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The In-depth Guide to Customer Acquisition: Costs, Strategies & Tools

“There is only one boss. The customer―and he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” ― Sam Walton

In today’s competitive market, customers don’t flock to you while you’re sitting there and waiting. They’re surrounded by a large pool of similar options. They always actively search for the best choices on the market. If you don’t invest in your customer acquisition strategies today, they’ll buy from someone else instead.

In this post, we’ll talk about:

What is customer acquisition?

Customer acquisition is the process of gaining more customers. 

It’s important no matter whether you’re a big corporation or a small business.

Lead generation

To acquire a new customer, you may have to go through a process called lead generation.

Leads are people who visit your website because they’re interested in what you offer, but they haven’t purchased anything.

To turn leads into customers, you need the right customer acquisition strategies.

B2C vs. B2B

Before planning on customer acquisition methods, you need to understand your target market. There are certain differences between B2B (Business-to-Business) and B2C (Business-to-Customers) customers.

B2B customers are more involved in the decision process. A purchase decision may need to go through multiple levels of management. As there aren’t so many potential B2B customers on the market, you need to spend more resources to acquire and retain them. However, B2B customers are more valuable as they tend to buy in bulk or pay for custom solutions.

B2C customers, when compared to B2B ones, are higher in terms of quantity, but are less valuable because they make smaller purchases. You also have to face more competition in the market.

Stages of customer acquisition: 3 different models

A potential prospect has to go through various stages before they become your customer. The variables that can affect the stages include the market, your product, your potential customers, and more.

Let’s take a look at 3 common models that demonstrate the stages of customer acquisition.

Flywheel model

HubSpot adapts this model well. They put customers at the center of all business activities, from marketing to sales and customer service.

the flywheel model in customer acquisition

Source: HubSpot

The 3 main stages of the flywheel model include: Attract, Engage, Delight.

  1. Attract: Brands show expertise by providing useful content for the target consumers.
  2. Engage: Brands enhance relationships with potential customers by providing solutions to consumers’ problems.
  3. Delight: Brands delight customers by offering real value to customers. Customers are inspired to refer brands to their circle.

Funnel model

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Source: code95.com

Stages of the funnel model include:

  1. Awareness: Customers are aware of your brand/products/services through ads, blog, social channels, or word of mouth.
  2. Consideration: Customers consider purchasing your products/services. They may weigh similar options available on the market to make a purchase decision.
  3. Decision: Customers decide to purchase your products/services.
  4. Loyalty: Customers stay loyal to your brand if they’re satisfied with your products/services.
  5. Advocacy: Customers interact with you, give positive feedback about you in the public, or recommend you to their circle.

This model is more suitable for low-commitment products/services that customers don’t spend too much time weighing options. They’ll make purchase decisions right when they’re in the store.

Customers don’t always go through these 5 stages. If they already know about your brand, they may skip to the Decision stage and make purchases right away, for example.

Consumer decision journey model

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Source: McKinsey

This model includes 4 main stages:

  1. Initial consideration: Customers are aware of many brands that offer what they look for.
  2. Active evaluation: Customers evaluate brands, weigh options, and actively add/remove brands.
  3. Moment of purchase: Customers decide to purchase your products/services.
  4. Post-purchase experience: Customers use products/services and experience customer service after their purchase. This influences their next purchasing decision. If the experience is positive, they’re more likely to become loyal customers.

This model is often seen in online shopping and in purchases of more expensive items. Online consumers are active on multiple channels and exposed to various options. They do research rigorously and make decisions based on past experiences.

What are some customer acquisition methods and strategies?

Inbound marketing

Inbound marketing includes organic methods for customer acquisition. You focus on providing valuable and helpful content to customers and flexibly show how your products can solve their problems. 

With inbound marketing, it may take a while for customers to notice you, but it’s a sustainable and long-term strategy.

The most common inbound methods include:

Email marketing

Email marketing includes building email lists, sending newsletters and promotional emails to subscribers. 

Once someone opts into your email list, you have the opportunity to grab their attention, talk to them personally, and turn them into customers. 

Besides, email marketing also has an effectiveness of 56% in customer retention, so you know how engaging it can be to interact with potential customers via emails.

Social media marketing

Social media offers opportunities to build brand awareness and community. You can promote your content and products, as well as interact with customers and other brands.

Many brands provide active customer support on their social pages. This not only creates trust and reliability for potential customers, but it’s also convenient for customers to reach out when they look for help and support.

