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How to minimize customer acquisition costs

How to minimize customer acquisition costs

If it costs too much to bring in customers, you’re quickly going to find yourself treading water. You congratulate your staff on the sale (keep it going!), yet your marketing spends translates into zero net gain–or even a loss in some cases. Continue treading these waters and you’ll need a life vest. However, if you are able to minimize Customer Acquisition Costs (CAC), you’ll have a sustainable business that does more than stay afloat.

Determining your spend

First, it helps to determine what you can afford to spend on customer acquisition. The objectivity principle of accounting states that “You should use only factual, verifiable data in the books, never a subjective measurement of values.” Yet this can be tricky when determining CAC.

If your business is in a growth stage, acquisition costs are lower because people are finding out about you from other new customers who are in something of a honeymoon phase with your offering. After a growth stage plateaus, CAC is higher. So, if you’re relying on data from your growth stage to determine average CAC, it won’t necessarily apply to where you are right now.

To get accurate values, use data from customers you acquired through your own marketing efforts outside of growth stage. SaaS startup Segment has a formula for figuring out acquisition costs:

  • Determine Customer Lifetime Value (LTV): LTV = Revenue from each paying customer per month, multiplied by Gross Margin, divided by churn (Gross Margin is the amount left over after the cost of goods sold, churn is the percent of people who leave)
  • Determine Conversion Rate (CR) of your marketing funnel: CR = Number of people who enter funnel, divided by number that becomes paying customers
  • If applicable, determine success rate of your website: Number of website visitors divided by number who enter funnel
  • Determine Cost Per Paying Customer (CPPC): CPPC = LTV divided by 3 (a third of Lifetime Value is the high estimate of what you’d want to spend on a customer)
  • Determine Cost Per Acquisition (CPA): CPA = CPPC multiplied by CR

The higher your Customer Lifetime Value is, the better off you are in terms of acquisition costs. The high value means they stick around and maintain a relationship with you. The rest of this discussion will center on low-cost ways to maximize lifetime value.

The returning customer

Customers who come back help you sustain growth because they typically tell other people about you. Although you can’t put the words in their mouth, you can take a number of steps to make sure they don’t forget greatness. This will translate into word of mouth, which comes at absolutely no cost to you.

It isn’t just about post-sales marketing. How you come off at the point of sale is a huge factor as well. Consider the following ways to get return customers:

  • Be fast: Nothing beats quality, but the quicker you can deliver, the better; make your website’s sales funnel intuitive; keep your store well-staffed and your staff well-trained
  • Be stocked: Stay on top of inventory needs, and if possible, use a predictive analytics tool to optimize
  • Be loyalty-friendly: The most successful businesses offer loyalty programs
  • Be attentive: Through email and social media, remind customers you’re there, that they need to re-subscribe, refill, etc.
  • Be memorable: Make every touchpoint with your brand a memorable experience

Nail all these basics, and if your product or service is good, they’ll be back.

Furthermore, get a blog going on your website and post regularly so customers who are curious can get insight on your day-to-day activities and achievements. Take pictures and personal videos and post them on your blog and social media. Turn employees into valuable brand advocates by soliciting their involvement.

Incentives

Rewards points and free shipping are two examples of good incentives. With rewards, you can create user-generated campaigns. Simply offer discounts, freebies, or exposure in exchange for user-generated content. This can include videos, photos, social media posts, guest blog posts, and testimonials.

Big-time social media users consume over five hours of user-generated content per day, and user-generated campaigns on social media are 20% more effective than regular ads.

One highly successful (and highly publicized) example of user generated content comes from Chobani. The Greek yogurt company asked fans to share their “Chobani love story”, and made it into a contest by soliciting votes in exchange for a free case of yogurt. Chobani used the content on the website, billboards, and social media. The campaign led to a 225.9% increase in revenue.

How to minimize customer acquisition costs

User-generated content and incentivization give you plenty of chances to get creative. In my hometown, a local pizza restaurant called Flying Pie Pizzeria runs a campaign called It’s Your Day.

How to minimize customer acquisition costs

If it’s “your day”, meaning the restaurant mentions your name, or you fit into some other category (e.g. you’re a bird-caller), you get the chance to come in and make your own pizza for free. The user-generated potential is subtle, but it’s there. Flying Pie says, “Check our facebook page and tell your friends when their day is coming…and soon they will be telling you when your day is near!”

This creates community engagement, word-of-mouth, and new customers who come in because a friend told them it’s their day (or they saw it on the restaurant’s reader board). The restaurant asks people to get involved on social media.

How to minimize customer acquisition costs

And people post about their experiences, which increases the restaurant’s reach.

How to minimize customer acquisition costs

This ongoing campaign works well for Flying Pie. It’s very practical, for one, because people bring in family and friends when it’s their day, and they end up making purchases in addition to the free 10” pizza. Secondly, it earns them a lot of word-of-mouth. Marketing spend is equal to the cost of the pizza, a cost that already figures into regular operations. No wonder Flying Pie has over 24 thousand likes on Facebook and competes well with national chains.

Email

On your website, give the visitor who is just looking to a chance to find out more via email. This typically takes the form of the email newsletter. The visitor who doesn’t buy can become a lead if they opt to receive an email from you.

It’s important to be effective with your subsequent email marketing efforts. Personalizing your emails can result in 26% more opened messages, while segmentation can yield 760% more revenue.

To personalize, ask the right questions on the sign-up form. Ask about things like age, gender, and interests. To run segmented campaigns, separate recipients, into demographic categories and tailor your messages accordingly.

Embedding video in your email can yield 2-3 times the click-throughs and can increase conversion rates by up to 51%.

