and promotions, the salaries of the marketing and sales personnel, and the tools and software used in acquisition.
• Total Number of New Customers:
The sum of quantities bought by first-time buyers during the period you're looking at.
Example: If an eCommerce brand invested $20000 in marketing and sales for the quarter and they got 400 new customers, the CAC would be:
Therefore, CAC = 20000/400 = 50
Average CAC For E-commerce Companies
Finding an average CAC for eCommerce can be challenging since the most common cost per acquisition remains highly contradictory and depends on various factors, such as industry type, target audience, and marketing channel. Still, it helps eCommerce businesses compare their CAC with other peers to see whether they are generous with their expenses.
For instance, industries with high rivalry, such as FMCG or electronics, would contain high CAC due to advertising and marketing promotion in this industry. On the other hand, businesses that sell selective categories of products or to specific categories of customers might have a lower CAC.
What Is A Good CAC?
Therefore, the effect size of a good CAC should be much lower than the customer's CLV. This metric highlights how much revenue a single customer will give a business throughout his lifetime. When CAC is much lower than CLV, the company can be profitable for every customer it acquires. For example, if a particular customer is worth $150 in CLV, but costs $50 in CAC, the business benefits by $100 per customer.
Industries With The Highest CAC
Customarily, industries such as Digital Services and Electronics have relatively high CACs because customers within these niches invest a lot of time in their search. Moreover, perishable nature and products sold in the B2B segment and premium or luxury goods take a more extended buyer's journey, resulting in higher advertising and nurturing expenses. Measuring CAC in these sectors is particularly useful in managing the costs that brands accrue.
What Is Included in CAC/ Customer Acquisition Cost in E-Commerce?
Wondering what really goes into your Customer Acquisition Cost (CAC)? Let’s break it down in a way that’s easy to understand.
1. Marketing and Advertising Expenses
How do you attract new customers? Most of the time, it starts with ads and promotions. Whether it is Google ads, Instagram campaigns, emails, or even influencers—these all count. Since they’re designed to bring people in, they form a big part of your CAC.
2. Technology and Tools
Running an e-commerce business means you need a lot of tools and software. This includes your e-commerce platform, CRM, and marketing tools. All of these help you reach, track, and convert customers. So yes, they’re part of your CAC too.
3. Referral and Affiliate Program Expenses
Do you reward people for bringing in new customers? If you pay out incentives through referral or affiliate programs, those costs add up. They’re directly tied to customer acquisition, which means they go into your CAC.
4. Customer Service and Support
Your customer support team, whether answering questions about your products, helping with orders, or resolving issues, plays a role in acquiring customers. Helping new visitors with questions or problems can turn them into buyers. That support effort is a cost—and it belongs in your CAC.
Why Should E-Commerce Businesses Reduce CAC?
It is essential for eCommerce businesses seeking to maximise profitability and allot resources more efficiently. A heightened CAC can quickly consume margins, particularly in industries with compressed profit margins like FMCG or Electronics.
Here's why reducing CAC matters:
- 1. Boosts Profit Margins: Lower acquisition costs mean each sale contributes more directly to profit, allowing the business to reinvest in growth or present competitive pricing.
- 2. Increases Marketing ROI: When CAC is underestimated, every marketing dollar moves further, enhancing the overall return on investment (ROI) and permitting scaling without unnecessary spending.
- 3. Improves Sustainability: By managing CAC, businesses can create a sustainable model, confirming that they aren't highly reliant on paid acquisition channels but also promoting organic growth.
- 4. Enhances Customer Lifetime Value (CLV) Alignment: With a balanced CAC and CLV, companies can extend customers, potentially increasing Customer Lifetime Value through repeat purchases, commitment, and advocacy.
Easing CAC helps companies scale more effectively and supplies a solid foundation for long-term profitability. Now, let's explore practical strategies for lowering CAC.
Tips To Reduce E-commerce Customer Acquisition Costs
Declining CAC needs a mix of strategies, from improving user experience to optimising campaigns. Below are practical, actionable tips to build an exceptional customer acquisition strategy.
1. Personalize User Experience
E-commerce personalisation indeed plays a critical role in attracting customers. By leveraging customer data, brands can tailor product suggestions, emails, and website knowledge to personal preferences. This makes consumers feel valued, increasing the likelihood of conversion and declining acquisition costs.
2. Implement Loyalty Programs
Create a loyalty program to promote organic traffic by offering rewards for referrals, and become brand ambassadors of the company with likes and posts on social media.
TechMonk can help ensure that the program stands out. TechMonk lets you design loyalty programs easily and effortlessly assign points to program members.
With a simple builder, you can include different loyalty tiers in your programs and assign customers different rewards and loyalty points for different tiers to complete similar actions.