So, find where your customers are—what social channels they’re on (LinkedIn, Facebook, Twitter, Instagram, etc.). And interact with them.

Content marketing

Content marketing efforts show your expertise and build your authority on the market. You focus on creating blog posts, ebooks, guides, infographics, etc. to provide helpful information to people.

Content marketing is also among the top 3 effective tactics to retain customers, so it’s worth investing in in the long run.

Search engine optimization (SEO)

You focus your content based on keywords and optimize your content so that they appear on the first page of search engine results, ideally, or appear on search engine rankings.

Outbound marketing 

Outbound marketing includes paid methods of customer acquisition. You can achieve quick results using outbound methods, but nothing guarantees customers will stay with you in the long run.

Outbound marketing includes:

Ads & promoted posts

Today, you can put ads on literally everywhere: paid search (Google, Bing), social media (Facebook, Twitter, Reddit), podcasts (Spotify), etc. They’re also available in many forms: banners, videos, interactive ads, interstitial ads, etc.

Your audience on different ad channels may not be the same. Make sure you target and retarget relevant audiences depending on each channel.

Referrals

Create referral programs in which existing customers refer your brand to their friends, family, acquaintances and receive incentives in return.

Affiliate marketing

Affiliates promote the products/services of a company and earn commissions for every sale made based on their promotional efforts.

What is the cost of customer acquisition?

It’s important that you calculate the costs of each channel for acquiring customers, as well as both measurable and non-measurable costs.

Measurable costs include campaign budget, sales, training programs, automated software, etc. These costs can be identified by numbers.

Non-measurable costs include brand awareness, networking, etc. You can’t really put a specific number to these costs.

How to calculate customer acquisition cost

The basic formula for calculating the customer acquisition cost (CAC) of a campaign is to divide the marketing cost of that campaign by the customers acquired from that campaign:

Customer acquisition cost = Marketing cost / Customers acquired

For more complicated campaigns, you can use this formula:

Customer acquisition cost = (Marketing costs + Overhead expenses for marketing and sales + Wages/Salaries for marketing and sales team + Outsourced services + Software used for marketing and sales) / Customers acquired

The customer acquisition cost varies in industries due to the nature of the products/services and customer decision journey. The cost may be high at first but you should also consider the lifetime value of the customers—what you can’t calculate precisely.

Here’s a list of the average CAC in common industries from Propeller:

  • Travel: $7
  • Retail: $10
  • Consumer Goods: $22
  • Manufacturing: $83
  • Transportation: $98
  • Marketing Agency: $141
  • Financial: $175
  • Technology (Hardware): $182
  • Real Estate: $213
  • Banking/Insurance: $303
  • Telecom: $315
  • Technology (Software): $395

Metrics to measure customer acquisition

Customer lifetime value

Customer lifetime value (CLT) is how much one customer will pay you over their lifetime.

76% of companies agree that customer lifetime value is an important concept in their organization.

The customer lifetime value should be higher than your acquisition cost, ideally. It means your customers stay with you long-term.

If the profit from a customer is fixed every year, you can use this formula:

Customer lifetime value = (Annual revenue per customer * Customer relationship in years) / Customer acquisition cost

If the revenue from a customer fluctuates, use this formula:

Customer lifetime value = m x (r/1+i-r)

  • M – Annual margin per customer: sale profit after accounting for variables and expenses
  • r – Customer retention rate: percentage of customers who continue to buy from you
  • R – Discount rate: interest rate used to discount the value of future cash flows

You can also use CLV templates from here and here, or use calculators to calculate CLV.

CAC / CLV should be 3. If the number is higher than 3, you should try other marketing efforts.

📌 Note: Average purchase frequency and value also affect the customer lifetime value.

💡 Tip: Serve customers with high lifetime value by improving customer service or creating loyalty programs to retain customers. 83% of people say joining a loyalty program will keep them making purchases at that business.

Customer churn rate

Customer churn rate, also known as customer turnover, is the percentage of customers pulling away or opting out of your business and your products/services. They’ve already bought from you, but haven’t decided to stay loyal to your brand.

To calculate customer churn, use this formula:

Customer churn = Number of churned customers / Total number of customers

Why do you need to calculate the customer churn rate? Seeing a decline in this number will urge you to figure out why customers leave and invest more in suitable customer retention strategies.

How to improve customer acquisition while lowering costs?

Define specific target market segment

Many companies don’t have a specific customer persona, so they craft generic messages to everyone. This can be difficult to target the right market segment that actually needs their products.

