Customer Acquisition Cost

The cost of getting a new customer is referred to as customer acquisition cost. CAC has
becoming more popular as companies use web analytics to make data-driven decisions.
When companies invest in developing their audience, they can measure their CAC to see if
they're getting their money's worth.

Formula:
Customer acquisition cost = sales and marketing expense/ number of new customers.
Here, sales and marketing expenses include advertising and marketing spend, commissions
and incentives paid, salaries of marketers and sales managers, and overhead costs
associated with sales and marketing.

Importance:
 Improving return on investment - When calculating ROI, it's critical to know how
much it costs to gain new customers. A corporation can find the most cost-effective
strategy to attract customers by using CAC. For e.g., if social media has the lowest
acquisition cost and poster has the highest. If this information is offered to a firm, it
may decide to increase its use of social media marketing to attract more customers.
 Improving profitability and profit margin - Understanding a company's CAC allows it
to completely examine its value per client and increase its profit margins. For e.g., if
the value of each customer to the company is $30 and CAC for social media is $5 and
for poster is $50, then company must go with social media as its CAC is lower than
value per customer.

How to reduce CAC:

 Improve lead conversion rate: One should find strategies to make your landing pages
more interesting and include live chats to make client interactions better which will
result in more conversions. Google analytics will be helpful.
 Know who your customers are: Knowing what your customers want and need will
help you build a product that they will enjoy. Data can be collected from survey,
emails, customer retention rates, feedbacks and reviews.
 CRM: It may assist you in keeping track of new customers, their progress through the
sales funnel, the amount of money they spend, when and where they buy, loyalty
programmes, and more.

Conversion Cost
The entire cost of an advertisement in relation to its success in reaching its purpose is
referred to as conversion costs.

Formula:
Conversion cost = Total cost of the campaign/ number of conversions.
Importance:
 To ensure that your campaigns are profitable - The cost per conversion is used to
determine how much you spend on each conversion. After that, you compare it to
your average convert sales. If your cost per conversion is less than your sales per
conversion, great. If it is more, then you want to rethink the marketing campaign in
question.
 Decide Which Campaign to Focus On - You can then use that information to decide if
you should allocate more or less of your marketing budget to the campaign.
 Choose which campaigns you want to improve - Once you've calculated conversion
costs, you may utilise the data to determine which initiatives require additional
attention.
 Confirm Changes to Campaigns Save Money - Once you've made modifications to
your campaigns, you may use conversion costs to see if they were successful. When
you make adjustments to your campaign, the cost per convert should ideally
decrease.

How to reduce conversion cost:

 Refresh your messaging: Make sure your ad copy is clear and engaging. Keep putting
new messages in front of your audience to see what works. Make sure to include
these action words in your ad copy. It will also improve your conversion rate while
lowering your conversion cost.
 Review landing pages: Check all landing pages on regular basis. Make a few
adjustments as needed. Consider directing additional traffic to your best-performing
landing page.
 Pause All Your Non-Converting Keywords: Examining your keywords can assist you in
making necessary improvements. Then you can try fresh keywords to see if they
perform better.
 Negative Keywords Should Be Used: Negative keywords are an important part of any
PPC strategy. Negative keywords make your ads more targeted. Targeted ads will
also help you save money on conversions.
 Examine the timing of your advertisements: You won't always obtain the same
number of conversions. You must also determine when conversions are most likely
to occur. Then you can select to just run your adverts within certain hours. A well-
targeted campaign will almost certainly boost your conversion rate. Furthermore, a
higher conversion rate lowers conversion cost.