High customer acquisition cost (CAC) tops the list of challenges that D2C brands face. Targeted social, paid search, and mass multi-channel marketing will only work to a certain extent. But, this approach will not reduce CACs. Instead, we have now reached a stage where CAC is often greater than Customer Lifetime Value (CLTV). This essentially means that the amount a customer spends with a D2C brand is far less than the cost incurred in acquiring them. Those are alarming waters to enter and navigate.
How do D2C brands keep customer acquisition costs as low as possible in such a scenario?
What needs to change in a market where we know retaining is 7x cheaper, yet 44% of the companies focus on customer acquisition and only 18% on retention ? What are the top strategies to adopt? In this article, we will discuss the basics of CAC and 5 tips on how you can keep CAC under check.
- What is the customer acquisition cost (CAC) ?
- Can marketing automation reduce CAC ?
- How can D2C ecommerce brands keep CAC as low as possible ?
- Provide a seamless onboarding experience
- Recover lost sales by reducing cart abandonment
- Cross-sell to increase average order value (AOV)
- Predict and prevent customer churn
- Keep acting on customer feedback
What is the customer acquisition cost (CAC) ?
Customer Acquisition Cost (CAC) is the best approximation of the total cost that brands incur in acquiring a new customer—generating the lead and then converting that lead. This is a measure of how expensive or inexpensive it is to acquire a new paying customer. Marketing spends would include all expenses incurred on paid search, digital advertising, channel-specific campaigns, etc. D2C ecommerce brands must constantly compare this metric to the Customer Lifetime Value (CLTV) to ensure that CACs don’t outstrip the CLTV.
Customer Acquisition Cost (CAC)=Total Marketing Spends/Total Number of New Customers
Can marketing automation reduce CAC ?
Before we dive deep into the actionable strategies to reduce your CAC, there’s something we need to discuss—marketing automation.
Marketing automation has the potential to reduce customer acquisition costs. It takes the burden off the marketer’s shoulders by automating repetitive tasks, and saves costs. It also nurtures prospects and converts them into loyal customers.
For example, if a customer visited your website more than a week ago, with marketing automation, an automatic email saying “we miss you, here’s what’s new” can be sent to the customer. Or, if a customer has abandoned the cart, an email reminding them to make the purchase and highlighting the discounts on those products can be sent. Imagine performing these actions manually for each customer—it’s impossible.
But marketing automation alone isn’t enough. Suppose your campaigns are not optimized or humanized such that they are not hyper-personalized, relevant, or rooted in rich and intensive data extracted using AI-led insights. In that case, marketing automation won’t work. Marketing automation alone doesn’t manage customer experience and engagement, and that’s precisely why you need a platform to manage customer experience and engagement and reduce high costs.
How can D2C ecommerce brands keep CAC as low as possible ?
It’s time to look at five ways D2C ecommerce brands can reduce customer acquisition costs –
1. Provide a seamless onboarding experience
Onboarding plays a massive role in deciding whether a user will return to the app or not. About 66% of users do not return to the app after a week of installing the application adding to the acquisition cost. The top reasons users never return are poor first-time experience, high time-to-value, lack of guided navigation, and intrusive pop-ups.
So how can brands leverage seamless onboarding to engage and retain users?
- Encourage customers to create their accounts by integrating the quick login feature in your app or website to make it easier for the customers to sign-up with their Google, Facebook, and Apple accounts.
- Speed up user activation by quickly guiding them to the “aha” moment—the value proposition they are seeking. Achieve this using walkthroughs and smart nudges to highlight the features and next best action that will add the most value to the customer.
Showcase AI-led personalized product recommendations on the home page based on readily available data—geolocation, device type, etc., to overcome the cold start challenge, which deters the system from recommending personalized products until the algorithm has warmed up to the user.
Nykaa, for example, has an excellent user onboarding flow. It features an appealing welcome screen, keeps the login process simple, and shows relevant offers, deals, and discounts to keep the conversion path short. Nykaa also leverages contextual nudges and walkthroughs to provide adequate guidance to users and help them complete the key activities on the app. Download the success story here.
2. Recover lost sales by reducing cart abandonment
Adopting a cart abandonment strategy is one of the most effective ways to retain customers and decrease your acquisition cost. Compared to traditional marketing messaging, cart abandonment emails have more than a 10% conversion rate.
- With personalized and contextual cart abandonment emails, update customers on items in their wishlist, cart, or relevant products back in stock. Let customers know if those items are selling out quickly or if their prices have dropped to encourage them to take action.
- Strategically incentivize the customers in your cart abandonment emails to complete the transaction by including discount offers or perks.
- Deliver 1:1 product recommendations across high conversion channels such as email and app push notifications to prevent drop-offs.
- Sending the email a couple of hours after the abandonment. Sending it too soon will feel like an imposition, while too late will reduce the impact of the email.
