How to Slash Your Customer Acquisition Cost

Every agency, media company, broadcast station, and reseller faces a growing list of challenges that keeps them from selling products and services to local businesses successfully.

One of the chief problems is the high cost of acquiring new customers. If this rings a painfully familiar bell, then this guide on how to lower cost of acquisition is for you.

Table of Contents

The Problem: High Customer Acquisition Cost

The Challenges of Customer Acquisition Cost

Why You Have a High Customer Acquisition Cost

The Executive Formula to Cutting Customer Acquisition Cost

1. Introduce a needs-analysis prospecting process

3. Leverage online digital marketing training material

4. Adopt a sales system that uses data and automation

Another Thing to Consider: Lifetime Value

Lowering Cost of Acquisition with Vendasta

Conclusion

The Problem: High Customer Acquisition Cost

The cost of customer acquisition is high, and traditional selling methods don't scale for digital dimes. Time and resources are wasted on cold leads that aren't ready to buy. The difficulty for salespeople to get local businesses to buy in to digital offerings further intensifies the struggle and resource cost of acquisition. Not to mention, digital is hard to sell—and more sales effort requires more resources. So, our focus is on your company's CAC and steps we can take to lowering it.

What is Customer Acquisition Cost (CAC)?

Customer Acquisition Cost, often referred to as CAC, is the total cost involved in acquiring a new client—a metric that is used widely in business to track the cost of converting a prospect to client. Customer Acquisition Cost is the total sales and marketing spend required to acquire a new client. This metric refers to the amount of money your company spends on sales and marketing over a given period to acquire a brand new user or client—whether it be through a marketing campaign, outbound sales efforts, or other channels.

How to Calculate Customer Acquisition Cost

You can calculate CAC (customer acquisition cost) by dividing all the costs spent on acquiring a specific number of customers by the number of customers acquired. Simply divide your total marketing expenses dedicated to acquiring those customers by the number of customers that made a purchase or signed on to your service.

For example, if Penny spent $100 on marketing in 2018 and acquired 100 new customers, Penny's CAC is $1.00

The Challenges of Customer Acquisition Cost

So what makes Customer Acquisition Cost (CAC) so high in the first place? It basically boils down to the fact that acquiring new customers is hard and expensive.

When your sales strategy is still to load up a car with salesmen and send them driving around the city to chase down a few cold leads, your cost of acquisition is sky-high. Solely relying on call centers isn't always a budget-friendly solution either—while the cost is low and the reach is wide, the leads can often be cold so time is wasted on prospects that are not ready to buy.
Let's review some of the top contributors to a high CAC before diving into how to solve them.

Why You Have a High Customer Acquisition Cost

1. Your leads aren't warm enough

According to Harvard Business Review, 90% of decision-makers won't respond to cold calls. Only 5-10% of your cold calls pick up the phone, and only 1% will result in meetings. Plus, with the probability of selling to a new prospect only being 5-20%, you have to be strategic with where you put your sales dollars.

Why doesn't cold calling work? Because people only buy when they're ready. Cold calling often lives and dies in the earliest stage of the buyer journey: the stage where they aren't even aware that you exist. HubSpot found that a solid 60% of prospects want to connect with a salesperson during the awareness stage of their buying process after they've researched the process and come up with a short list of solutions.

Relevance resonates. ITSMA research shows that 75% of executives will read unsolicited marketing materials that contain ideas that might be relevant to their business.

When asked if they would pay attention to these marketing materials even if they were from solution providers they had not previously done business with, a whopping 92% said they’d take a look.

? A warm lead is someone who may have done business with you before, or perhaps had a presentation of your services, but never bought. These leads are considered low-hanging fruit that you should be targeting, because they know your value prop and will typically give you a definite "Yes" or "No" answer to whether they are ready to do business with you or not.

Cold calling isn't necessarily a dead tactic, but it certainly is an inefficient one.

Closing a sale is a process where you have to take a series of calculated steps in warming the lead until they’re ready to purchase. On average, a lead requires 10 marketing-driven touches to convert from the top of the funnel into a paying customer. HubSpot's State of Inbound study states that cold calling costs at least 60% more per lead than other channels. The bottom line is: it’s too expensive and time-consuming to “boil the ocean” by approaching every prospect under the sun.

