How to Reduce Customer Acquisition Cost for eCommerce Stores

Customer acquisition cost (CAC) is a one of the most important metrics for eCommerce businesses.

CAC is an indicator of how effective, and sustainable, your marketing sales strategies are.

Reducing CAC will lead to higher profits, and more opportunities to scale your business.

Keep reading and we'll share our top tips on achieving a lower customer acquisition cost, to help you build a more sustainable business.

What is Customer Acquisition Cost?

Customer acquisition cost is the average amount spent to attract a new paying customer.

CAC takes into account the cost of marketing, advertising, and anything else contributing to a sale, and divides this figure by the number of new customers you acquired over a specified period.

Example time:

Let’s say you spend $4,000 on ads, and another $2,000 on associated costs (like software, wages, ad creative).

This comes to a total of $6,000.

If you acquired 500 new customers from these ads, your CAC would be $12 ($6000 / 500) - $12 spent per customer acquired.

Why Does Customer Acquisition Cost Matter?

Customer acquisition cost matters because it directly impacts profitability, growth potential, and long-term sustainability.

A low CAC means you can take more profit from each sale, and bank it or reinvest it into growing your business.

Alternatively, when you can spend less to acquire customers, you can sell your products at lower prices and undercut the competition.

Imagine you pay $10 for every customer, while your competitor, pays $20 for every customer.

They won't be able to match you for price, because doing so would mean they’re losing money (or breaking even at best) on each sale.

This gives you a huge competitive advantage.

CAC in Relation to AOV and LTV

While customer acquisition cost is a valuable metric, it matters most in relation to average order value (AOV) and customer lifetime value (LTV).

On its own, CAC doesn’t mean much.

For example, how would you know if a $50 CAC is good?

$50 to acquire a customer is amazing if you’re Apple, selling $1,000 iPhones.

It’s not so good if you’re selling $10 t-shirts.

That’s why you need to take average order value into consideration when judging your CAC.

How much does it cost to acquire a customer, relative to the amount they pay you?

The more your customers spend in each transaction, the more you can afford to spend to acquire them.

LTV:CAC

Customer lifetime value (LTV) is also important – perhaps more so than AOV.

Lifetime value is the total amount a customer typically pays you over their lifetime as a customer.

If people typically come back and buy from you multiple times, they’ll have a higher LTV, and you can afford to spend more to acquire them.

If your LTV is high enough, you may be able to sustain a higher CAC than your average order value.

For example, if your AOV is $50, and customers only ever buy once, your CAC has to be well below $50 for you to make a profit.

But if your AOV is $50, and customers typically come back and buy from you 5-7 times, you can afford to lose money on the initial sale, because you know the overall value you get from these customers will make up for the money spent to acquire them.

In fact, it’s not uncommon for businesses to lose money on each new customer. This report finds that merchants on average lose $29 for every new customer acquired.

You typically want to aim for a 3:1 LTV:CAC ratio – meaning for every $1 you spend acquiring a new customer, you generate at least $3 over their lifetime.

9 Ways to Lower Customer Acquisition Cost

Now we know what customer acquisition cost is, and how to judge it in relation to other metrics, let’s look at how to reduce CAC for your eCommerce business.

1. Improve Your Conversion Rate

Conversion rate is a key factor in whether or not your CAC is sustainable.

Think about it.

If you spend $10,000 on sales and marketing, get 5,000 people to your website, and 1% convert, that’s an average CAC of $200 (50 converting customers; $10,000 / 50 = $200 average CAC).

Now if your conversion rate was 2%, instead of 1%, what would the equation look like?

• $10,000 total cost
• 5,000 website visitors
• 100 buyers (5,000 x 2%)
• $100 CAC ($10,000 / 100)

Through no changes to your advertising, you’ve made a significant improvement in CAC.

The first step to improving your CAC is analyzing how effectively your website converts visitors into customers.

Some things you can do to improve conversion rates include:

• Making your website mobile friendly (conversion rate is typically lower on mobile, because many websites are not mobile friendly).
• Cut out unnecessary steps in your purchase flow.
• Optimize your call to action buttons.
• Improve your product images.
• Display reviews and social proof.
• Show personalized experiences to every visitor.

Most stores have many opportunities to improve conversion rate, and therefore reduce CAC too.

2. Recover Abandoned Carts

Abandoned carts are another opportunity to reduce customer acquisition cost.

Abandoned carts represent a lost sale. But bringing this customer back and recovering the sale costs less than acquiring a brand new customer.

These customers often have a small objection stopping them from buying, such as price, shipping, or a lack of trust, which is relatively easy to overcome.

Many customers with abandoned carts simply forgot to check out, and a quick email, SMS or push notification can be enough to recover the sale.

Approximately 70% of online shopping carts are left abandoned, which means there's a significant opportunity to reclaim lost revenue, increase the number of customers, and lower your customer acquisition cost.

3. Narrow Your Target Audience

If your ad spend is too high, you might be trying to advertise to too many people.

It’s natural to want to get in front of as big a market as possible, but a smaller, more targeted audience will often be more cost-effective.