- Leverage smart automation to optimize the send time and subject lines as per historical performance to maximize the ROI.
- Furthermore, leverage intelligent segmentation and smart automation to target different users with personalized campaigns depending on their journey, cart value, preference, customer loyalty, etc.
ASOS, for example, has set up an incredible automated email marketing strategy with enticing cart abandonment templates. Hyper-personalized cart abandonment email with relevant content plus CTA to clearly remind their customers to complete the order are automatically triggered if the customer doesn’t complete the transaction. The brand’s emails offer additional details about free shipping and easy returns, incentivizing the customers to checkout and creating a sense of urgency to purchase while the product is available.
3. Cross-sell to increase average order value (AOV)
Customer retention is 7X cheaper than customer acquisition. It is also evidently easier to retain an engaged customer than to acquire, engage, and convert a new one. And cross-selling is an excellent way to retain your best customers. Cross-selling also helps you establish a strong bond with your customer, which increases customer loyalty and CLV.
- Identify your most valuable customers by analyzing customer lifetime value and revenue data. And cross-sell relevant products brought together to increase AOV. Cross-selling helps you increase the value of your existing customers brings down the customer acquisition cost.
- Leverage contextual nudges to highlight other categories of items the customer might be interested in. Use a series of nudges to cross-sell on the cart page itself. Showcase an initial cross-sell nudge that incentivizes the user to add the product to the cart, such as “Add this item to get free shipping!” Keep users engaged on the cart page and display the product details in a successive nudge.
- Capitalize on high-intent moments across the user journey—cross-sell on the cart page displaying nudges with additional items that pair well with cart items.
- Your best customers are the ones who keep coming back to you. Ring-fence them with contextual and personalized multi-channel campaigns to keep them engaged.
Crocs, for example, intended to overcome low customer retention, engagement, and customer lifetime value. What worked? Using automated triggered campaigns to engage customers across multiple channels. And deploying an AI engine to understand customers in real-time and show them personalized recommendations. The result? 42X marketing ROI, 33% contribution to total revenue through customer engagement, and 11.3% contribution to total products purchased through personalization.
4. Predict and prevent customer churn
There is no denying that customer churn rate is also one of the top reasons for high customer acquisition costs. A high churn rate means that even though the brand is continuously acquiring new customers, it’s unable to retain them for a long time.
So how do you predict and arrest churn rate proactively—in real-time?
- Arrest churn rate in a preventive manner rather than being reactive. Use AI to predict what your customers are likely to do, even before they think of it. The first step is to define the frequency at which your users launch your app.
- Analyze insights such as in-app interactions, time spent on each app screen, live app performance of each user in every session, and the stage in the user journey—in which a user uninstalled your app. And use this data to segment users into most likely to churn, fair likely to churn, and less likely to churn.
- Based on these predictions, identify the segment you want to target and the most relevant channel to re-engage your targeted users. Craft and deliver effective multi-channel re-engagement campaigns to prevent churn in real-time. For example, depending on the user’s search history, send personalized product recommendations with discount offers on emails or push notifications to bring users back to your D2C ecommerce platform.
- Lastly, track your churn management performance by analyzing the number of users you prevented from churning and those who weren’t targeted with your campaigns and didn’t use your app.
All of this will help you prevent your most at-risk users from churning and thereby bring down your customer acquisition cost.
5. Keep acting on customer feedback
Your loyal customers are your biggest advocates and can bring in more customers through word-of-mouth, referrals, etc. Acting on customer feedback makes your customers feel heard and deeply understood, increases their loyalty, and eventually turns them into your brand’s advocates. This can significantly reduce your customer acquisition costs.
- Start with rewarding your loyal shoppers with personalized offers or discount codes while encouraging them to refer your platform to others.
- Ask your users to rate your app and give feedback when they’re delighted—on completion of the purchase journey.
- Leverage open text feedback nudge at different moments in the user journey to gather qualitative feedback. Or give users a few choices when asking for feedback. For example, when users browse on-sale products, give them multiple options and ask which product they like the most.
- Use NPS surveys to identify friction points and improve on them. Trigger open text feedback or discount offers for low NPS scores.
Act on all the gathered feedback to arrest churn, increase engagement and retention, and bring down your customer acquisition cost.
The best way for D2C ecommerce brands to keep customer acquisition costs as low as possible is to focus on retaining users from Day 0, quickly guiding the users to the product’s value, engaging them with contextual and personalized content and messaging, preventing user churn, incentivizing loyal customers to bring in more customers, leveraging smart automation, and making the best use of AI-led insights.
These ways have proven to increase engagement and retention and reduce customer acquisition costs, time and again. Netcore has helped several brands in the past, and its customer engagement and experience platform is known to improve personalization strategies, product experience, customer engagement, and customer retention.
Read our blog to find out the best personalization strategies for your D2C ecommerce store in 2022.