The eternal question of any software company is always: How to achieve the customers’ growth in the most effective way? The answer is not about how MUCH do you spend to obtain clients, but about how effective those spends are. Let’s discover the CAC (Customer acquisition cost), and the approach on how to achieve it.

Customer Acquisition Cost (CAC) is a metric that estimates how much your business pays for a new customer.

Lowering CAC brings you a beneficial position cause the less it costs you to procure a customer, the bigger the profit you will have.  Yet, it’s crucial to remember: you get what you pay for, and everything has its price. Lowering CAC should not influence the quality of your marketing, sales, and onboarding processes.

If you aim to improve the cost structure, decrease CAC expenses that are not important, but focus on the basic functions that you need to grow. Compare your CAC in the context of the rest of your business. How much time does it take to acquire your client and how long does he stay with you? Paying minimum for those customers that will leave you ASAP is not much more advantageous than spending big costs on buyers that will stick with your business.

Outspend the rivals

Prioritize the methods of catching potential followers’ attention, and the victory is yours. Struggling with the company’s followers’ growth ends at the moment when you increase the efficiency of CAC and obtain profitable results. 

Analyze your business and see how numbers change over time. You won’t be able to get the same estimated outcomes in a few years. But you are always able to work on your CAC strategy in exchange for promoting stability and predictability in your company’s revenue.

Directions for improving CAC efficiency

  • Decreasing Sales Cycle Length
  • Improving Conversion / Close Rate
  • Increasing Initial Contract Value
  • Expediting Time to First Value (Customer onboarding )
  • Reducing time to First Expansion
  • Accelerating Adoption Depth and Breadth
  • Rapidly Driving Customer Advocacy

Should you only focus on lowering CAC?

The less you spent to bring the customer, the better. But don’t become obsessed with lowering costs on sales, marketing or onboarding (customer success) processes. Your expenses may well be too high in relation to how much you’re getting back from your customers over time (also known as customer lifetime value – LTV). If your CAC and your LTV are both low, you may need to invest more in sales and marketing to attract better-fitting clients whom you can retain longer and get more revenue over time.

Can you lower CAC without sacrificing quality?

One of the ways to lower CAC without sacrificing quality is to niche down. It is a good option that allows you to bring in good-fit, high-CLTV customers. This strategy means developing some exclusive products for a highly defined target audience. That type of client is more likely to stay for the long term as they are interested in the value of your product for them.

Niching down is an opportunity to create a business that can easily get and influence those customers who adore your company. That leads to improve your CAC, CLTV, profitability and continued, steady growth.

Always remember to relate your CAC in the context of your entire business and the market you’re focusing on, no matter if you target a niche or sell to a wider audience.

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