Customer acquisition cost (CAC) is the cost of acquiring a new customer for every dollar you spend on paid marketing efforts. Blended CAC includes all your marketing channels.
Customer acquisition cost (CAC) is the cost of acquiring a new customer through your paid marketing efforts. Blended CAC includes all your marketing channels.
This cost can vary depending on a multitude of factors—your business, the industry you’re in, the platform you’re advertising on, etc.
You can track CAC on a per-channel basis, but here we’re talking about Blended CAC. Why is this metric important? Today’s ecommerce businesses must be able to zoom out and see how all their advertising efforts impact other key metrics.
Acquiring new customers is expensive, and marketing expenses are only increasing. New iOS updates have made it harder to target consumers. Plus, platforms, such as Meta, are oversaturated. It’s not easy to cut through the noise.
It’s not enough to get your ecommerce business in front of new consumers. Now, the emphasis is on targeting and segmenting based on collected data.
Blended CAC = total ad spend/ number of new customers
Data sources: Shopify, connected ad channels (i.e., Facebook, Google Ads, etc.)
Important note: At Tydo, we exclude test orders.
Let’s say you run an online perfume business.
In April, you spent $4,000 on Facebook ads and $3,000 on Google Ads. In that month, you acquired 900 new customers. Using the calculations above, your blended CAC is ($7,000/900) = $7.78.
Blended CAC is like planning a vacation. You have your accommodations, food/drink, and activities. Instead, of looking at the value of one category. It’s valuable to look at the whole trip to get a sense for whether you would want to go on a similar trip again or how you could make it better.
This metric—Blended CAC—gives you a better idea of how much it costs to acquire customers across your channels. It allows you to see how much you’re spending on paid marketing (marketing costs) in relation to the revenue that those efforts bring into your business. This helps you see whether your business is profitable or not.
The blended piece of this metric (CAC) is critical because we know that a customer’s buying journey is multi-channel. What you do on one channel impacts the others. For example, if you spend on Facebook, your Google Ads attributed conversion will be impacted since you’ll most likely see more brand searches in Google.
Cody Plofker, chief marketing officer at Jones Road Beauty, highlights the importance of blended CAC. “Blended CAC is king, and for most brands just spending on Meta/ Google it’s all they need. There’s value directionally, but not in trying to understand the ‘truth’.”
Overall, all marketing metrics come back to having a strong brand. It’s not just about cheaply acquiring customers but attracting high-quality customers who return. Aaron Orendorff explains, “If your brand is strong, you can afford to spend less on ads. If you spend less on ads, CAC should go down.”
What’s the best way to decrease customer acquisition costs?
There’s no one-size-fits-all approach. Every ecommerce business needs to experiment and test different strategies to see what works best. You might want to try updating your landing pages, improving website copy, or looking at new and creative ways to attract a paying customer.
Nik Sharma, CEO of Sharma Brands, says it best: always test.
Nik Sharma recommends using landing pages to educate, tell a story about your brand, and give your customer a reason to purchase, or else they might churn. Here are a few landing pages to look at for inspiration:
Optimized landing pages are the best way to deliver information to potential customers and drive conversions.
Given the rising costs of paid marketing, brands should look to organic strategies for driving website traffic.
Focus on creating SEO-optimized product descriptions. This will help you rank better in search engines and acquire customers. When writing these product descriptions, focus on highlighting benefits not features. Plus, incorporate keywords into all content, from headlines to image alt text.
The best acquisition strategies are rooted in retention. Setting up effective post-purchase and abandoned cart email flows is incredibly important as it enhances the customer experience.
Sharma recommends getting retention efforts in place before even going after new customers. Why? The benefits include:
It’s easier (and cheaper) to retain customers rather than acquire new ones, but oftentimes, returning customers are the first to be forgotten.
Influencer marketing can help brands cap customer acquisition costs. It can be more cost-effective to have influencers create content, and it’s more engaging for consumers. Plus, good influencers can become brand evangelists.
Affiliate marketing programs and referral programs are also highly effective when done correctly. Noah Tucker, the founder of Social Snowball, says, “It’s a way to get more customers involved and engaged in a brand’s community. You’re rewarding them with cash, and people love referring their friends to brands they love.”
It’s helpful to test different audiences on paid channels, but don’t forget to test your creative as well.
To create variety, write down a list of reasons why someone would use your brand. Those reasons now become content ideas for headlines, ad copy, and text overlay. After implementing creative strategies, see what works and what doesn’t work. Look at conversion and customer acquisition costs. You can also use this testing to create benchmarks.
As your ecommerce business grows, so will your total cost of advertising for all acquisition channels. But there are ways to keep acquisition costs from getting too high for every brand (early-stage to late growth), as Justin Mares of Perfect Keto and Nik Sharma shared in this webinar here.
Other options for offsetting rising CACs are increasing average order values (AOV) through offering bundles, free shipping, or upselling at checkout.
As an ecommerce or SaaS business owner, understanding various data points, such as CAC, will highlight other important metrics. Looking at, say, the customer lifetime value (LTV) to customer acquisition cost (CAC) ratio helps you see whether your acquisition costs make sense compared to the long-term value you expect to see from a customer.
By understanding your LTV to CAC ratio, you’ll see precisely the number of customers spending with your business over a certain time frame and be able to compare it with how much it costs to acquire that customer in the first place.
Are you spending more on acquiring a customer than you’re earning in sales? This will eventually have an impact on profitability, especially for startups. Tracking this data gives you insight into your best and lowest-performing customers—allowing you to tailor marketing spend better and attract the best customers.
Common Thread Collective explains that it’s not enough just to track LTV. You need to figure out how to obtain value in the shortest time period possible quickly.
Implementing strategies such as running ads, setting up post-purchase email flows, and setting up a quiz are all effective ways to increase LTV from the start.