This lets you tailor your copy, customer experience, design and messaging to a specific segment, rather than trying to please everyone.

Do some research and figure out what your most profitable segments are, and consider doubling down on these people as your primary target audience.

4. Invest in SEO and Content Marketing

Consider branching out to cost-effective channels acquisition channels.

SEO is one of the most economical traffic channels, and can deliver an incredible ROI if done right.

Growing visibility in Google (and other search engines, such as the app stores), allows you to generate sales for very little cost.

As a plus, content marketing and SEO helps position your brand as an authority in your field, increasing trust and conversion rate.

SEO takes time, and some investment. But it is not nearly as expensive as paid ads, and adding a steady number of low-cost sales will help offset more costly acquisition channels.

5. Utilize Email, SMS and Push Notifications

Direct communication channels like email, SMS and push notifications are more cost-effective alternatives (or complements) to paid ads.

In the retail, eCommerce and consumer goods sector, email marketing has an average ROI of $45 for every $1 spent.

And with email becoming more saturated, and more people today going mobile-first, SMS and push notifications can be even more effective.

Focus on getting contact information from people who land on your website but don’t buy.

Offer an incentive for them to sign up to your email list, to give you their phone number, or to download your app.

This gives you the ability to market to them further, and acquire sales for a much lower cost than other acquisition channels.

6. Start a Referral Program

Referrals are yet another cost-effective way to get new customers.

A study by Wharton Business School found that customer acquisition costs were significantly lower for referred customers (20 euros, or $22-23 lower in their study).

What’s more, they found that referred customers delivered 25% more value than non-referred customers.

With the low cost and low effort required to manage referral programs, this is a great opportunity to reduce your CAC and offset your more expensive channels.

7. Partner with Influencers/Brand Ambassadors

The ROI of influencer marketing can vary a lot, but brands who do influencer marketing well see an incredible return on their money.

Influencer Marketing Hub finds an average ROI of $5.78 for every dollar spent on influencer marketing, while the top 13% of businesses are able to generate $20 of revenue per dollar invested.

Look for influencers to partner with, whether it’s on Instagram, TikTok, podcasts, or any other platforms where your audience consumes content. 

Larger brands can consider signing brand ambassadors to represent them, a tactic major brands have been doing for decades to grow visibility and build trust and credibility in their niche.

8. Test, Test, Test

You can listen to as much advice as you want, on how to get a better ROI from your paid ads, how to improve your conversion rate, which channels to use for a better CAC… but it won’t always work out as you expect.

The best way to figure out what works and what doesn’t, is to test.

Test everything – test pricing, test different audiences to target, test ad copy and creative, test different images on your product pages.

Your tests will result in many micro-optimizations, which add up to a significant improvement in your customer acquisition cost in time.

9. Launch a Mobile App

Finally, launching your own mobile app is an incredible way to lower CAC (plus increasing AOV, LTV and more).

Mobile apps help you improve conversion rate for mobile users, by offering a smoother, self-contained experience on mobile.

They give you access to push notifications, which you can use for promotional campaigns, and to recover abandoned carts.

They help you get more loyal, repeat customers, who become valuable assets for your referral program and send new customers your way.

Mobile apps also let your business get into the app stores, a powerful authority signal, boosting trust with your customers and increasing visibility.

There’s a reason so many brands today have their own app.

The mobile commerce market is booming, to the tune of more than $2 trillion per year worldwide, and shoppers on the whole prefer apps to mobile websites, spending more time and money and converting at a higher rate in mobile apps.

How to Launch a Mobile App (And Reduce CAC)

If you don’t already have a mobile app, and think you simply can’t afford such an investment, think again.

With MobiLoud, launching an app is quick, affordable, and easy. And best of all, you don’t need to sacrifice anything in quality.

MobiLoud helps you convert your existing website into iPhone and Android apps.

It takes zero effort on your part – we do all the work for you, and simply use what already works for you on the web to deliver a great app experience, fully synced with your website.

The cost is a fraction of what it costs to build a fully custom app, and it comes with none of the complexity and overhead.

Your app updates with your website, so you have nothing extra to maintain, while you get all the benefits of having your own app.

High-revenue brands such as Rainbow Shops, John Varvatos and BESTSELLER all used MobiLoud to build apps which drive significant revenue for them for very little cost.

Your app could be live and in the app stores in less than a month, all for a low cost, with no major changes to your workflow.

‍Get in touch now to learn more about what’s possible.

Lower Your CAC and Boost Loyalty and Retention Now

It’s worth the time and effort for any eCommerce business to figure out how to spend less money acquiring customers and make more profit on every sale.

There are so many opportunities to optimize your CAC, whether it’s by improving conversion rate, investing in low-cost acquisition channels, or improving the efficiency of your ads.

You can also launch a mobile app, which will not only help you reduce CAC, but boost long-term revenue and loyalty, delivering more value from the money you spend on marketing and sales.

Get in touch and book a free demo to learn how easy it is to grow your business and reduce CAC with MobiLoud.