How do brands lower their Customer Acquisition Cost (CAC) in 2022?
According to a report by Marketing Dive, cost of conversion for eCommerce marketers increased a significant 200% in 2021. With the iOS 14 update reversing IDFA (Identifier for Advertisers) and narrowing down the amount of users that have consented to being targeted by marketers, in addition to a heightened competition for ad placements, the cost of acquiring customers is likely to continue to head in an upward direction.
As these rising CAC’s impact brand scalability across verticals, Shopify merchants are searching for new ways to reduce customer acquisition costs through their eCommerce experience and paid media efforts. In this article featuring advice from our VP of Media, Jessica Dawson, and our DTC Strategist, Kristen Stanise, we’re offering industry-leading advice on customer acquisition strategy and increasing conversion rates in a competitive environment.
What is CAC and What Does It Mean to Successful Brands?
For reference, CAC can be calculated by dividing the total cost of marketing and sales by the number of customers acquired over a specific period of time.
Formula provided by Shopify.
And why is CAC a key factor for successful brands? According to Hubspot, “Successful companies are aiming to constantly reduce the cost of customer acquisition — not just to recoup revenue, but because it’s a sign of the health of your sales, marketing, and customer service programs.”
Why is Customer Acquisition Strategy Important?
Acquisition is crucial for every growing business — but the cost of acquiring a new customer is what sets apart the scalable business models from the not-so-profitable.
Additionally, because of its connection to scalability, CAC is a go-to metric for potential investors. A quick note on profitability: CAC is often compared to CLTV (Customer Lifetime Value) and a 3:1 CLTV to CAC ratio has been declared the minimum for a successful model according to reputable sources such as daasity.
Tips for Reducing Customer Acquisition Costs (CAC) for Shopify Users
So, how do you reduce CAC, even in a market like today’s? Similarly to many other metrics, CAC is a living, breathing and ever-changing KPI that is a direct result of both your marketing and eCommerce efforts. In this article, we’re declassifying some industry insider tips on both of these key contributors.
Performance Media Tips for Lowering CAC
Leveraging media and performance marketing channels to their fullest potential is one of the most crucial keys to unlocking lower customer acquisition costs.
1) Ensure target audiences are set up properly within media channels. Traffic quality is essential to reducing Cost Per Acquisition (CPA). Expanding relevant audience reach through Shopify’s new user targeting capabilities via Shopify Audiences, is a great addition to that strategy.
2) Have a solid segmentation approach across all user acquisition channels. Without the right segmentation and audience suppression strategies, using pixel-based and CRM data sets, you will have inefficient spend, sub-par insights, and poor user experiences. Set a standard for your approach and implement that standard consistently across all channels.
3) Deliver relevant creative that is segmented by audiences. A digital ad’s creative and copy should be very similar to that of its landing page in order to set the right consumer expectations and ensure a consistent user experience. Utilizing dynamic product feed ad types for both retargeting and prospecting objectives with Shopify’s capabilities is an effective way to serve very relevant creative to users with a seamless path to purchase.
4) Have as few steps to purchase as possible. The easier and quicker it is for a user to check out, the more likely they are to purchase
5) Data is crucial; QA all tracking pixels to ensure the data you are making assumptions with is accurate. Double-counting, pixel issues, or the wrong attribution approach will lead to inefficient acquisition.
6) A/B test creative to determine what receives the most clicks/conversions. Testing creative side by side to compare which received the lower CAC and then iterating is a highly recommended optimization tactic.
On-Site Tips for Decreasing Customer Acquisition Costs and Increasing Conversion on Shopify
Once you’ve got more qualified traffic, you’re continuously testing creative, and everything is tracking, it’s going to be up to website experience to seal the deal.
1) Landing page experience is critical. Ensure your ads are sending a relevant landing page experience to the content they’ve just been attracted to (similar messaging, imagery, offerings). Also, think about the type or segment of customer landing on this page. Should this page have educational content, in addition to shopping? How can you lead your customer down the funnel once you’ve got their click?
