Customer acquisition cost (CAC) is often considered one of the golden metrics that startups focus on in their early growth stage.
Unless you are sitting on a cushion of a large funding round, you have to be very careful of your CAC. A sharp increase in CAC can disrupt the entire growth modelling for your startups.
While scouring the internet looking for some advice that primarily talks about this issue in the world of startups I could not find anything. So I decided to share 5 ways you can combat rising customer acquisition cost in any industry.
My goal is to share when to apply each of these 5 strategies and why you should not go in panic mode when CAC is high especially when your startup is in growth stage trying to scale revenue.
With rising advertising costs across all platforms, I hope that you will find these tips quite helpful as a growth marketer or an entrepreneur.
#1 Focus more on cold prospecting as a channel to acquire customers
No cold prospecting is not dead. It will never ever be dead. It’s just not as good as buying leads for some industries and sometime it requires following tedious repetitive process like calling and following a script. In the end it’s a numbers game.
These days LinkedIn is one of the best places where you can connect and start a conversation with your prospects.
The challenge that we marketers are facing when it comes to cold prospecting is personalizing our approach for each and every prospect that we reach out to.
There are lots of great out to personalize cold outreach out there. For example you can use Synthesia to generate personalized video messages fro your prospect and attach them to your emails or messages.
However, before trying to figure out a personalization software, conduct an internal audit of how many people you want to reach out with personalized messaging. If the number is less than 500 a month, I highly suggest going with the manual route of research and personalize based on templates.
If your company is doing LinkedIn outreach to top CEO’s in the tech space, its best that you do a thorough research and send a message that is highly personalized and relevant. Put yourself on video if you have to and talk to them.
Anyways, there are lots of personalization strategies out there and I want to refocus on the fact that you need to kickstart this as a channel for your startup if you want to get your CAC down.
Our favourite cold prospecting softwares
#2 Improve marketing metrics from paid funnel acquisitions
When talking about CAC (customer acquisition cost) it’s likely that you are running some kind of a paid ads to acquire customers.
One strategy for improving your CAC is to take a look at your current paid campaigns across all channels.
Tip 1 : Improve Or Update Ad Creative
Start with your creatives, see if you can add new creatives to improve the click through rate.
Sometimes you will notice that the cost has gone up because you are showing the same creatives to the same target audience over and over again. This leads to something called ad-fatigue.
Refresh your creatives but more importantly make sure you are taking advantage of new placement categories that social media sites like Facebook and Instagram are constantly adding. Let’s say you have a video but it’s not supported on Instagram reels. That means you need to create a version of that ad creative that shows up on Instagram Reels or is optimized for it.
Tip 2: Landing Page A/B Testing & Personalization
The next area to focus on is to improve your landing page conversion rate. A slight increase in the overall landing page conversion rate will allow you to acquire leads at a lower cost.
While this topic is so board that you can literally write a book about it I will go over some of the basic steps you should implement to improve conversion rate.
- start by a/b testing another variant with better messaging on top
- test CTA copy. For example on the button test “book my demo” vs “show me how”
- test different colours on background and CTA
- Optimize landing page for mobile
#3 Invest in more closers who can improve the overall close rate of qualified leads leading to lower customer acquisition cost (CAC)
One major piece of the CAC puzzle is the performance of your sales team. No matter how good your marketing, when the sales team fail to maintain a decent close ratio your overall CAC will go up.
Few Key Performance Indicators To Monitor Inside Your Startup
- Sales team close ratio on SQL (Sales qualified leads)
- Sales team close ratio on demo completes
- How many touch points each sales rep is spending on towards a lead. If the number is low and you see the reps are full this means you are generating more leads than the team capacity thereby increasing CAC.
- What percentage of leads never ever talk to a sales rep or completes a demo. If the number is higher than 20% this means that your team needs to work on the follow up Cadance.
Create live dashboards on all these metrics and ask your sales leaders to monitor them.
Another key area to look for is which marketing campaign is generating a lower CAC. Once you identify them listen to the calls or try to understand why. If it’s possible to scale that campaign go do it. In that way your overall company CAC for new customers will be lower.
Sales Team Benchmark For B2B SaaS
- Overall close ratio from marketing generated leads MQL should be over 7% (good). If its more than 12% (excellent).
- Overall close ratio for sales qualified leads should be 1 in 10 or less. This means if your sales team get 10 sales qualified lead they should get a deal. 1 in 7 to 5 is excellent. If your team is closing 1 in 3 SQL your CAC should not be an issue.
- Demo show rate should range from 50% (minimum) to 85% or higher.
- Every B2B qualified lead should have 7 to 10 touch points till you give up on a demo. If your team has more than 14 touch points it’s even better.
These are some very general numbers we are sharing. Obviously this is not specific to any industry and I am sure the numbers will be a bit different depending on the industry we are going after.
#4 Double down on building your database & closing using email marketing + database outreach
Imagine that you are a startup and you are running a straight up book a demo funnel on Facebook. You get leads that are interested but your cost per lead for your target audience is astronomically high.
So, the overall CAC gets affected and it stays high. Even with various bottom of the funnel optimizations when you don’t see a decent drop in CAC its time to switch up and how you are generating leads in your funnel.
In most cases when you have exhausted a bottom of the funnel “book a demo approach” you should diversify into more top of the funnel approach towards the same target audience.
Top of the funnel approach involves giving something of value to get their information.
Once they are part of your inbound marketing database start engaging them with email marketing and other cost effective forms of engagement to convert some of them into demo ready leads for your sales team.
#5 Raise your product price if possible (if you don’t go for an investment round)
Last but not the least once you have tried everything and you realize that the CAC is simply too high because of rising customer acquisition cost you can always raise the product price.
Doing so, will ensure that your ACV (Average contract value) is more allowing you a better margin on customer acquisition. While this strategy is directly not related to reducing CAC, what this does is it gives you room for growth.
If your average deal size increases it will allow you to absorb a higher CAC from your marketing efforts if you are bootstrapped. This is useful for a lot of early stage startups that accept payments upfront allowing them to use the CAC to pay for their marketing spend.
Rising CAC is a challenge all companies face during their growth stage. From our experience I think you have to deploy a combination of all of the strategies mentioned above to combat it and keep growing your startup.
If I missed something that you think will contribute to a lower CAC, feel free to share in the comments below. Happy to discuss.