The Basics of Customer Acquisition
What is Customer Acquisition?
Customer acquisition is the process of bringing new customers or clients to your business. It’s the combination of marketing and sales strategies you use that help turn a stranger into a customer.
It’s important to make a distinction between lead generation and customer acquisition at this point, because while they both attempt to attract new visitors to your business in the hopes of turning them into customers, they are two different strategies.
Lead generation, as a strategy, is suitable for businesses that have a long buying cycle, offer a high-priced product or service, or require a sales team to actually make the sale.
Customer acquisition can be used in conjunction with a lead generation strategy, where you implement strategies across channels to help nurture the leads you’ve collected into customers, or it can be implemented as a stand-alone tactic.
Businesses such as retail and e-commerce find success with customer acquisition as a stand-alone strategy because they usually have a short buying cycle. For example, you could run a Facebook ad that captures the attention of a complete stranger and, in the same interaction, could convince them to buy from you.
Another way to think about the difference between the two is in terms of dollars.
A lead is someone who has indicated they want to hear from you further. They might have signed up for your newsletter, or downloaded a resource from your website, or reached out to your sales team with an inquiry. Capturing this information is the goal of your lead generation activities.
From here, customer acquisition steps up and seeks to turn this personal information into revenue.
- Lead generation = personal information
- Customer acquisition = revenue
As you’ll soon see when we discuss customer acquisition channels and strategies, most businesses will find success with a combination of lead generation tactics supported by a customer acquisition plan.
Measuring Customer Acquisition
Like anything in business, you want to be able to calculate the cost of bringing in a new customer.
To do this we use a concept formula called Customer Acquisition Cost, or CAC.
CAC is an important metric as it directly relates revenue to marketing costs, and is usually calculated per campaign, say a Spring sale, or over time, such as financial year CAC.
To work out your CAC is quite simple, but it does require access to plenty of data.
The formula is:
CAC = MC/CA
Where MC equals ‘marketing costs’ and CA equals ‘customers acquired’
Let’s use an example.
Say you spend $10,000 in the first quarter of the year on ALL marketing costs and in that time you acquired 100 customers, then your CAC is $100.
It costs you $100 to acquire one customer.
Working out how many customers you acquire is easy, but figuring out how much you spent can be trickier. CAC only works when you include ALL marketing costs, so the full formula would look like:
CAC = (MC + W + S + OS + OH) / CA, where:
- CAC is customer acquisition cost
- MC is marketing costs
- W is wages for marketing and sales
- S is marketing and sales software
- OS is outsourced services
- OH is overhead for marketing and sales
- CA is customers acquired
Many businesses get caught in the trap of thinking that marketing costs are only those related to advertising spend, but it actually goes much deeper than this and knowing your true costs will help you greatly improve your customer acquisition efforts.
CAC is a good metric to show you how much you spend versus how much a customer brings in. However, you need to use it with other metrics, such as lifetime value, because:
- It doesn’t show how much a customer spends with you, or how frequently they make a purchase. It might cost $100 to bring in a customer, but over their lifetime (which we’ll explain below) they might spend $10,000 with you. In this case, you might want to increase your marketing spend as $100 in exchange for $10,000 is pretty good.
- It doesn’t take into account a long buying cycle. If you spend $10,000 in Q1 but those customers don’t purchase until Q2 your CAC for that quarter will be skewed.
Customer Lifetime Value
Customer Lifetime Value, or LTV, is another important metric you should be looking at when reviewing your customer acquisition success.
A customer’s LTV is the estimated net profit that an individual or business will provide over their lifetime as a paying customer.
Calculating LTV requires understanding your average purchase amount and purchase frequency, but it isn’t a difficult metric to work out. Here's how:
- Calculate your Average Purchase Value = total revenue / number of orders
- Calculate your Average Purchase Frequency Rate = number of purchases / number of customer
- Calculate your Customer Value = Average Purchase Value X Average Purchase Frequency
- Calculate your Average Customer Lifespan = total customer lifespans / number of customers
- Calculate your Customer Lifetime Value = Customer Value x Average Customer Lifespan
This example comes courtesy of HubSpot, who go into detail in a blog about customer lifetime value, using coffee as an example:
1. Find average purchase value
If you're anything like me, you drink A LOT of coffee. At my local cafe a large cappucino costs $4.50.
2. Find average purchase frequency
Again, I like coffee so I buy 2 cups a day = 10 coffees per week.
