Having an excellent product and demand for that product is one thing. But being able to monetize customers and acquire those customers at a low enough cost is quite another.
It’s not enough that your business has product/market fit. Especially in the early stages of growth, standing up to competition means that your business also needs to minimize the cost of acquiring new customers. Customer acquisition drives sales and profit margins and it needs to be measured and balanced together with the customers’ lifetime value (LTV).
This article explains how businesses can resist one of the top startup killers known as high customer acquisition costs (CAC). We will go through 5 key strategies for lowering CAC. None of them require any major investments upfront. They were chosen specifically for their cost-effectiveness and ability to drive long-term growth. The description of each strategy includes examples from our own business processes at Supermetrics, which guarantees that each technique is actionable.
We’ll cover the following strategies:
- Retargeting and remarketing
- Partner programs
- A/B testing
- Customer retention
- Automated processes
1. Retargeting and remarketing
A distinction can be made between the two approaches, with retargeting mainly referring to cookie-based ad targeting and remarketing to collecting information of users and visitors to send them promotional emails.
Retargeting — how to use it
Retargeting obviously covers much more than targeting visitors who didn’t complete their actions on your company’s website.
You could target website visitors whose time on the page lasted longer than 1 minute, or those who visited your pricing page, for example. The benefit of retargeting is that those prospects already have the right intent. Most SaaS companies, for example, offer free trials that provide an ideal opportunity for retargeting. At Supermetrics, we give 14-day free trials with full access, and those who sign up for the trial but don’t convert are perfect candidates for retargeting.
Retargeting lets you get very specific
But you can go even further and only select trial users who are most likely to convert. You can do this by collecting more specific user data such as — what product features they used and how often they used them, opening any newsletters or emails sent to them or clicking any links, their geographical location and company size, visiting your resources, or pricing page, etc.
In the case of our Supermetrics product, pulling data into your reporting systems is done by running queries. For these queries, you have to choose your data source and date range as well as what metrics and dimensions you want to include.
Users may occasionally construct their queries incorrectly, for example by failing to authenticate their data source, which leads to unsuccessful queries. While this can happen to experienced users too, it does have a tendency to occur more frequently when the user doesn’t know how to use the product. This is why it’s possible to calculate the query success rate and use that data in predicting a user’s purchase potential. Trial users who run 0 successful queries are obviously less likely to convert into customers.
By taking into account all of the available user data, we can create an automated formula on a customer data platform that calculates the purchase prediction for each trial user based on their user behavior and the information they have provided when signing up. Finally, we can create ad campaigns that target those trial users who didn’t convert but whose purchase prediction score makes them promising candidates for purchasing the product later on.
This kind of retargeting is highly cost-effective. Hyper-focused campaigns are the best way to control your ad spend and avoid overspending because you’re targeting only the bottom of the funnel where your prospects are only one step away from becoming your customers.
What about remarketing?
In remarketing, on the other hand, the goal is to collect emails from visitors and users and create email campaigns targeted to them. Giving your email address is asking more than just a click on a link. It means that the value users get in return must be more than what they would get from a regular blog article, for example.
In addition to trial users, you can leverage the remarketing strategy for webinar participants, ebook downloaders, and podcast subscribers, for example. Or you could create gated content on your website if you have a resource hub where visitors can access your ultimate guides or other useful resources that dig deeper than your regular blog content.
2. Partner program
A partner program is exactly what it sounds like. It’s where you reach out and collaborate with influencers, brands, and other companies to drive traffic and ultimately sales to your business.
As an in-house Affiliate Marketing Manager, I’m part of the affiliate marketing team that’s running the affiliate partner program at Supermetrics. Launched at the start of 2018, our affiliate program has been an integral part of our marketing strategy ever since.
We have thousands of affiliates who generate over six figures in revenue each month. This also contributed to our ARR growth from €10M to €20M in just 12 months (currently around €28M). Going big on partnerships is at the heart of our marketing strategy and it helped us transition from startup to scaleup.
And almost no partnership is too small, as long as they’re mutually beneficial. While we’ve cooperated with big players such as Google and HubSpot and almost every martech whose connector we’ve launched, most of our affiliate partnerships are with smaller agencies.
Benefits of having a partner program
The advantage of having an affiliate partner program is that you’re paying those partners only after they bring you actual sales. You pay them a commission for each conversion, usually around 20% of the purchase price. It’s up to them to decide how they promote your products, whether it’s through social media, word of mouth, pay per click (PPC), blog posts, email, newsletters, or any other way they see fit. Many of them simply recommend your product to their own clients directly.
All you need to do is choose an affiliate marketing platform where you handle all transactions and manage your affiliate base. Or alternatively, you may consider joining an affiliate network that does it for you and takes a commission of your sales. Tracking of the purchases is done automatically by using cookies and assigning a unique referral link to each affiliate partner.
So, what makes affiliate programs so attractive to startups? Well, since you only pay for sales after they occur, there are no major investments needed upfront. No spending on ad campaigns that don’t bring customers. The main goal is to accelerate growth, not lower your CAC. But it is of particular interest to companies who are in the early stages of their growth and want to attract new investors. These sales from affiliates will boost their annual growth rate and profit margins.
In short, affiliate partners help your startup reach new segments that you most likely wouldn’t reach on your own. Affiliates also build brand awareness by expanding word of mouth. They widen your reach and create valuable content in the form of guides, tutorials, reviews, and comparisons that add to your social proof.