The great thing about video is that you can create it easily and at minimum cost using a smartphone, webcam, or inexpensive camera. Plus, a video is a great marketing tool for more than just email, as the following infographic shows:


If you create a video for emails, get the most out of it by repurposing the material for your website, social media, and YouTube. Sites that include video are 53 times more likely to reach page one on Google.

Ads

Website visitors who come and go could end up becoming leads later on. Through retargeted ads, use your most compelling visual material and your most compelling messages on display networks and social media.

New customers

Make sure new acquisitions know how much you value their business and have an easy access point to you later on. If you’re shipping them a product, consider special packaging, so when they open the box it looks like they’re receiving a gift. Online, personalize an email, ask for feedback, let them know you value their opinion. Ask them if they want to subscribe to an email list to your blog and receive updates via social media.

Be hyper-vigilant when you’re responding to questions and complaints from absolutely anyone interested in your business. Ultimately, showing you care is the best way to minimize customer acquisition costs.


About the Author

Daniel Matthews is a freelance writer from Boise, Idaho. In 2006, he earned his BA in English with a Creative Writing Emphasis from Boise State University. Throughout his twenties, Daniel worked as a Psychosocial Rehabilitation Specialist, a marketer, and a server. In 2015 he took the plunge and became a full-time writer. Daniel believes one of the most important, if not the most important aspects of modern business is the understanding and appreciation of diverse cultures. Please find him on Twitter and LinkedIn.

2 Social Customer Service Metrics: 3 Case Studies

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photo credit: Flickr

How has marketing changed thanks to social media? Well, now 90% of customers are influenced by online reviews. Some companies cringe when they hear this: The decision whether to buy can come down to a good or bad Yelp review. And we all know some customers can be finicky, their opinions arbitrary and skewed. But some can be incredibly on point.   

Since so many people are influenced by consumer reviews, customer service is a new form of marketing. Customer satisfaction turns into word of mouth, word of mouth converts the potential customer.

Word of mouth/peer-to-peer marketing isn’t just happening via review platforms. It’s happening constantly on channels such as Facebook and Twitter, to name the major players. For that reason, social media listening, or monitoring, helps marketers and business owners understand more about the following:

  •         How people are talking about a brand – positive/negative sentiment
  •         Likes, dislikes concerning products
  •         Additional products or product modifications customers want  
  •         Complaints

The sheer volume of conversation going on allows businesses to analyze metrics and adjust customer service and marketing based on the numbers (i.e. number of negative posts about a product vs number of positive posts). Peer-to-peer marketing doesn’t exclude business-to-consumer social marketing—it runs alongside it.

 

 

 

 

 

 

 

We can learn quite a lot about what customers want, and what they like, from social media metrics. We can also learn from businesses who are doing this well. Here’s a look at some of the exemplars in different industries.

Five Guys

The burger franchise is all about social media for marketing and customer service. Through their efforts, Five Guys has one million followers on various channels, which has helped them open twelve-hundred locations worldwide. Online Marketing Specialist, Kenneth Westling, identifies three facets of the Five Guys social media campaign that contribute to its success:

  • Prioritizing customer service
  • Involving employees at home and abroad
  • Monitoring “engagement metrics” and “tailoring content based on what works for each social network audience”

Five Guys looks at posts related to brand and keywords and creates content based on what people are saying. Further, they use geo-locational data to zero in on marketing successes, product and service issues, and how people are feeling about unique campaigns around the world. They use Hootsuite to track as many types of hashtags about their company as possible and reach out to consumers on an individual level, talking with them, not at them.

UPS

The shipping company created a Customer Communications team to focus on, “Daily content and managing brand communications and reputation.” This team corresponds directly with a social customer service representative team, which reports to the overlying Social/Digital team. The Social/Digital team is more concerned with metrics and strategy. In terms of metrics, they measure the following:

  •         Conversation sentiment
  •         Engagement
  •         Organic audience growth
  •         Pull-through on Calls to Action

Their social customer service representatives work on responding to customer issues as quickly as possible. They get the most customer service inquiries on Twitter, then Facebook. They use social media to, “Serve as a barometer for customer concerns or business opportunities.” UPS’ efforts are an example of compartmentalizing different aspects of the social strategy, but integrating each team with the other.

Southwest Airlines

Southwest Airlines just landed on the list of Fortunes’ Top 50 Most Admired Companies. One reason is the companies’ practically legendary social media presence. Southwest’s “best practices” for social customer service include:

  •         Consistent engagement
  •         Timely action
  •         Genuine brand response

Southwest recently created a Listening Center, which they use to solve service issues, share information about their brand, and provide “one-contact resolution” to customers—which reflects their emphasis on personalization—they have teams devoted to each network and encourage flight attendants to post on social media when they find out about a customer’s special occasion.

As a take-home, here are five essential metrics to track:

  •         Engagement rate – amount of interest in a piece of content, divided by number of fans/followers
  •         Share of voice – your mentions vs those of a competitor
  •         Response time – amount of time it takes to respond to a query
  •         Response rate – percentage you responded to mentions
  •         Clicks – number of clicks

Any customer relationship management software can help you track these metrics. And ultimately, your social media campaign will benefit the more you listen.

 

Daniel_Matthewscropped_150x150Daniel Matthews is a freelance writer and musician from Boise, Idaho. In 2006, he earned his Bachelor’s Degree in English with a Creative Writing Emphasis from Boise State University. Throughout his twenties, Daniel worked as a Psychosocial Rehabilitation Specialist, a marketer, and a server. Last year he took the plunge and became a full-time writer. Daniel believes one of the most important, if not the most important aspect of modern business is the understanding and appreciate of diverse cultures. Please find him on Twitter.