3. Calculate average customer value
For my local cafe, I represent a value of $45 PER WEEK
4. Work out the average lifespan
Working this metric out is tricky, and may require some educated guesses, but let's say I'll continue to use this cafe for 2 years, before I move office and need to find a new local. Once you've got this, make sure the time period matches what you have from part 3. If we are using weeks to measure how much I spend, then break down two years into 104 weeks.
5. Calculate CLTV
Putting everything together, we get:
Customer value ($45) x average lifespan (104 weeks) = $4,680
* It's important to note that this example only uses 1 customer. At each step you should use all the customers you have data on, or at least enough to come with up an average that is representative of the majority of your customer base.
CAC and CLTV
When you combine CLTV and CAC you get a complete picture of how much it costs to bring in a customer, and what that customer is worth to you. In the above example, if the cafe knows their CLTV is $4,680 they have a benchmark to improve on. They can look to upsell to increase this number, try to get me back for more coffee each day, or try and get me to refer some friends and colleagues.
When you look at this metric with CAC, you also give yourself a guide for how much you should spend to acquire a customer, and how healthy your marketing efforts are for your bottom line.
Let's say the above cafe brings in 100 new customers in that 2 year period, so revenue would be $468,000. It also costs them a total of $150,000 to acquire those 100 customers.
So their ratio of CLTV to CAC is approximately 3:1, which represents a very healthy business. They also know that they could afford to spend a bit more in marketing to try and increase the number of customers they are closing.
Minimising Your Customer Acquisition Costs
Having the ability to achieve more with less is a vital skill for any marketer and business owner. And while you may think your results now are great, chances are there is always room for improvement.
Using CAC as a measure of success is a great tool, as it gives us an indication of where we are now and can provide motivation to find ways of getting better. If you're using CAC to measure your efforts, here are a few ways you can lower your acquisition costs.
1. Boost your conversion rate
Getting people to your website is only half the battle - turning them into leads or customers is the other half. For many businesses, improving your ability to convert visitors is the quickest way to improve your CAC and lower costs. After all, you've already spent time and money getting people to visit you, so if you can improve the number of customers you close for the same amount of marketing costs, you'll see an improved CAC.
2. Increase your CLTV
Another way to improve your CAC is to increase the value each customer represents to you. Maybe you can find a way to upsell them to a new product, or get them to refer new customers to you? We'll cover customer retention as a conversion strategy in more detail in a later section of this guide.
3. Improve your current strategy
Sounds obvious, but when was the last time you took a deep dive into your current efforts and the results you're getting, in the hopes of finding opportunities for improvement? In our experience, prioritising testing is one of the best things any business can do to grow faster and cut back costs.
Developing a Customer Acquisition Strategy
Right, so you want to get started with some deliberate customer acquisition attempts, but don't know where to start. Let's go over some actionable steps you can take to come up with a plan:
1. Identify Your Persona(s)
The first step is to figure out who your ideal customers are so that you can target your efforts towards them. If you haven't built your customer personas yet (sometimes referred to avatars) check out this handy guide on creating buyer personas.
If you do already have your personas worked out, awesome! Use these to figure out who you'll target and what you need to know about them.
2. Identify Your Goals
When it comes to customer acquisition, your usual target is more customers, and more revenue, but this isn't always the case. For some businesses, you might be looking for more trial users, or for others you may be seeking volunteers. If you're a not-for-profit you might be looking to find new donors. Whatever your goal, get clear on it at the start and use it as your north star.
3. Pick a Channel
You might need to circle back to this after we go into more detail on the specific channels and tactics below, but you should at least have some idea of where you want to spend your time, effort and money. Be aware of your customers and where they spend their time online, and how they find and consume information.
4. Track Everything and Monitor Performance
It's important that you carefully monitor the performance of your efforts, like you would any marketing activity. You should be monitoring your total spend, results per channel and ensuring KPIs are being met.
5. Continually Optimise
The secret sauce of any great marketing campaign is the ability to continually test and optimise, always looking for ways to tweak and improve results.
Customer Acquisition Channels and Tactics
HubSpot offer a simple way of defining customer acquisition channels:
Customer acquisition channels are methods, platforms, and strategies through which companies attract new fans, readers, and leads. The best channels for your business will depend on your audience, resources, and overall strategy.
Below are some of the more common channels small businesses can use to acquire new customers and nurture existing leads.
Possibly one of the most powerful channels available to small businesses, email marketing has been shown to return $38 for every $1 spent. Not only can it help generate revenue, it is also a great way to stay in touch with leads and customers and can help achieve business goals other than revenue, such as positioning the brand as a thought leader by sharing blogs you’ve written, or by building an online community by promoting causes your business is involved with.