You should create some specific customer personas and start creating messages and promotional campaigns for those personas. Knowing your customers will help you understand where they are, their buying habits, how they research information while shopping, and how they react in each phase of their buying journey.

You can also figure out insights such as what makes them hesitant during the awareness stage, or what makes them choose a certain brand during the decision stage, and adjust your messages to hit more effectively.

Define what makes you unique

This step requires you to craft your unique selling proposition, stating how you’re different from other companies offering the same products.

What differentiates you from competitors doesn’t just include product features, but lies also in these aspects:

  • Product: performance, design, features
  • Brand image: actions, statements, brand ambassadors, logos, etc.
  • Channel: expertise, coverage
  • Service: fast, convenient, polite
  • Staff: hire and train better people, especially those who interact with customers

Omnichannel approaches

“Every contact we have with a customer influences whether or not they’ll come back. We have to be great every time or we’ll lose them.” – Kevin Stirtz, Author

Omnichannel approaches require you to reach your customers everywhere they are, from brick-and-mortar stores to online channels and ads, and provide a unified experience for every contact point. You can see some examples and details here.

Watch your competitors

Another effective strategy is to watch how your competitors are doing, what tactics they use to generate leads and acquire customers, then analyze what you can improve in your strategies.

Review your strategies

Even when your strategies are bringing positive results, you still need to review them periodically to catch up with trends, market fluctuation, changes in customer behaviors and preferences, and the evolvement of acquisition channels.

Metrics are tangible evidence of what works best and what isn’t effective, so make sure to track them closely.

7 customer acquisition tips you should try today

Produce helpful and informational content

Publishing relevant content that helps people solve problems and answer their questions is an effective way to attract potential customers. 

This method is cheaper and also takes longer to show results. However, it’s sustainable and will benefit you in the long run.

Offer free trials or giveaways

Offering free stuff can quickly attracts people and engagement, but there’s nothing that guarantees they’ll become your customers, or will stick with you for long. You’ll also have to consider your budget before applying this tip.

Referral program or ask for referrals

Referred customers have double the lifetime value compared to non-referred ones. They buy more and are more likely to refer you back to their friends.

So it’s wise to create a referral program and offer incentives such as money, coupons, gifts, credits, etc. You can also ask your customers for referrals, especially when your customers are B2Bs.

Retarget customers

Social channels such as Facebook allow you to retarget paid ads to more suitable audiences. Experiment with this and see which segments engage with your ads the most.

Partner with other brands

If you have overlapping audience segments with other brands, partnering with them can increase your exposure. Find relevant brands and offer to create collab products.

Improve your website

Your website, especially your landing page, is one of the first things people check out if they’re weighing options. From designs, copywriting, and CTAs to the Share buttons, make sure you refine them and even conduct A/B testing to see what works best.

Customer stories and testimonials

79 percent of shoppers say they trust online reviews as much as personal recommendations.

Instead of bragging about your company or products, let customers talk about you. Interview them and organize contests to encourage user-generated content. Incentivize them if they leave reviews on your website or shopping sites.

12 best customer acquisition tools

Besides using offline tools such as distributing posters and flyers to attract customers, you should focus more on online tools because there are specific metrics you can track and calculate.

Below are some free tools you can use for customer acquisition.

CRM

Manage customer information, engage and nurture leads, turn them into loyal customers with these free CRM tools from FreshSale or HubSpot.

Website analysis

Google Analytics is absolutely free and you can discover multiple insights from your customer interactions on your website.

Forms and email collection

You can capture emails through pop-up forms, contact forms, registration forms, etc. with JotForm and Sumo.

Email marketing

Create and send emails to leads with multiple templates using HubSpot Email Marketing or MailChimp.

Live chat

Integrate live chat to your website so that customers can interact with you quickly. You can also set up a bot to automate certain chat flows. You can use HubSpot Live Chat, JivoChat, or Drift.

Social media

These tools help you manage your social channels, schedule posts in advance, and track analytics: Hootsuite or Buffer.

Grow better with the right customer acquisition strategies

Customers are important to any business. To grow your business, you should actively acquire and retain them for a lifetime.

Find and experiment with different customer acquisition tools, methods, and strategies. Make sure customers go through a seamless buying experience. To do so, you should plan your business operations well to minimize delays or conflicts.

Camelo can help you with planning smoother business operations. The app provides a central place where you can schedule your staff and know exactly who’s working, when, and where.

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