Reducing CAC (Customer Acquisition Cost) is one of the biggest challenges for companies, after all, investing less to achieve more , and this metric greatly determines a business's financial health.
Customer Acquisition Cost (CAC) can vary each month and with each defined strategy, but it's a fact that this investment can be reduced if businesses truly put the customer at the center and invest in what matters most: the experience.
Have you ever considered how investing in customer experience is directly linked to the challenge of reducing CAC (Customer Acquisition Cost) and remaining profitable in the sector? Let's talk more about this topic, stay tuned!
What is Customer Acquisition Cost, or CAC?
Before actually discussing how to reduce CAC, it's important to remember this concept, after all, there are many acronyms and metrics in the day-to-day business world, right? CAC, Customer Acquisition Cost ,as its name suggests, is about the value that the company invests to acquire new customers for its brand.
This cost encompasses the entire work journey of the teams at each stage of the funnel; that is, it should include everything from efforts to attract visitors, acquire and nurture leads, all the way to closing the sale.
Customer Acquisition Cost (CAC) varies from business to business; after all, each organization has its own way of investing resources and efforts to reach the customer. However, we can say that this tends to be a metric that unites sales and marketing.
It's also worth mentioning that many companies miscalculate their CAC and don't have accurate figures because they only account for expenses on paid media and tools, for example. To calculate a real CAC, you need to go further and remember that people, salaries, events, PR, travel, and any action that is part of the process of acquiring new customers should be included in the calculation.
By having data and surveys for each moment of this process over a given period (it is recommended to calculate monthly), the CAC can be easily calculated using the following formula:
CAC = Total investments / number of new customers
CAC as an important driver of decision-making
Like any metric, CAC is an important indicator for defining strategies, processes, and people. And of course, it's not enough to calculate your CAC every month and keep it stored in spreadsheets; after all, this is an important number that can reveal a lot about the health of your business and its direction.
It's clear that the CAC value needs to be lower than the average value of your product or service; after all, a company can't spend more than it earns, right? Therefore, more than just showing whether the company has made a profit, CAC provides visibility that allows for comparison of strategies.
Imagine that, in one month, your business invested in events and in another, the focus was on paid advertising. Of course, CAC isn't the only metric that should be analyzed, but its results will certainly provide good insights into what makes the most sense for your process and your audience. Does that make sense?
How to reduce CAC?
Now that you know more about what CAC is and its importance to business strategy, let's talk about what matters most – and is the biggest challenge – for companies: how to reduce CAC.
When we talk about reducing CAC, it's not just about stopping investment in sales or marketing—after all, these are crucial tasks for bringing people to the business—but rather about investing more strategically so that the results are increasingly positive.
There are several ways to reduce this metric in business, but what we will discuss in this content is to look at word-of-mouth (referrals) and customer experience in a different way; these are the two strategies that bring the most significant results in reducing CAC.
Word of mouth and customer experience to reduce CAC
There are many ways for a company to reach a person, but even as years pass and new technologies and channels emerge, nothing as effective as the famous word of mouth has yet been invented.
It's clear that reviews and ratings improve every day , but recommendations remain the best way for people to learn about and trust a place, after all, other people have already spoken about it. Proof of this is that, according to Reclame Aqui (a Brazilian consumer review website) , 70% of people say that opinions and reviews are the sources they trust most when researching a product or service they want to buy.
And people don't just like research: according to a study by Grupo Consumoteca, 80% of consumers consider it essential that the brand or product they are interested in has positive reviews from other buyers before making their decisions.
In other words, the way word-of-mouth – or buzz marketing – works today may be more digitalized, but it still exists, and referrals remain one of the simplest and cheapest ways to acquire – and retain – new customers.
According to a study published in the Journal of Marketing, referred customers are 25% more profitable and 18% less likely to cancel the product or service.
In other words, to reduce CAC and acquire more and more customers with less effort, it's crucial to invest in referrals from your existing customers . And how can this be done? Through experience and relationship building!
According to a study by Consumoteca, 51% of consumers write a review about a product, brand, or store when they are satisfied with their purchase. This demonstrates that people are willing to recommend products and places they like, and to do so, it's necessary to differentiate oneself and become the company that consumers spontaneously recommend.
Here, it's much more than selling a product or service; it's about selling a personalized and memorable experience, as well as a close relationship that demonstrates how important the customer is to your business and not just another number.
Consumers are becoming increasingly demanding and willing to pay more for experiences: according to research by Reclame Aqui, 51.2% of consumers say they wouldn't mind paying more for a product as long as they had a better shopping experience with the brand.
Moreover, 73% of customers would switch to a competitor after several bad experiences. In other words, not investing in customer experience is more than just losing referrals; it also means potentially losing the customers your business has already invested in acquiring.
We can say that investing in customer experience is also investing in:
- Internal business cultures;
- To truly know and understand who your customer is in order to develop personalized strategies that are consistent with their journey;
- Strengthening relationships so that sales are more than just a number, but also a customer loyalty journey;
- Customer service, after all, being available and providing good customer service is one of the great indicators of customer experience;
- Technologies that align with the business to automate processes – without losing the human touch – allowing for greater availability, connection, and personalized service for your customer base.
Investing in referrals, loyalty programs , and customer experience is a strategic and intelligent way to reduce CAC (Customer Acquisition Cost). After all, satisfied customers stay with a business and become brand ambassadors, multiplying the investment already made in customer acquisition and generating returns for the business.
Considering everything we've discussed here, how much is your customer truly at the heart of your brand, and how fundamental are they to improving your metrics and results? Now that you know more about how to reduce CAC (Customer Acquisition Cost), look at your processes, understand what can be improved, and count on Harmo to transform your customers into your biggest online salespeople!