Email marketing is also a great way to gather intelligence on your target audience. By tracking link clicks you can start to gauge what topics your subscribers are most interested in. By tracking open rates you can start to determine how often they want to be communicated with and what piques their interest, as determined by your subject line’s ability to get them to open your email.
When it comes to acquiring customers through email, the key is to provide value to your readers in every email.
If you’re a B2B brand, you should be using emails as a way to build trust, show your expertise and position yourself as the solution to your target audiences problem.
If you’re a retail or ecommerce business, most of the time people subscribe to your emails because they want the latest product updates and discounts.
The content of your emails will vary based on your business, but always be sure to keep an eye on your key metrics to see what content performs best and look to leverage this to grow revenue.
Content marketing is a great way to acquire customers as it serves many purposes: it helps you get found online when your audience is seeking information and answers, showcases your knowledge and builds trust, and provides multiple teams with information (content can be hosted on your blog, shared across social media, included in emails, and used by your sales team).
Content marketing usually comes in the following formats:
- Lead magnets/content offers
Blogging is a great lead generation and customer acquisition tool that every business should be looking to use. It allows you to showcase your knowledge and expertise, provides useful content for sharing across social media and emails and provides value for your subscribers and customers.
Creating lead magnets is a way to further capitalise on blogging, adding a way for blog readers to become leads by offering high-value additional resources in exchange for their personal information.
Finally, video gives you access to a new medium to share your story and knowledge. While your content may begin life as a blog, there's no reason it can't become a video for you to share with your audience.
Now, it may seem like content marketing is more of a lead generation strategy, and while it certainly is great for attracting visitors to your website, it also plays a crucial role in acquiring customers.
Content marketing allows you to provide ongoing value to leads while asking for nothing in return. By consistently showcasing your expertise and helping leads solve a problem, you position yourself as the go-to business when they are ready to buy.
You also enable your sales team to perform better by giving them warm leads who already know your business, what you do and how you can help them.
Partnerships are another tool for acquiring new customers. Here’s how they work.
Firstly, you want to find an existing business that has a decent customer and/or subscriber base and think about how you can help their customers even further.
A great example would be a small business finance coach partnering with an accounting firm. The accounting firm looks after the accounts of a business, so the finance coach can provide additional value by helping their clients plan their budgets better.
Once you’ve identified a potential partner, reach out and ask if they are interested. If so, discuss how you can get in front of their audience. Could you write a blog that they share with their audience? Maybe you could run a webinar that they send to their email list? Perhaps you could offer to run a free workshop for their customers.
Whatever you choose, the goal is to provide a lot of value and use this opportunity to speak with potential customers.
Events are an underutilized customer acquisition channel with small business. Having worked in the events industry for sometime I understand their hesitation - event involvement can seem like a large investment (both time and money) for little return.
Usually this preconceived notion of little to no return on investment is unfounded, and businesses that get involved in the right way often see great results.
There are three ways events can help acquire customers.
The first is simply attending an event. Events are great networking opportunities that a lot of large businesses use very well.
Secondly, you can become a sponsor. This is a good option as it gives your business exposure to your target audience.
Finally you can host an event. While this definitely isn’t for everyone, for those businesses that can put together an industry event, the potential to generate revenue directly from the event, or from the new prospects that come out of it, is hard to dismiss.
Referrals remain a strong acquisition channel for small businesses. A lot of businesses discount referrals and instead choose to pursue the ‘flashier’ tactics like Facebook advertising and complicated Google Ads.
Not to say these channels can’t work for every business, because they certainly can, but leveraging existing, loyal customers as a way of bringing in new business is something every small business owner should be doing.
Organic social media is often viewed as a ‘vanity’ channel, something that looks nice but doesn’t impact the bottom line. In fact, 13% of marketers have said social media is a waste of time.
But organic social media can play a part in customer acquisition, provided you use it properly.
Organic social media is a great way to build brand awareness, delight and educate your followers with helpful, branded content and is a powerful channel for showcasing your brand personality. It’s also a great way to leverage your followers to help bring in new customers.
Going viral is considered the holy grail for social media marketers. Having your content shared over and over, reaching tens of thousands of people (or more, if you’re lucky) is a huge win for any brand using social media.
Paid social media is, for most businesses, the quickest way to reach audiences and bring in new business. While blogging and SEO rely on changes over time, paid advertising on social media allows you to reach audiences right now, making it a powerful customer acquisition channel.
You might not think of SEO as a customer acquisition strategy, but in reality it can be one of the most effective tools in your arsenal for attracting visitors and closing customers.
