Do you know the real cost of acquiring your customer (CAC)?

Social media advertising can be challenging

There is a lot of talk in the press about Google and Facebook right now. And as business owners over the years how much we spend on these platforms to ‘find customers’ seems to go up and up. Gone are the days when we would place an ad in the Yellow Pages and customers would just find us. 

Understand the return on what we spend on finding (and keeping customers) no matter the business type will be critical not just to success but in many instances survival too. 

There’s often more to the cost of finding customers than one might consider. I thought it worth taking the time to spell out how to calculate a ‘true’ Customer Acquisition Cost (CAC) – what you spend on converting leads into customers.  

At its most simple there is an approach that divides marketing expenses by the number of customers acquired in a year. For example, if you spent $10,000 on marketing and acquired 1000 customers, your CAC would be $10. But these days, it’s not always an exact science.  

Back when I started RedBalloon over 20 years ago, before Google AdWords was even thought of, I was able to acquire a customer for 5 cents. (Oh for the good old days). That figure has continued to rise. At one point back in 2016 it had risen to close to $50. This of course was not sustainable. We worked hard to find a better way.  

Pleasingly, we’ve now brought our CAC significantly down, through adopting AI marketing tools enabling us to be more targeted and exact, refining Google Ads, and establishing strategic partnerships that deliver customers to us. We’re pretty good at it now. But it is never set and forget, the algorithms continue to change. 

Spending money one by one can seem exhausting and relentless. Is there anyone else also speaking to the same customer group? 

Partnerships are well worth considering. What marketing can they do for you to relieve your costs? What mutual benefits can be achieved? How can they deliver more customers to you? Two is always going to be strong than one. Great partnerships take great discipline, however the rewards can be expansive.  

There is much discussion about the future of Google Search in Australia we understand at time of writing that negotiations are underway with media companies.  

Most businesses use Google (and Facebook) to help find customers. Have we become dependent on them. We must find other vehicles – and I guess stay close to where ‘our customers hang out’ and make sure we are there.

I am certainly hopeful that a pathway forward can be established that supports all interests. But, at this juncture make sure you know where your customers are and consider how you might change your market strategies if the social platforms changed. 

Perhaps it’s time to establish some new strategic partnerships? As there really is strength in numbers. Look for marketplaces to do this work for you. 

Also published on Medium.