Customer Acquisition: Optimize Your Strategy, Funnel & Costs

What is customer acquisition?

Customer acquisition is the process of attracting and converting new customers to a business. It involves identifying a target audience, reaching out to potential customers, and persuading them to make a purchase. This is a crucial aspect of any business, as acquiring new customers helps drive revenue growth and ensures the long-term success of a company.

What is the customer acquisition funnel?

The customer acquisition funnel is a model that represents the different stages a potential customer goes through before becoming a paying customer. The funnel helps marketers and sales teams understand the customer journey and identify areas for improvement in their acquisition strategies. The stages of the customer acquisition funnel include:

Awareness

At this stage, potential customers become aware of a brand or product through various marketing efforts, such as social media marketing, content marketing, or paid advertising.

Interest

After becoming aware of a product, potential customers develop an interest in it. They may follow the brand on social media, sign up for email updates, or visit the company's website to learn more about the product or service.

Consideration

During this stage, potential customers weigh the pros and cons of purchasing the product or service. They may compare it to competitors, read reviews, or seek opinions from friends and family members.

Intent

At this point, potential customers are considering making a purchase and may add items to their online shopping cart, request a quote, or contact the sales team for more information.

Evaluation

Potential customers assess their options, taking factors such as price, features, and customer support into account before making a final decision.

Purchase

Finally, potential customers complete their purchase, becoming paying customers and generating revenue for the business.

15 facts about customer acquisition

• Acquiring a new customer can cost five times more than retaining an existing customer.

• The probability of selling to an existing customer is 60-70%, while the probability of selling to a new prospect is only 5-20%.

• A 2% increase in customer retention can have the same effect as cutting costs by 10%.

• 44% of companies focus more on customer acquisition than retention.

• A 5% increase in customer retention can lead to a 25-95% increase in profits.

• 61% of small businesses report that more than half of their revenue comes from repeat customers.

• 75% of consumers are more likely to buy from a company that recognizes them by name and recommends products based on their purchase history.

• 80% of your future profits will come from just 20% of your existing customers.

• It costs 16 times more to bring a new customer up to the same level of profitability as an existing customer.

• On average, loyal customers are worth up to 10 times as much as their first purchase.

• 82% of companies agree that customer retention is cheaper than acquisition.

• Increasing customer retention rates by 5% increases profits by 25% to 95%.

• Email marketing has an average ROI of 4,400%, making it an effective acquisition channel for many businesses.

• 88% of B2B marketers use content marketing as part of their customer acquisition strategy.

• Social media advertising budgets have doubled from 2014 to 2016, indicating a significant investment in customer acquisition efforts via social media channels.

Acquisition marketing

Acquisition marketing is the process of creating and executing marketing strategies to attract and convert new customers. It involves understanding the target audience, creating compelling marketing messages, and selecting the appropriate marketing channels to reach potential customers.

Digital acquisition marketing

This approach focuses on online marketing channels such as search engine optimization (SEO), pay-per-click (PPC) advertising, social media marketing, and email marketing. Digital acquisition marketing is highly measurable and allows for quick adjustments to improve campaign performance.

Acquisition channels

There are various acquisition channels through which businesses can reach potential customers. Some of the most common channels include:

Organic search

Customers find your website through search engines like Google or Bing. This channel requires optimizing your website's content for relevant keywords to improve its search ranking.

Referral programs

Encouraging existing customers to refer friends and family in exchange for rewards or discounts can be an effective way to acquire new customers.

Search engine marketing

This involves running paid advertising campaigns on search engines to increase visibility and drive traffic to your website.

Organic social media

Businesses can use social media platforms like Facebook, Twitter, and Instagram to create and share content that attracts and engages potential customers.

Paid social media

Running targeted advertising campaigns on social media platforms can help businesses reach a larger audience and drive customer acquisition.

Email:

Email marketing campaigns can be an effective way to nurture leads and convert them into paying customers.

Events such as webinars or masterclasses:

Hosting online or in-person events can help educate potential customers about your product or service and generate interest in your brand.

How to calculate customer acquisition costs

Understanding customer acquisition costs (CAC) is essential for businesses to evaluate the effectiveness of their marketing efforts and make informed decisions about where to allocate resources.

The formula for calculating customer acquisition costs

CAC is calculated by dividing the total marketing and sales expenses by the number of new customers acquired during a specific period. The formula is: CAC = (Total Marketing and Sales Expenses) / (Number of New Customers Acquired)

Example of the customer acquisition cost formula in use

Suppose a company spends $10,000 on marketing and sales efforts and acquires 50 new customers in a month. The CAC would be calculated as follows: CAC = ($10,000) / (50) = $200. This means it costs the company $200 to acquire a new customer.

5 strategies to optimize the customer acquisition funnel & increase acquisition

Use social proof everywhere you can

Displaying customer testimonials, reviews, and success stories on your website and marketing materials can help build trust and credibility with potential customers.

Improve your website

Enhance calls-to-action (CTAs) and website design, include social proof, and make the benefits of your product or service clear to visitors. A user-friendly website can increase conversions and help acquire new customers.

Optimize your customer experience & support sales staff

Equip your employees with the knowledge and tools they need to provide an exceptional customer experience. This can help build trust, improve customer satisfaction, and increase the likelihood of a purchase.

Create content that decreases friction in the consumer decision-making process

Develop informative and engaging content that answers common customer questions and addresses potential objections. This can help potential customers make informed decisions and move through the acquisition funnel more smoothly.

Improve sales process & support

Streamline your sales process to make it easy for potential customers to make a purchase. Provide ongoing support and resources to your sales team to help them close deals more effectively.

5 strategies to reduce the cost of customer acquisition

Employ a referral program

Encourage existing customers to refer friends and family members by offering incentives. This can help lower acquisition costs and attract high-quality leads.

Prioritize your most appropriate customers

Focus on targeting the audience that is most likely to convert and generate the highest lifetime value. This can help improve the efficiency of your marketing efforts and reduce overall acquisition costs.

Improve customer retention

By increasing customer retention, you can increase their lifetime value, which ultimately drives down acquisition costs relative to profit.

Retarget lost leads

Use retargeting advertising campaigns to re-engage potential customers who have visited your website but did not make a purchase.

Use data to figure out what works and what doesn’t

Regularly analyze your marketing and sales performance to identify areas for improvement and optimize your acquisition efforts.

Customer acquisition metrics

Customer lifetime value (CLV)

The total revenue a business can expect to generate from a single customer throughout the duration of their relationship.

Activation rate

The percentage of new users who take a desired action (e.g., making a purchase or signing up for a free trial) after discovering your product or service.

Free trial conversion rate

The percentage of users who convert from a free trial to a paid subscription or purchase.

NPS (Net Promoter Score)

A measure of customer loyalty and satisfaction based on their likelihood to recommend your product or service to others.

Expansion rate

The percentage by which revenue from existing customers increases due to upsells, cross-sells, or upgrades.

In conclusion, understanding and optimizing customer acquisition is crucial for the success of any business. By employing the right strategies, channels, and metrics, businesses can effectively attract and convert new customers while reducing acquisition costs and maximizing revenue.