2) Don’t let User Experience (UX) make your ad dollars a waste. A user’s frustration with your website experience can be flushing your ad dollars down the drain. 88% of online consumers are less likely to return to a site after a bad experience. Whereas, a smooth experience leads to conversion and loyalty. Factors like load time, mobile compatibility, or complex shopping journeys can lead to high bounce rates and a lost opportunity.
3) Build brand trust through Unique Value Proposition (UVP) strategies. Unique value for your user can range from anything such as free shipping + returns, customer satisfaction guarantee, or sustainable values. On-site, brands should be implementing integrations such as Yotpo reviews, testimonials, and UGC to build social proof and earn the trust of new users. A brand’s eCommerce website should also clearly showcase their mission, story, and champion their core values.
4) Have as few steps to purchase as possible with payment + checkout optimization and accessibility. This can be achieved in a number of ways, even prior to checkout. Consider developing a quick-add functionality that allows users to add-to-cart from the PLP page, or skip the cart page all together and utilize a drawer cart functionality that will take a user straight to checkout.
5) Implement Shopify’s express checkout functionality. Provide accelerated one-click pay options like Shop Pay, Apple Pay, Google Pay and others.
6) Partner up with a Buy-Now-Pay-Later (BNPL) technology such as Shop Pay Installments, Afterpay, QuadPay, or Sezzle. During uncertain financial or socioeconomic times, offering a BNPL makes your brand more accessible to a wider range of users and can give you an advantage against competitors.
7) Customer service through chat bots, Gorgias, Zendesk, or FAQ. Having resources available for customers who land on your website that require additional information before purchase can increase conversion, loyalty, and reduce buyer’s remorse. 83% of consumers cite good customer service as the most important factor—outside of price and product—when deciding what to buy. And if provided with great service, 62% of customers will recommend a brand to a friend (and thus reducing CAC on multiple fronts)!
8) Generate leads on-site. Lead generation tactics on your website can help reduce CAC in the long run, as this first-party data is becoming more and more important for brands utilizing digital advertising. Email address and SMS capture pop-up and footer forms on your site can be leveraged in optimizing your targeting efforts.
9) Promote a Referral Program. Tying back to customer service, a good experience can lead to your existing customers becoming brand advocates. Implementing a referral program is a great way to get new leads from existing customers to lower your CAC. That’s because consumers referred by a friend are 4x more likely to buy.
Bonus Tip: For brands who also sell in retail stores, utilize omnichannel technology to convert those who may not have bought otherwise.
Brands selling direct-to-consumer and at retail might also want to consider omnichannel tools like Hyphen, a media solution owned by The Stable, as their secret weapon to optimize their media and acquire new customers. For example, if a customer would rather pick up a product in-store than wait for it to ship after purchasing online, this tool is the answer (and the converting factor!).
What makes this solution truly unique is its ability to use first-party data, collected on a DTC website (through a pixel) or in Hyphen directly, to retarget shoppers and create lookalike audiences with high intent purchase rates. Additionally, to help brands eliminate media waste for good, Hyphen recently launched TrueStock. This new feature uses product inventory to automate ad management, optimize media campaigns, and conquest out-of-stock competitors 24/7.
How does it accomplish this, do you ask? TrueStock dynamically adjusts media bids based on inventory levels so brands never waste precious dollars leading customers to out-of-stock pages. Using the same logic, TrueStock can also detect when your competitors are out-of-stock and target their customers to help you acquire new customers at a lower cost.
Work With eCommerce Strategy Experts
Now that you’re equipped with the knowledge to create a more cost effective customer acquisition strategy, how can you start executing and scaling your business?
Our DTC Strategy and Digital Marketing teams are ready to help you develop and support every piece of your customer acquisition strategy, along with optimizing your current eCommerce experience for conversion. Contact us today to learn more about our Shopify website retainer service options.