In the past five years, customer acquisition costs (CAC) have increased by over 50%.
Between increased marketing budgets, crowded marketing channels, and higher customer expectations, it’s becoming more expensive to get a new customer.
If you want to sustainably scale your customer base, then you need to understand how to keep your CAC low and your profits high.
In this article, you will learn how to use surveys to find the optimal strategy to reduce your CAC.
Before doing so, let’s start by defining our terms.
The definition: What is customer acquisition cost (CAC)?
Customer acquisition is the practice of attracting new customers to your business. Your goal is to create a sustainable strategy to grow your startup at scale.
Customer acquisition cost (or CAC) is understanding the cost of getting those customers. It includes everything from ad spend, cost of labor, and other marketing investments.
Many marketers calculate customer acquisition cost to monitor a specific promotional campaign. You can also use this number to estimate your ROI.
After launching your online store with a popular eCommerce platform, you get 10 customers in two weeks. Each customer’s average order value (AOV) is $75, bringing in $750 in revenue. You also paid $250 in marketing spend to get those 10 customers.
Your CAC is simply the number of customers you got (10) divided by how much you paid in your marketing spend ($250). In this case, your CAC is $25.
With an AOV of $75 and a CAC of $25, your return-on-investment (ROI) is 3:1. While this doesn’t factor in cost of goods sold (COGS), it’s a good indication that your marketing campaign is healthy.
You can then monitor this metric at the channel level (PPC ads, Facebook ads, affiliate marketing, email marketing, etc.) to ensure your ROI is improving at a weekly, monthly, and quarterly level.
Now that you understand what CAC is, let’s go over how to calculate it. This will help you know how to decrease your CAC using a survey.
The formula: How do I calculate my customer acquisition cost?
To calculate your CAC, you want to determine how much money you spent. This includes your effective cost from paying your employees.
According to Brian Balfour, ex-VP of Growth at HubSpot, the basic CAC formula is:
CAC = (Marketing Costs + Sales Costs) / (Total Customers Acquired)
Don’t forget, you should also include:
- Relevant overhead costs.
- Hiring third-party freelancers, agencies, or outsourced service charges.
- Marketing and sales employee salaries.
- Later on, you can use this data to eliminate money-draining marketing channels. It will give you time to shift your energy towards cost-effective approaches.
If your business is small, then you likely can get a sense of what might be causing your CAC to be too high. As you scale up, however, it might make sense to use data visualization software to keep track of your CAC across your marketing channels.
Once you have a method in place to track your CAC, you can then move on to create cost-effective strategies.
The solution: Why should I consider using surveys to lower my customer acquisition costs?
Let’s get back to the fundamentals of business. Why will a customer pay for your product?
- The customer has a problem they want someone else to solve.
- You have a solution that the customer is willing to pay money for.
- The customer believes your solution will add more value than what they pay.
Here’s the problem:
If you can solve the problem, you almost certainly have competitors solving the problem too.
Wouldn’t it make sense to learn from your customers to understand how you solve their problem better than your competitors?
Imagine the value you would get if your customers told you exactly how you can solve their problem better than the competition. The process of differentiating your offer would then be a breeze.
Customer interviews, market research surveys, and other surveys become the means to talk to your customers.
As a result, you’ll get the data you need to lower your customer acquisition costs in many ways.
You can use the customers’ answers to discover your optimal go-to-market strategy to get an extra 1,000 customers in a year.
You can learn what about your product attracts your target audience and what defects you need to fix.
Surveys can help you create fresh marketing content and customer-centric campaigns. For example, you can:
- Turn customer testimonials into in-depth case study articles.
- Find the optimal messaging to help loyal customers spread the word through referral campaigns.
- Map the buyer journey to understand which marketing channels have the highest ROI.
The possibilities are endless.
Why else are surveys so powerful?
In simple terms, they can act just like a Facebook Lookalike audience…
How surveys act like Facebook lookalike audiences
Facebook lookalike audiences are already making big waves in the marketing world. Businesses use it to connect with new people who have similar buying habits and interests as their existing customers.
Adam, PPC expert at Loganix, said “Facebook Lookalikes are one of the top performing ad types we use. Especially if you are starting from scratch without pre-built lists and market research.”
What kind of results are businesses seeing with lookalike audiences, you ask?