Bottom line: If you want to improve and lower your CAC, cold calling should not be a primary sales tactic. To keep it on as a secondary tactic, try assigning one rotating salesperson one day a week to focus on cold calling and emailing to potential prospects.

If you have old, warmer leads still floating around in your pipeline, try a re-engagement email campaign to warm them up before you pick up the phone again.

2. You need solid prospecting to personalize the sale

If you want to close deals with prospects, you need to get personal.

That means you need a strong prospecting strategy that lets you effectively research your prospects, customize the sales pitch, and close that deal.

The more personalized and customized your sales pitch to your prospect, the more likely they are to close. Yet, 40% of salespeople say that prospecting is the most difficult part of the sales process.

But how do you have the time to research prospects, customize sales presentations, and prioritize deals, all while nurturing your other prospects with helpful personalized information?

Personalizing the sale is no problem if you're only going after a handful of prospects, but businesses can't run on two new deals a year.

To survive and thrive with selling marketing solutions, you need to constantly find and nurture sales opportunities and increase the chance of closing by customizing your sales pitch to each prospect's needs. We'll discuss research steps you can and tools you can utilize to tailor your sales conversation further below.

3. Digital is just hard to sell

A major point to consider that drives sales costs through the roof is that digital is hard to sell.

Even though local businesses are starting to see the importance of their digital presence, many marketing-focused companies struggle to get businesses to buy into their offerings—for a few reasons.

Local businesses are familiar with traditional advertising—they pay a media company for an ad spot in between radio songs, or get a billboard out by the mall—but they often don't understand what they're paying for when it comes to digital. Part of the selling and pitch process for local businesses therefore has to revolve around teaching them the importance of digital marketing.

That means new custom digital sales collateral and a rockstar digital-savvy sales team.

[clickToTweet tweet="To sell digital you have to teach your #localbusiness prospects about #digitalmarketing first! " quote="To sell digital you have to teach your #localbusiness prospects about #digitalmarketing first! "]

However, traditional sales teams are used to selling traditional media. Inadequate training of a sales team can leave them inadequately trained and unable to successfully pitch digital products. Proper training on digital solutions can take time, money, and effort, which just adds to the overall cost of selling digital—before even approaching the client.

On top of that, it’s hard to incentivize salespeople when they’re comparing slim digital margins to juicy traditional ones. Why would they pound the pavement month-in and month-out to scale digital sales when they can sell one radio spot for the same commission and half the work?

Recommended Reading: How to Add Digital to Your Traditional Media Sales

The Executive Formula to Reduce Customer Acquisition Cost

Now we come to the meat-and-potatoes of our pain point exploration: the formula to lower customer acquisition cost. Put cold calling in the rearview and use the playbook of other digital sales companies who are killing it with lead nurturing and needs-analysis strategies to guide their sales efforts.

1. Introduce a needs-analysis prospecting process

Before you pick up the phone and call a prospect, you need a sense of their current business state. Think about selling your products as offering solutions to their problems. You have to know what their problems are in the first place, right? Our study on client churn found that identifying the needs of a business with data and selling relevant solutions increases client retention by 30%.

You can build a custom "marketing report" on your business prospects by utilizing tools like PageSpeed Insights to determine their overall website performance, the SEO Web Page Analyzer to get a sense of their SERP visibility, and good ol' Googling to explore the meat of their online presence.

Want to know how to prospect a business prospect? Below are some simple steps you can take through just Google to research your high-value prospects and customize your sales conversation.

How to prospect a business in 5 easy steps

Don't know how to research your business prospect? Get started with a simple Google search!

Here's a research outline our BDR team recommends to businesses looking to personalize their approach and customize that crucial sales conversation about digital solutions:

1. Search them on Google (both through organic search and Google maps)

This first step is critical in telling the state of their online presence. Do they even show up when you search?

2. Review their Google My Business profile

• Is it optimized properly? Check for the correct business name, address, photos, reviews, and a keyword-rich description of their business.
• Check their reviews. How many do they have? What's the sentiment (positive or negative)? Are they fresh?

3. Check out their website

• Is it optimized properly? Check if it's mobile friendly, review the website's speed and performance. Check for crucial business information such as name, address, and contact details.
• Check for relevant, keyword-rich content such as descriptions of the business, photos, and even a blog feed.