Create Loyalty Program To Reward Loyalty Customers With TechMonk
3. Make It Easy to Get Assistance
An easy-to-reach aid system, such as AI customer service assists customers with their questions or concerns 24/7. AI Support Agent in e-commerce enhances customer engagement by providing 24/7 personalised assistance.
It swiftly addresses customer inquiries, ensuring that customers find answers to their questions without waiting for a long time. By streamlining support processes and minimising response times, AI Support agents effectively lower customer acquisition costs, making assistance more accessible and cost-effective for your business.
4. Gather Customer Feedback
Utilise surveys and feedback forms to comprehend customers needs, preferences, and pain points. Working on this feedback lets you adjust marketing and product offerings to help your audience better, improving customer satisfaction and diminishing the cost of acquisition. By apprehending what customers want, you can tailor your procedure to resonate better, lowering CAC in the long run.
5. A/B Test Your Campaigns
Regular A/B testing helps optimise AI marketing campaigns by selecting the most effective messages, images, and calls-to-action (CTAs). Testing elements within your campaigns help refine your practice, letting you run only the most successful strategies. This approach improves efficiency and ensures you aren't overspending on ineffective ads.
6. Provide Consistent Value
Offering even value through content, exclusive offers, or helpful product updates keeps customers engaged and promotes return visits. Valuable content, such as blogs or how-to guides, establishes trust and drives organic traffic. Uniform value keeps customers engaged over time, reducing dependency on paid advertising and helping lower CAC.
7. Retarget Website Visitors
It is a cost-effective way to reactivate consumers who have already displayed interest in your site but have not purchased it. Utilising targeted ads, you can gently remind possible consumers of the products they viewed, raising the chances of conversion. Retargeting lets you focus on more generous leads rather than spending on entirely new audiences.
8. Display Social Proof
Showcasing consumer reviews, testimonials, and user-generated content can build confidence with potential customers. Social proof comforts new visitors and can significantly impact their decision to purchase, thus improving conversions and reducing acquisition costs. Highlight favourable customer feedback on product pages, emails, and social media to enhance credibility.
Reduce CAC With TechMonk's AI-Powered Solutions
TechMonk is an agent-as-a-service full-stack customer engagement platform. It is also the ultimate solution to all concerns about customer acquisition costs for e-commerce businesses. It combines all the necessary tools under the same roof, eliminating the need for multiple tools. Moreover, it prevents valuable customer data from being accumulated in different silos by bringing it together.
Here’s how you can reduce CAC with TechMonk.
- • Precise Targeting for Better ROI: Lower CAC by using a comprehensive customer data platform that stores all customer-related data and events. The CDP for e-commerce businesses enables the creation of micro-segments synced with Facebook and Google for precise audience targeting and personalised ad experiences.
- • Boost Revenue Through Referrals: Increase organic growth and reduce acquisition costs by implementing a referral program that encourages satisfied customers to bring in new ones.
- • Higher Conversions Through Product Discovery: Improve conversion rates by helping customers easily discover products, receive accurate recommendations, and get nudges throughout their journey to order completion.
- • Build Trust with Social Proof: Enhance conversion rates by showcasing social proof through customer reviews, building trust and influencing purchase decisions.
- • Recover Lost Sales with Targeted Campaigns: Increase conversions by engaging customers who interacted with bots or abandoned their checkouts through 2-way omnichannel campaigns.
- • Provide 24/7 Assistance: TechMonk’s AI Support Agents answer your customers' queries about products, companies, and return policies all day long, ensuring effortless customer acquisition.
- • Build Custom AI Agents: If you think AI agents should automate some process to reduce CAC, you can let custom AI agents do it for you. With TechMonk’s AI agent builder, you need no technical expertise to build your own AI agents.
Cut Costs on Customer Acquisition and Maximize Success With TechMonk
Conclusion
Hence, grasping Customer Acquisition Cost (CAC) is paramount for eCommerce businesses in this constantly changing world. By understanding and controlling CAC, brands can maximise profitability, improve marketing ROI, and create a more sustainable business model.
Multiple ways exist to control CAC, from personalising user experiences and executing loyalty programs to leveraging AI-powered tools and gathering valuable customer feedback. Constant advancements in each area can significantly decrease acquisition costs, allowing brands to focus on long-term growth and customer loyalty.
With TechMonk's AI-powered solutions, companies can streamline their efforts, using data-driven insights to decline CAC and enhance consumer experience. By assuming these strategies, eCommerce brands in industries like FMCG, electronics, and digital services can achieve a competitive margin, grab customers' attention, and drive profitability.
Moreover, monitoring CAC and executing practical strategies can set the stage for endurable growth and a loyal customer base.
FAQs
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