However, the cost of acquiring these customers can significantly impact a company’s profitability. As a business owner or marketer, it’s essential to understand the concept of Customer Acquisition Cost (CAC) and implement strategies to reduce it effectively.

Whether you’re running an e-commerce store, a fintech startup, or a SaaS company, understanding and optimizing your CAC is vital for long-term sustainability. 

In this comprehensive guide, we will understand what customer acquisition cost is as well as look at strategies on how to reduce customer acquisition cost. 

What is Customer Acquisition Cost?

Before we look at how to reduce customer acquisition cost, let us first understand what is customer acquisition cost?

Customer acquisition cost means the approximate total cost required to acquire a new customer for your business. This includes both the cost of marketing to acquire a new customer like paid ad costs, social media strategies and salaries spent on marketing personnel as well as the cost required for customer retention like your email marketing costs or incentives to existing customers.

To put it simply, customer acquisition cost can be calculated as follows.

While customer acquisition cost represents the total cost required to acquire a new customer, customer lifetime value represents the total net profit a company can expect to generate from a customer throughout their entire relationship

Combining both CAC and LTV, a business can understand and forecast their company’s profitability.

Also CAC helps you understand the relative efficiency of your marketing spend like which marketing channels are most effective and where you can reduce your marketing spend.

Thus it is highly beneficial to lower your customer acquisition cost as lower customer acquisition costs lead to more profitability. 

How to Calculate Customer Acquisition Cost?

You can calculate customer acquisition cost as follows: Decide on the time period you want to calculate CAC for. Then calculate the total sales and marketing costs over this period and divide it by the total number of new customers acquired in this period. 

Also research suggests that when you are trying to sell a product, you have a 60% to 70% chance of making a sale with a returning customer. The probability of the same with a new customer is 5% to 20%.

Thus focusing on customer retention is of utmost importance as to concentrating on the cost of acquiring customers.

Average Customer Acquisition Cost by Industry

Understanding the average Customer Acquisition Cost (CAC) across various industries is crucial for companies looking to optimize their marketing strategies and maximize their return on investment. 

eCommerce – One of the most dynamic industries in India is e-commerce, where the average CAC ranges from ₹500 to ₹2,000. This wide range can be attributed to the diverse product categories and target audiences within the e-commerce sector.

Fintech – The fintech industry in India has witnessed significant growth in recent years, with an average CAC ranging from ₹1,000 to ₹3,000.  The relatively higher CAC in this industry can be justified by the lifetime value of a loyal customer, as fintech companies often benefit from long-term relationships and recurring transactions.

EdTech – Education Technology (EdTech) has emerged as a prominent sector in India, with an average CAC between ₹2,000 and ₹5,000. The higher CAC in this industry reflects the importance of building trust and credibility among the target audience.

SaaS – Software as a Service (SaaS) companies in India face a unique challenge, with an average CAC ranging from ₹10,000 to ₹50,000. SaaS providers typically target businesses and often have longer sales cycles, requiring more resources and effort to acquire new clients.

Industry	Average CAC (INR)
E-commerce	500 – 2,000
Fintech	1,000 – 3,000
Education Technology	2,000 – 5,000
Healthcare	1,500 – 4,000
Software as a Service	10,000 – 50,000
Food and Beverage	100 – 500
Travel and Hospitality	500 – 2,000

It is important to note that these averages are rough estimates and can vary significantly based on a company’s stage, target market, competition, and marketing strategies. 

Moreover, the CAC in India may be lower compared to developed markets due to the lower cost of digital marketing and the large population base. Nonetheless, understanding the average CAC across industries provides a valuable benchmark for businesses to assess their customer acquisition efforts and make informed decisions to drive growth and profitability.

How to Reduce Customer Acquisition Cost (CAC)?

There are several ways that can help to reduce your customer acquisition cost. We will look at how to reduce customer acquisition cost below.

1. Make a Good Balance Between Customer Acquisition and customer retention

2. Turn Your Existing Customers into Brand Advocates

According to Statistics,

“88% of users rely on online reviewers made by other users and trusted recommendations from friends and family members.” – BrightLocal Local Consumer Review Survey 2015.

The very first question here arises is; who is a brand advocate?

A brand advocate is a person who uses a product and recommends it to his circle, including family, and co-workers because he likes it very much. 

This technique is very effective in marketing because in this technique the company doesn’t spend any of its capital but the customer does the marketing on their own. 

That’s how the company saves their acquisition cost because their loyal customers handle the marketing indirectly. 

Turning your existing customers into brand advocates is an effective way to reduce Customer Acquisition Cost (CAC) and drive sustainable growth. When satisfied customers become advocates for your brand, they can help attract new customers through word-of-mouth referrals, positive reviews, and social media engagement. 

One excellent example of a company that successfully turns its existing customers into brand advocates is Tesla, the American electric vehicle and clean energy company founded by Elon Musk.

Tesla has cultivated a passionate and loyal customer base that actively promotes the brand through various channels.

3. Prioritize Appropriate Audiences

Are you marketing to the right audience? For eg; if you are showing content meant for getting new subscribers to an already existing subscriber, it doesn’t make much sense. It only leads to increase in marketing spend and thus an increase in CAC with no effective conversions. Also, the conversion cost becomes higher as you are targeting the wrong customers.

Hence creating the right funnel and user personas to engage with customers who are actually interested in your products and services goes a long way in reducing your customer acquisition cost and also acquiring the right customers.

By identifying and prioritizing your audience, you can avoid spending resources on the channels where you don’t need to.