 

4. Check out their social profiles

(Facebook, Twitter, Instagram, LinkedIn, Yelp, Google+, etc.)

• Are their profiles optimized properly? Do their "about us" sections have keyword-rich business descriptions, hours, contact details and more? Do they have a logo and banner photo uploaded?
• Check for activity and content. Do they frequently post behind-the-scenes updates? Do they post photos of their products/services? Do they make posts about sales and discounts? Are they engaging with their users in the comments and reviews?
• Check their reviews. How many do they have? What's the sentiment (positive or negative)? Are they fresh? Is the business replying?

Review their business profiles on social media

5. Check out their business listing visibility on the top directories

• Search for their business on main online directories like Google, Yelp, YellowPages, Facebook, and more. Do they show up on all the main sites?
• Check vertical-specific sites like Zomato for restaurants, Zillow for real estate, TripAdvisor for Travel etc specific to their business industry. Do they show up on those sites?
• Check for accuracy and consistency. Do all of their listings across the major and vertical-specific sites have correct NAP (Name, Address, Phone Number) data? Do they include additional information such as hours of operation, list of services, photos, and branding graphics?

Check out both general and vertical-specific review sites

These are simple steps anyone can take through Google to start customizing their sales conversation with a new prospect based on the state of that business' online presence.

You can also use this needs-analysis report to create personalized, relevant outbound marketing material to get the attention of business owner prospects and reduce door-to-door prospecting. Plus, with laser-focused, custom marketing material, you're drastically increasing the chance of success with your prospects, rather than toting generic blanket sales material.

For example, if a business' social presence is old and out-of-date, you can start the conversation by emphasizing the importance of social media and offering social media management services. They have 0 online reviews? Mention that more than 88% of online shoppers incorporate reviews into their purchase decision, and offer solutions to generate more reviews.

Add this infographic to your site:<div style="clear:both"><a href="https://www.vendasta.com/blog/reduce-customer-acquisition-cost"><img src="https://storage.googleapis.com/wordpress-www-vendasta/2018/01/how-to-prospect-a-businessArtboard-8-1.png" title="how to prospect a business checklist" alt="how to prospect a business checklist" border="0" /></a><div>Courtesy of: <a href="https://www.vendasta.com/blog/reduce-customer-acquisition-cost">https://www.vendasta.com/</a></div></div>Copy

Introduce an automated needs-analysis tool

You can streamline this prospecting process by implementing an automated needs-analysis system into your sales team's prospecting process. This will take a large part of the heavy lifting off your sales team's plate as it's an easy-to-digest information packet about a local business' online presence, and why it needs to improve.

An automated needs-analysis system will provide you with a basic overview of the business prospect and the state of their digital presence. Automatically gather basic details about the company's fans and following, social activity, general review sentiment, listing presence, and more. This is a great way to start a conversation about digital marketing with prospects.

We'll discuss Vendasta's automated solution, the Snapshot Report, further below.

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2. Leverage online digital marketing training material

Digital is constantly evolving, and in order to effectively sell digital solutions to prospects, you need to keep your sales team informed and up-to-date with all the latest data so they can have intelligent and valuable conversations with prospects.

Making use of the vast sea of knowledge available on the internet is crucial in teaching your sales team how to talk digital with clients. The best solution would be to find vendor products and services you can integrate into your store that comes with their own marketing material and training documents that you can use—without having to reinvent the content wheel in-house.

For example: Products in the Vendasta Marketplace like Zenreach Wi-Fi marketing come with case studies, brochures, and FAQs for both training purposes and to repurpose as sales collateral for the product.

White-label sales material in the Marketplace[/caption]

Additionally, you can encourage your sales team to attend relevant product and sales training webinars to continuously improve their success and hone their knowledge.

Hold regular sales training meetings

You should focus on training your sales team not only with online materials, but also in face-to-face training sessions with product owners, vendors, and your senior sales personnel.

Vendasta holds a weekly "Lunch & Learn" where the Distribution team is trained on new products added to the Marketplace, and works on building new scripts to speak intelligently to the problem this solution solves. Additionally, we hold a weekly "Master Sales Training" on Friday afternoons to review sales successes and discuss new problems prospects are solving and how Vendasta can help solve them.

