In a business environment that is as competitive as today, managing costs is central to growth. One of the most important financial metrics for any business is Cost of Customer Acquisition (COCA) since it helps determine how much is spent to onboard a new customer. Along with COCA, understanding the Lifetime Value of Customer (LTVC) is important for long term profitability tracking. In this report, we will detail these important metrics and outline a plan to ensure COCA is reduced while allowing the business to continue to grow.

What is Cost of Customer Acquisition (COCA)?

Cost of Customer Acquisition (COCA) indicates on what is spent to acquire a single customer. It is the sum of all sales and marketing expenses such as advertising, salary, promotions, operational cost etc. divided by the total number of customers acquired in that period.

Formula:

COCA = Total Cost (Sales Cost + Marketing Cost) ÷ Customers Acquired

Let’s say a company spends Rupees 1,00,000 to acquire 10 Customers, the COCA ends up being Rupees 10,000 per customer.

Grasping COCA is important as it allows companies to assess the effectiveness of their marketing and selling efforts. Too much COCA in comparison to the customer’s revenue means that the business might be losing a lot of money in the future.

What is Lifetime Value of Customer, COCA (LTVC)?

Repeat transactions have helped some customers build goodwill and relationships with select businesses. Hence, the LTVC is defined as the total revenue a customer is expected to yield to business during the whole span of the business-customer relationship. LTVC allows the business to determine how much they can afford to pay toward new customers and still setup a profit margin.

Formula:

LTVC = Total Transactions × Cost per Transaction

For example, if a client purchases for R 8000 10 times a year. Their LTVC would be R 80000.

Strategies for COCA include specialization of services to maximize efficiency that leads to increased return from a customer’s expenses. Meaning, it helps a company understand customers that bring worth to results. Reducing COCA also helps cut excess marketing costs. Businesses value loyal long-term customers in hopes that low cost per acquisition will help paid advertisements lead more customers to them. High spending with little return in investment looks challenging but often once a reasonable LTVC is offered the return becomes clearer.

10 Ways to Lower COCA

Reducing COCA is crucial in increasing profit margins and staying competitive in the industry. Below are 10 practical measures businesses can take to lower cost of acquiring customers.

1. Automate Using Technology

Automated systems such as CRM, chatbots, auto-dialers, email marketing, and push notifications serve as technology solutions that aid in facilitating customer acquisition.

Automated systems reduce human resource requirement and increase the value of marketing and sales productivity. Furthermore, automation allows businesses to get valuable information from reports and analytics so they can make changes in their strategies.

2. Utilize Digital Marketing

As compared to traditional marketing techniques, digital marketing is almost always cheaper. Make use of Facebook, LinkedIn, and Instagram for targeted advertising, emails, and automatic website conversions.

Video content, such as FAQ videos, can prove beneficial in helping customers understand the product or service, thereby reducing the need for a strenuous sales process.

3. Use Training Strategies to Increase Conversion Rate

Equipping sales teams with knowledge through dedicated training programs can increase their chances of converting leads to sales. By supplying them with product knowledge and selling techniques, they greatly increase their chances of closing the deal.

If sales personnel are trained properly, they are more likely to turn leads into customers, thus lowering the cost of acquiring new customers (COCA).

4. Boost Customer Engagement

An effective way to get repeat business is to ensure the word spreads about the product or service offered; this can be done by providing an amazing user experience.

Loyalty will be encouraged as the customers feel they are being offered real value, and in the long run, this will reduce the costs incurred to gain new customers.

5. Focus on Customer Retention

Managing someone’s expectations during the servicing of the customer in the acquisition phase is just as important. Improved satisfaction results when a dedicated customer service team directly addresses customer issues and feedback.

Maintaining long lasting relationships becomes easier with customer retention, thus eliminating the problems associated with acquiring new customers.

6. Use of Reviews

Utilize customer video testimonials to enhance credibility and capture more leads by displaying them on landing pages, social networks, and messaging apps.

Creating satisfied customers and using them to refer others reduces cost of customer acquisition and surprisingly builds brand ambassadors using word-of-mouth.

7. Keep your Eyes on The Market Niche

Implement the Pareto principle by giving most of the attention to the 20% of your customers who contribute to 80% of your revenue.

Make efforts and spend the marketing budget on existing customers and similar potential buyers who are likely to purchase, as opposed to the other less engaged customers.

8. Form Strategic Partnerships

Building strategic relationships with channel crossover partners, consultants, and franchisees can drastically lessen operational and marketing expenditures. By utilizing the network and resources of partners businesses can reach new customers and even lower the acquisition cost.

9. 10x Your Content Marketing:

Enhance efforts to quickly reach potential customers. Using infographics, WhatsApp campaigns, or targeted Facebook ads can also help retarget previous customers and increase their interest. Engaging potential customers through content marketing at different phases of the buyer’s journey ensures a proactive selling strategy which decreases costs in the long run.

10. Test, Analyze, Change, Retest:

Incorporate the never-ending cycle of improvement into your marketing activities: Test, Analyze, Change, Retest Implementing a marketing campaign is not the end goal. Continuously testing and analyzing new strategies, modifying them based on results helps build refine marketing campaigns and increase customer acquisition rate. Massive Action Plan for Reducing COCA In order to reduce COCA and in turn increase profitability, businesses must:

Calculate COCA:

The first step is calculating the Cost Of Customer Acquisition using the prescribed method.

Calculate LTVC:

To understand how much revenue can each customer bring in, calculate Lifespan Value of Customer. Implement The 10 Steps: Use all the steps highlighted above to enhance customer acquisition strategies and reduce COCA.

A business can optimize the value received from customers and significantly reduce the COCA by focusing on automation, digital marketing, and the customer experience. This will lead to more sustainable and profitable business models as customers will stay longer and continue to bring value.

Takeaway

Acquiring a new customer has cost which, if reduced, improves the sustainability of the business. Simple user interface design changes coupled with technology utilization and digital marketing can expedite customer acquisition for a much lower cost per customer. Additionally, focusing on retention, strategic partnerships, and content marketing optimization ensures long-term success and profitability for the business.