4. Retarget Customers

When you market your products or services to people who have already expressed interest in your business, you have a higher chance of conversion. These users are more likely to convert compared to cold audiences, resulting in a higher conversion rate and lower CAC.

Because retargeted audiences are more likely to engage with your ads, the click-through rates (CTR) tend to be higher. Higher CTRs can lead to lower CPC’s (Cost per click) which means you acquire customers at a lower rate.

Retargeting can also help bring back customers who have already made a purchase, encouraging repeat business. By focusing on existing customers, you can increase their lifetime value, which in turn lowers your overall CAC.

Related – How to Increase Website Conversions Rate

5. Marketing Automation

Using marketing automation in a lead nurture campaign can help reduce your overall CAC. As you have warm leads in an email marketing campaign, these leads can be nurtured well through the right automated marketing tools and campaigns. 

When you promote your services or products like an ebook etc to these nurtured leads, the chances of conversion are higher, which in turn helps reduce your overall costs associated with marketing and hence customer acquisition.

With automation, you can set up trigger-based email sequences that send the right message at the right time. For example, if a lead downloads an ebook, you can automatically send follow-up emails that provide additional relevant content, nurturing the lead towards a purchase decision.

Related – How to Market a Consulting Business

6. Have a Strong Brand Image

A strong brand image establishes trust and credibility with potential customers. When people recognize and respect your brand, they are more likely to choose your products or services over competitors, even if they are slightly more expensive. This trust can lead to higher conversion rates, reducing the cost of acquiring each customer.

A strong brand image also leads to increased word-of-mouth referrals and reduced marketing spends which, in turn lower your overall CAC per customer.

7. Improve Your Conversion Rate

The easiest way to reduce your CAC is by improving your conversion rate and getting the right lifetime value for each paying customer. 

Website experience plays a huge role in converting your customers. A well-optimised website with perfect CTAs and good user experience instills more confidence in your customers and helps them take the right action.

Also, when using ads to direct your customers to your landing pages, conversion rate depends on a variety of factors. 

a) There should be no disconnect between the ad and the landing page

b) The ad should align perfectly with the page that users are being directed to

c) Each and every element of your landing page should be A/B tested to determine the optimal combination for maximum conversion. 

The better the UX design, the higher customer satisfaction, which indirectly leads to higher sales.

By implementing these strategies and continuously optimizing your conversion rate, you can acquire more customers without increasing your marketing spend. A higher conversion rate means you can generate more revenue from the same amount of traffic, effectively reducing your CAC.

Related – 15 Ways to Increase Traffic to Your Website Organically in 2024

8. Improve Your Customer Retention Rates

Customers who are happy with your products tend to spend more on a product than new customers. On average, repeat customers spend 67% more in the third year of their relationship with a company than they do at earlier stages.

It is easier to persuade existing customers of a company’s value than to convince new customers who have yet to interact with the company.

Improving customer retention is an effective way to reduce your Customer Acquisition Cost (CAC) over time. When you retain customers, you can spread the initial acquisition cost over a longer period, ultimately lowering your CAC. 

Implementing a customer loyalty program, engaging customers through personalised marketing efforts and continuously acting on customer feedback are all ways to enhance customer retention. 

9. Minimize Customer Churn

Customer churn, also known as customer attrition, refers to the rate at which customers stop doing business with a company or cancel their subscriptions to a service over a specific period.

For example, if a company starts the month with 1,000 customers and loses 50 of them by the end of the month, the monthly churn rate would be 5% (50 lost customers / 1,000 total customers = 0.05, or 5%).

High churn rates can be detrimental to a business, as it costs more to acquire new customers than to retain existing ones.

Did You Know

According to the Forrester, it costs 5 times more to acquire new customers than it does to keep an existing one.

Poor customer service is often the leading cause of churn and with better customer retention tactics, you can minimize churn rates and thus significantly reduce the customer CAC.

10. Increase Average Purchase Value

Balancing the focus between customer acquisition strategies and customer retention becomes important. Thus, we can reduce the overall cost of acquiring new customers by increasing the average order value of customers.

Higher AOV means more revenue per customer

When you successfully increase the average order value, each customer generates more revenue for your business.

This increased revenue can offset the costs associated with acquiring new customers, such as advertising, marketing, and sales expenses.

As a result, you can allocate more resources towards retention initiatives and improve the overall customer experience.

Ways to Reduce Customer Acquisition Cost with SEO

Reducing Customer Acquisition Cost (CAC) is a key objective for many businesses, and Search Engine Optimization (SEO) can be a powerful tool to achieve this goal. Here are several ways to reduce CAC with SEO –

Target long-tail keywords:  Focus on targeting long-tail keywords that are more specific and have lower competition. Long-tail keywords often indicate higher purchase intent and can attract qualified leads who are more likely to convert.

Optimize for local SEO:  If your business has a local presence, optimizing for local SEO can be a cost-effective way to attract nearby customers.

Related – How Does Local SEO Work

Create high-quality content:  High-quality content can attract organic traffic, build trust and credibility, and encourage conversions, reducing your reliance on paid acquisition channels.

Conclusion

Are you looking to reduce your marketing expenses and acquire customers at a lower cost? Implementing a comprehensive SEO strategy can be the solution you need.

By partnering with our experienced team of SEO experts, you can tap into the power of search engine optimization to attract qualified organic traffic and minimize your customer acquisition costs.

For a complete SEO strategy to reduce your marketing costs and reduce the customer acquisition cost, reach out to us. 

Contact us today to schedule a consultation and learn how we can help you reduce your customer acquisition costs.