Here are some examples of the results businesses are seeing using Lookalike audiences:
The Black Tux
They saw a 51% increase in tuxedo rentals week over week while reducing their CAC by 37%, and multiplying their Return on Ad Spend (ROAS).
Using look-a-like audiences increased their revenues by 85% and ROAS was three times more than usual.
The Miami Heat
They started with a 9.3X ROAS after their first week of the campaign, which grew up to 28X at the end of the campaign.
These numbers are proof that targeting look-a-like audiences can maximize revenues.
Like lookalike audiences, you can survey your customers to find who they are to target more people like them.
Surveys help you achieve that by collecting essential data for customer segmentation and automation. That way, you will know what kind of content each category of consumers will appreciate. You can use this information to accommodate their needs, requirements, and preferences via relevant content.
The plan: How to use surveys the right way
Surveys are one of the simplest and most effective strategies to refine your customer acquisition methods. Yet, many companies fail to utilize them properly.
That might be because they are choosing the wrong medium, distribution channels, and questions.
Here is a step-by-step guide you can do this for your startup:
1. Begin with the end in mind
Stop. Before you rush ahead, you need to ask yourself what your goals are when talking to your customers. Otherwise, you’ll simply collect data you won’t take action on.
Start by thinking about what your goals are to reduce CAC. For example, are you going to reduce CAC by:
- Improving your brand positioning?
- Optimize your pricing?
- Refining your messaging?
Your goal will change what questions you ask, who you ask, and the details you will want to find in the data.
If you guessed at your product’s pricing, you may be losing customers because the price is lower than what they expect. For example, you’d be skeptical if I tried to sell you a Tesla for $500. As a result, you’ll get more sales resistance with the wrong price.
Let’s pretend your goal is to optimize your pricing strategy to improve your CAC.
2. Ask the right questions
To get accurate data to improve your CAC, you need to ask your customers about their past or current experience.
If you ask a customer about the future, you will never know if the person will do as they promise. No one can predict the future. Therefore if you ask a future-focused question, there is a greater chance you will be acting on bad data because what they will tell you may never happen.
To optimize the price of your product, you can use the Van Westendorp method to find your customers’ willingness to pay range. This involves asking four questions:
- At what price would you consider the product to be so expensive that you would not consider buying it?
- At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good?
- At what price would you consider the product starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it?
- At what price would you consider the product to be a bargain, a great buy for the money?
3. Put together an email list
Start by getting an email list of your existing customers for the survey. You may find it valuable to segment customers by their pricing plan.
The reason for this is your customers likely have the same problem, but their expectations are different. This is why you charge at different prices: the value and the offer you provide are not exactly the same for every customer persona.
By segmenting your customers, you’ll learn what it takes to delight each customer group.
After segmenting your customers, you can then create an email outreach campaign to send the survey. Growth Ramp aims for a 20-40% response rate. If you’re not sure how to get those response rates, here’s our process on creating email outreach campaigns.
4. Analyze the data
Once your customers finish responding, you’ll want to analyze the data to decide what you’ll want to do next.
For the pricing questions, you’ll want to create a price sensitivity analysis. It will look like this:
Once you plot the answers from the four lines, you’ll be able to find the optimal prize zone. This is where the four lines intersect:
There are a lot of theories about the optimal price to charge and this isn’t an article to go pricing strategy (this article should help with pricing). But if your price isn’t in this range, you’re likely paying too much for customers because they believe your product is either too expensive or too cheap.
Whatever data you collect from your customers, you’ll want to analyze the information so you know what you will apply.
5. Optimize your marketing
After you’ve finished analyzing your data, it’s time to put the information into action.
Let’s say you plan to increase your price from $20 a month to $30 a month. Now you’ll need to decide the following:
- Will you charge your current customers at a higher price? Or will you grandfather them into the plan at the lower price?
- When will you change the price?
- In addition to updating the pricing page, what do you need to change on the backend?
Once you answer these questions, you’re ready to get to work. Or if this process sounds like a lot of work, you can hire a product marketing agency to do it faster.
The bottom line
As it becomes harder to rise above the noise, the cost to acquire a new customer will rise too.
To reduce your CAC, you can survey your customers to find out who they are and what they suggest you can do to better serve them. You’ll want to do this by asking them questions about their past or current behavior.
Doing so will allow you to create a customer-first approach in your marketing strategy, which in turn will drive down your CAC.