How to Improve Your Customer Acquisition Cost (CAC) and Drive Long-Term ROI
Increasing your profits isn’t the only way to drive your business’s return on investment (ROI).
Many businesses become distracted with expanding profit, hindering their capabilities for long-term growth. If you’re not actively reviewing your customer acquisition cost (CAC) and customer lifetime value (CLV) for opportunities, your inside sales team is leaving money on the table.
Improving your CAC doesn’t just lead to lower expenses; it can also present more effective ways to reallocate spending and improve customer experience. Better customer experience and a robust retention strategy substantially impact CLV, which leads to higher profits down the road, too.
Here are five tips you can use today to reduce your CAC and strengthen ROI over time.
1. Start with the Right Numbers – How to Calculate CAC, ROI & CLV
Before you dive into improving your CAC, it helps to benchmark your progress by noting your current CAC, ROI, and CLV numbers first.
Some businesses make the mistake of only looking at ROI when considering inside sales performance. While a high ROI rate does show your renewal strategy and marketing efforts, there are always opportunities for improvement.
It’s tough to optimize your performance without precise measurement of success, which is why we suggest reviewing CAC and CLV, too. These three numbers together hold the key to strengthening your inside sales performance and driving long-term growth.
There’s a good chance you, your CFO, or someone on your team already calculates these numbers regularly. However, it helps to have your team’s numbers in front of you before you start shifting any type of strategy to make the most informed decisions. If the numbers look slightly off, here’s a refresher on the formulas you need to ensure their accuracy.
- CAC: # of new customers / sales and marketing expenses = CAC
- ROI: profit / investment * 100 = ROI
- CLV: the average order total * average number of purchases in a year * average retention time in months/years = CLV
2. Align Your Marketing and Sales Messaging to Reduce CAC
One of the best ways to reduce your CAC is by attracting more qualified leads. Improving your sales and marketing messaging can play a significant role in the quality of leads that enter your pipeline.
Your inside sales team and business development representatives (BDRs) often have unique insight into your customers’ pain points. By targeting pain points using customer language, you can draw in leads who better understand your value and already know they need your product or service.
Schedule regular meetings with your sales, business development, and content teams to align on messaging. From there, continue iterating on your messaging with A/B testing.
Closely measure the changes you make against your CAC. For example, while a content change may draw more visitors to schedule a call, it could simultaneously attract buyers who can’t afford your services.
Designing cost-effective marketing campaigns don’t happen overnight. Even a tiny shift in CAC is a step in the right direction, so keep testing to improve your current messaging, strengthen your funnel, and acquire more customers for less money.
3. Improve Your Sales Funnel
Leaks in your sales funnel and pipeline processes may be stalling your team, leading to higher CACs.
The six-step sales funnel offers tons of opportunities for optimization. Consider how your team moves each customer through the funnel and examine what resources could help educate and guide your prospects to close faster.
You can find ways to improve CAC throughout your eight-step pipeline, too. One way is to leverage virtual selling and inside sales teams for lower-tiered customers. Speeding up the sales process with fewer in-person meetings can make a substantial dent in CAC.
Another method is to design processes that record customer communication more closely. Recording every customer interaction helps expose any weaknesses in your pipeline. For example, reps may not be offering upsell opportunities while negotiating the terms of a deal or following up with cross-selling opportunities after delivery.
Tracking weak spots like these in your funnel or pipeline can be challenging without the right resources. That’s where sales tools come in.
4. Use Sales Tools
Having a customer relationship management (CRM) or sales enablement software won’t directly lower CAC, however, they can reveal many opportunities for improvement for your team. These solutions will help you scale cross-team collaboration, automate manual tasks, improve your current processes, and efficiently qualify leads.
Sales tools like SalesForce and Gainsight can offer valuable insights on where you can improve leaks in your pipeline and streamlines customer communication tracking. It also allows sales/marketing team to be more effective and efficient (I.E., more time spent selling vs. administrative work).
Even if the upfront costs of tools seem high, the long-term benefits are clear. Make sure you’re employing best practices that support your sales methodology to reduce CAC and boost ROI.
5. Improve Your Customer Retention Rate
Maintaining excellent relationships with prospects and existing customers pays for itself, so it’s crucial to incentivize exceptional customer service throughout the funnel. After all, you already paid to acquire that customer; retaining customers is the ultimate way to improve CLV and increase ROI consistently.
On average, repeat customers spend 67% more in the third year working with a company than they do in the first or second year. Continue building the relationship with customer success strategies, like feedback loops, multi-year contracts, and loyalty or referral programs.
Customer education programs can strengthen your retention rate, too. Raving customers who see the value of your product or service can play a big role in referrals, offering new customers at a much lower CAC. Look beyond profit-driving activities to see all the opportunities your current customers can provide for higher ROI.
Start Driving ROI with Lower Sales Costs
There’s no need to tighten your belt to drive ROI. Lowering your CAC costs is an easy way to see higher ROI without making more sales. However, without the right resources and support, improving your CAC can seem challenging.
Acquiring more customers for less money doesn’t have to be a pipe dream.