Whether you’re launching a start-up or running an established organization, maintaining a healthy bottom line is essential to the longevity and success of your business. Two vital, but sometimes overlooked, metrics in measuring your company’s financial health are customer acquisition cost (CAC) and lifetime value (LTV)—especially when compared against one another. In order for a business to maintain profitability, its CAC must be less (significantly less, to be honest) than the LTV it receives from those customers.
So, how much does it truly cost to turn a prospect into a customer? (This is definitely something you should research and with which you should be intimately familiar.) At its simplest, calculating your CAC requires combining all your costs for sales and marketing over a given period of time. You then divide by the number of new customers you acquired over that same period (total sales and marketing costs ÷ number of new customers = CAC).
Click the icon to calculate your CAC.
Below are a few behaviors I find to be most impactful in addressing how costly it is to acquire new customers and improve the financial health of your organization.
Targeted Selling Using Buyer Personas
Increasing the top of your sales funnel is a good strategy and, in theory, should lead to more customers just based on sheer numbers. However, marketing and selling to everyone can be disastrous, especially when you consider the time, energy, and investment in doing so. By narrowing your focus and targeting those prospective customers who are most likely to buy your service or product, you can cut the length of time it takes to turn a prospect into a client and improve your close ratios—both are key to reducing CAC.
So, where do you start? Targeted selling begins by understanding your ideal customer base. By developing buyer personas, you find out who they are, what’s important to them, and why they value your product or service. The more knowledge and understanding you have of your customer base’s needs and interests, the easier it will be to develop content and ensure meaningful conversations regarding your solution.
What is vitally important is having the ability to tell the difference between thinking you know something about your customers and truly knowing it, which is why it helps to have a third party such as Sales Benchmark Index assist you in developing your personas.
Are you more likely to purchase a service or product if someone you know has recommended it? If you are like me then the answer is yes. According to a report by Nielson, 92% of consumers would agree with us. Creating a level of trust by leveraging your existing customer base, strategic partnerships, and brand ambassadors to gain new customers (without increasing overhead or other related sales expenditures) is certainly an effective way to reduce CAC. How you accomplish that is the question.
Having a great product or solution is certainly the best place to start, because first and foremost, you need your customers to have something positive to say. In the B2B space, if you develop great relationships between your organization and your customers, they will want to speak on your behalf. Asking for testimonials that you can use on your website or in marketing campaigns will ensure that when prospective clients do make their way to you, they can see from an external source’s point of view that your service delivers what your brand promises.
Whether you are a new company starting out or have been in business for years, you likely have vendors or businesses you work with who come across opportunities with their own clients for which you have a solution. The logical next step would be asking them to think of you when they come across these prospects and explaining you will do the same for them. This creates a win-win-win scenario. You and your partner help each other grow, and the shared customer gets great service from two trustworthy organizations.
Marketing Automation Software
If you are not leveraging current technology to assist with your marketing strategy, you are missing out on avenues to grow revenue. Marketing automation software allows you to program and measure marketing efforts, find out what is and isn’t working, and discover what works best when it comes to generating interest in your product or solution. You avoid the daunting, manual tasks, such as running an email or social marketing campaign, managing and prioritizing all your leads, and generating analytics on revenue contribution from all your efforts.
Certainly a service such as this comes at a cost—and it does. However, that cost is lower than the salary and overhead needed to accomplish all these things—in the same timeframe—with a team of well-trained marketing professionals. And according to a study by VB Insight, 80% of marketing automation users saw an increase in their number of leads and 77% experienced an increase in the number of lead conversions. By investing in this technology, not only are you reducing your CAC by directly impacting your marketing costs, but you are also attracting prospects that are most likely to be interested in your service.
The Inside Sales Alternative
While there are dozens of articles on the web highlighting ways to reduce your CAC, many lump options together that are better described as ways to increase the return from your customers. Maybe because it’s so simple or maybe because it’s taboo, but those who do get it right seem to skip over one major factor—using inside sales as an alternative to field/outside sales reps.
Without a doubt, the biggest line item related to the cost of acquiring a customer is the overhead and associated budgets with your sales and marketing teams. If you are truly serious about reducing your CAC, and not just increasing the return on your investment, then assessing whether a portion or all of your salesforce could be moved to an inside sales solution is a viable option. On average, inside sales reps cost 15-20% less than a field rep, yet they can touch exponentially more customers in a day and maintain or even increase your revenue numbers. An inside sales team is one of the best ways to help you improve your CAC and the financial health of your business.
A Healthy Bottom Line
Let us help you determine the appropriate strategy for your company via a MarketSource assessment. MarketSource sales experts will work with you to define your challenges and design a turnkey solution that produces results in the areas of gaining new customers, launching new products, growing market share, optimizing sales expense, or maximizing a mature product. Using our proprietary engagement process, we take a much more in-depth approach than traditional hiring models. Find out more by contacting us today.