The success of a business ultimately comes down to whether or not it can make money. It’s hard for companies to last long if they don’t turn a profit; unless, of course, you secure a lot of external funding. Fortunately, keeping an eye on your customer acquisition cost (CAC) will help you stay on the path to profitability and greater returns.
Below is a simple guide to e-commerce customer acquisition cost.
For those who don’t know, customer acquisition cost is simply how much your company spends (on average) to get a new customer to buy something. This key metric is one of the most essential for determining the marketing strategy of your e-commerce store. However, calculating this value isn’t always as straight-forward as it seems.
The simplest way of calculating CAC is to divide the number of customers gained over a certain period, by the amount paid on marketing. The problem with this method is that it doesn’t account for certain marketing strategies—such as content marketing or SEO—that might have been created a long time ago, but just recently influenced a customer to make a purchase. It’s paramount to keep these extra costs in mind when calculating CAC.
CAC is important for e-commerce retailers because they need to know how much they’re spending to get new shoppers. Since e-commerce advertising is almost always done entirely online, it’s crucial to continually update marketing methods based on quantifiable metrics such as customer acquisition cost. Holding this value as low as possible is necessary for e-commerce retailers trying to increase profits.
Customer Lifetime Value (CLV) is another necessary metric to use in tandem with CAC. CLV is simply how much you will make from a customer over the entire time they buy from your e-commerce store. Acquisition cost must be kept below lifetime value to ensure profitability.
In order for CAC to actually provide your e-commerce store with value, make sure your online shop is set up to retain customers. Since it can often be expensive to continually attract new customers, it’s essential that you generate some brand loyalty for your store.
In other words, it’s much more cost-effective to get buyers to keep coming back to your e-store multiple times than it is to get a high volume of customers to shop with you only once. Do a cloud e-commerce platform comparison to determine which plan will work best for your particular business. Make certain that you get some form of real-time analytics with your e-commerce store, or else you won’t be able to even calculate metrics such as CAC and CLV. Making decisions based on real data will go a long way toward ensuring your success.
The other important way to keep customers coming back to your e-commerce site is by offering a variety of products. But only a variety that caters to your niche. If you consider yourself a highly-specialized retailer, a customer may only need to buy your product one time. If this is the case, you’re going to have to do more work in order to turn a profit. Try to inventory at least one item that can be bought repetitively.
It will also behoove you to consider additional merchandise that complements your main goods. Getting more products into a customer’s cart means you’re making all the money you spent attracting those consumers worthwhile. It’s also critical that if a shopper abandons their cart, you try to get them back to it with a cart reminder. This is another way to make sure you capitalize on all potential buyers.
Thinking about customer acquisition cost is not the most fun part of running a business. In fact, it’s something that most e-store owners would rather avoid altogether. However, mindfulness of CAC is essential to anyone trying to be successful in the e-commerce space.