3. Adopt a sales system that uses data and automation

Implement a sales system that can tell you who's interested and when, while continuing to nurture and warm the rest of your leads. Introducing a robust marketing automation platform and CRM will enable your sales teams to know exactly when your prospects are interested and engaged with your company, and allow them to call at that critical time to start a sales conversation.

According to a study by Gartner, companies that implement a platform to automate pipeline management generally see a 10%+ increase in revenue in just 6 to 9 months. With that increased revenue comes a lower cost of acquisition.

Plus, according to Nucleus Research, introducing marketing automation into sales drives a 14.5% increase in sales productivity and a 12.2% reduction in marketing overhead.

What Sales Managers should track in CRMs

Introducing a new CRM system is one thing, but knowing exactly what to track is something else entirely. What metrics really speak to the efficiency of your sales team and their efforts?

1. Follow-up time

Harvard Business Review found that American companies that attempted to reach leads within an hour were almost seven times likelier to have meaningful conversations with company decision makers than those who waited more than 60 minutes.

To track efficiency of your sales team, keep an eye on the time it takes between a lead converting and the salesperson to pick up the phone. Seeing how quickly your team is executing on follow-up is critical and most CRMs have the capabilities of tracking the average follow-up time over time.

2. Lead quality score

The average quality of leads your team is receiving can give context and insight into their success (or failure) in monthly connect and close numbers. The more engaged a lead is with your content, emails, and website, the higher the score and more likely they are to sign on that dotted line. A good lead scoring system gives your sales team a clear direction for which leads they should spend the most time on and increase overall sales efficiency.

As a sales manager, connecting the lead score numbers with your sales team's efforts like calls and emails can give you insight on if your team is focusing on the right leads or not. If the quality of leads over time seems to be dropping, it may be time to talk to Marketing.

3. Sales quotas (and percent completion)

This is an easy metric to track that gives you an idea of how your sales team is doing both on an individual and team level. If one sales rep is falling behind and has a low percentage of their quota achieved at the end of the month, it's time to dig into the rest of their user data and chat with them 1:1 to see what's up. If your entire team is off the mark for the month, there may be a bigger issue going on.

Consider tracking metrics with specific sales opportunities and accounts as well to track what accounts need follow-up, closes to-date, and more. This will help avoid sales opportunities being lost and going cold from neglect.

Another Thing to Consider: Lifetime Value (LTV)

Another thing to consider when looking to increase your sales efficiency and improve overall ROI is to look at the sister metric: LTV, and the CAC:LTV ratio. LTV stands for Lifetime Value and refers to the average revenue a single client is predicted to deliver over their lifetime as your client.

The ratio of lifetime value to customer acquisition cost (LTV:CAC) helps your business determine how much you should be spending to acquire a customer.

The "rule of thumb" is that a good LTV:CAC is 3:1, meaning that a customer will return three times as much value as it cost to acquire them in the first place.

Steps you can take to improve your average LTV and that elusive LTV:CAC ratio will be discussed in a future post.

Lowering Customer Acquisition Cost with Vendasta

Looking for a way to lower your CAC overnight? The Vendasta white-labeled platform brings all of these solutions, and more, underneath one login for you and your entire team. Use the Snapshot Report to automate your prospecting research and identify the digital needs a business has.

Take advantage of our white-label digital sales collateral and training material to provide your sales team with proper training and materials to get them selling digital solutions efficiently.

The above solutions are all housed in our Sales CRM, which is tuned to lowering the cost of acquisition—using data and automation to simplify researching new opportunities, managing your prospects and pipeline, and closing deals. It’s linked with the Vendasta Marketplace of products and services, and will help you grow more quickly.

Use the Vendasta platform to lower your cost of acquiring new customers today and start closing more deals quickly. Sign up below to get setup with a demo account and see Vendasta pricing for more information.

Conclusion

In the end, lowering CAC and improving LTV will give you better ROI on all of your products and services. If you want to run a successful and profitable business, you'll want to keep an eye on how your sales strategy and tools are affecting those metrics.

With the right tools and strategy, acquiring new customers doesn't have to be hard or expensive. Cut out the manual research work with implementing new automation tools, and take advantage of online materials to get your team speaking intelligently about the solutions you can offer.

Have any tales of CAC success? Tips on how you ramped up your average client's LTV? We'd love to hear about them!

Good luck, and happy selling.