3. A/B testing
A/B testing is a popular CRO strategy where you test different elements of your campaigns or content to find out what brings you the best results. This is mainly in terms of conversions but also with regards to leads and customer retention. Optimizing the leads to lower CAC requires only your time and persistence.
A distinction is sometimes made between A/B testing and split testing, with split testing referring to comparing two entirely different variations and A/B testing referring to smaller-scale testing of a single element on a page or in a campaign. But often the two are used interchangeably.
Perhaps the most common use case for A/B testing is landing page optimization. You can split your web traffic so that one-half of visitors land on your page version A and another half on-page version B. The elements you might consider testing on a landing page could be CTAs, offers, layout, copy, headlines, or images and videos, for example.
Options for A/B testing
While there are many paid tools available for running A/B tests, the easiest way to get started is to use Google Optimize to create your experiment.
The specific changes to your landing page that you want to test are called variants. You can create many variants and test them against your original landing page. Set up an objective for the experiment and add your targeting rules – whether you want to target visitors based on behavior, geography, device, or UTM parameters, for example.
In most cases, it’s good to keep your experiment running for at least two weeks.
Alternatively, you could run your experiment on your CMS platform simply by testing different elements on your landing page. For example, here’s a CTA we use on our affiliate marketing related blog posts on the Supermetrics website to attract new affiliate partners:
We adjust the text and image in the CTA on WordPress and change its position on the page. After monitoring the clicks and conversions on Google Analytics for a specified time, we can make some preliminary conclusions on the best-converting variant of the CTA block.
Email campaigns also provide fertile ground for A/B testing. Run your experiment with different subject lines, for example, and see which one generates the highest open rate and CTR.
Here, for example, we’re using a customer data and experience platform called Exponea, which allows us to create variants of the same email campaign and split the selected recipients evenly between the variants before sending the winning version to the remaining customers.
Another common use case for A/B testing is paid ads campaigns which require constant testing and optimization. You need to continuously test your campaigns, ads and ad groups, keywords, and landing pages to optimize your PPC (Pay Per Click) strategy and keep your costs as low as possible. Simply adjusting the ad copy or images can impact your conversion rate substantially.
4. Customer retention
Everyone knows that retaining old customers is more cost-effective than acquiring new ones. That’s why your customer retention practices count as an effective CAC reducing strategy.
At Supermetrics, we have a separate customer success team that’s working between our sales and support teams and is responsible for fostering relationships with our customer base. The success function covers, for example, demo calls, onboarding, case studies and business reviews, upselling, renewals, as well as personalized support for the biggest clients.
Personalized communication with customers obviously takes up a lot of resources. And the larger the customer base, the more important it is to segment them appropriately. This is why customer success is usually reserved for the top tier only. For the remaining tiers, you need a product-led self-serve funnel that both converts leads and assists them after conversion with automated onboarding, updates, and useful resources.
Depending on your niche, automated onboarding could include access to a template gallery, for example.
Especially for a product with some learning curve, providing customers with easy access to onboarding documents such as guides and walkthroughs is a crucial part of customer retention. Ideally, you make them fans of your product who spread the word about it organically. Or by giving them an incentive to be your brand ambassadors through referral or affiliate marketing.
5. Automated processes
We’ve already covered the use of automated processes in customer retention such as onboarding and in customer acquisition. But there are also many indirect ways of using automation to reduce the cost of acquiring new customers.
It’s trendy for all startups to be data-driven. But what it actually means is that all decision-making should rely on available data. Because that data is usually scattered across multiple platforms, there’s a strong demand for tools like Supermetrics to pull it into one place automatically. We’ve also gone a long way in building our own attribution model, which quantifies the contribution of each channel and campaign to our overall marketing efforts.
Given that the typical conversion path involves more than one channel or campaign, most startups are dealing with a multi-touch attribution where the customer journey covers various touchpoints. Measuring the impact of each touchpoint is complicated and requires plenty of trial and error with different models and relative weights. But the results will provide you with valuable insights that help you maximize revenue and drive down your costs, including CAC.
Automated processes example
Here’s an example of an automated process we’ve put in place for our affiliate partners that has an indirect impact on lowering customer acquisition costs:
This activation sequence sends automated emails at specified intervals to those affiliate partners who haven’t brought us any customers. The first email is sent 2 weeks after their registration, the second 1 month after, and the third 3 months after. These emails include tips and links to useful resources, and they function as a reminder for them to promote our products.
Building such sequences is fairly simple and allowed by most customer data platforms. All you need is to combine data about your customers and affiliates and build a scenario that defines the conditions for sending each activation email. In this case, those conditions concerned the affiliate registration date and the number of referral sales.
The goal of creating such automated sequences and processes is clear – to save time and generate more profit, for example by acquiring more customers at a lower cost. But automation for the sake of automation alone doesn’t drive growth.
As a small business, you also have to choose your software carefully and focus only on channels with measurable results. Whether you’re building one fully automated funnel, a sales-assisted funnel, or even a self-serve funnel, leveraging automation at least for customer acquisition, retention, onboarding, and analytics is a basic requirement these days to stay competitive.
These are long-term growth strategies, especially relevant to SaaS companies. By lowering CAC, SaaS startups also end up improving their growth rate and profit margin, which can attract new investors when measured against the rule of 40.
Since customer acquisition is the most time- and resource-consuming process of running a business, finding ways to minimize it is certainly a worthwhile effort. With the strategies listed here, it’s possible to initiate the move from startup to scaleup.