Think of it like this: when someone in your target audience is searching for an answer, and that question relates directly to a keyword you want to rank for, wouldn't it be great if your website showed up on the first page of the results? 75% of searchers only ever view the first page of Google, so if you can get yourself on page 1, you'll improve your chances of acquiring customers.
Running Google Ads, for those who can afford it, is an easy way to ‘pick the low hanging fruit’. When someone is actively searching for a product or service you offer, Google Ads gives you the chance to get your brand and message in front of them at the crucial moment.
Ever heard the saying "it's cheaper to keep an existing customer than it is to acquire a new one"?
Well, unfortunately, it's true. In fact, in most cases it will cost you 5x as much to acquire a new customer as it will to keep an existing one happy and making repeat purchases.
It's also an unfortunate truth that no matter how great a business is, no matter how much time and effort you put in to building something people love, you will always have to deal with customer churn.
Customer churn refers to the percentage of people who leave your customer base over a given period. For example, if you managed to bring in 100 customers last year, but lost 5 current customers over the same time, your churn rate would be 5%.
It's important to understand your churn rate for a couple of reasons:
- It tells you how satisfied your customers are with you
- Can provide a quick measure of success and trends over time
It's definitely not a perfect metric, and it definitely has some disadvantages too. For example, it doesn't give you an explanation as to why people leave (you need to go and get this yourself), and it doesn't differentiate between new customers who leave within the time period and current customers who may be leaving after multiple years of being a customer.
But what it should do is motivate you to improve your efforts and delight your customers.
Customer Retention = Revenue
So why are we talking about the number of customers who leave you, when this guide is about finding new customers?
Not only is it cheaper to keep customers, it's usually easier too. It's an overlooked, undervalued approach to customer acquisition that is starting to gain traction as marketing costs continue to soar (looking at you, Facebook and Google).
Remember when we mentioned increasing customer lifetime value as a way to reduce your customer acquisition costs? Customer retention is a perfect example of that. Here's a quick explanation:
Let's assume your average customer is worth $50,000 to you over the lifespan of them being a customer. Let's also assume that it costs you $15,000 to acquire a customer (representing approximately a 3:1 return, which is a good baseline for most businesses).
If that customer decides to leave halfway through their lifespan with you, you've lost around $25,000 in revenue. You then need to go and spend another $15,000 to find a new one to replace them.
So not only have your marketing costs gone up, but revenue has come down.
Here's another example:
Say you are the practice manager at a small, boutique dental clinic. In the last month you had 25 new bookings, which you've attributed to a Google Ads campaign you ran. After the initial consultation, only 50% of the patients you had booked decided to return for treatment - the other 50% went elsewhere.
Again, with a customer retention strategy in place (for example, a followup text or email) you may have been able to rebook more patients, which would have increased the revenue that came from the ads campaign.
Happy Customers = Revenue
Most businesses love when customers leave a 5-star review, or refer a friend. Providing outstanding customer experiences should be front and centre for your business because it makes everything else much easier.
When you delight your customers, they become a cheerleader for your business - they tell family and friends, they engage with you on social media, they may even share their story online.
Turning happy customers into promoters of your business is another customer acquisition strategy most marketers fail to recognise, because it's not something they've been trained to think of as marketing. But just like keeping existing customers coming back, keeping happy customers engaging with your business can lead to increased revenue.
Right, we've covered the foundations, let's dive into some of the more specific tactics, tricks and hacks you can use to boost your customer acquisition efforts.
Developing the Right Strategy
You'd be surprised how many times we see businesses missing the mark and not achieving the results they hoped, all because they started out with the wrong plan. To set a good foundation, you want to make sure your strategy is all of these 4 things:
- Sustainable - your initial plans should have a long-term view in mind, and ensure you have everything you need to achieve the results you want. For example, if content marketing is something you're interested in, ensure you have the right skills within your team to create great content consistently. This means having great copywriters, SEO specialists and having the right tools in place.
- Flexible - "the best laid plans of mice and men oft' go astray". Be willing and able to change your plans when it's needed and the situation dictates it. There is value in following the plan, but there is often greater value in changing paths when faced with a fork in the road.
- Targeted - "when you sell to everyone, you sell to no one". It's an old saying but remains true - be particular about who you are trying to reach and convert into a customer as you'll see greater results when you clearly define your ideal customer and focus your efforts on getting your message in front of them.
- Diversified - last saying, we promise; "don't put all your eggs in one basket". A diversified strategy, incorporating multiple tactics and channels, is more likely to achieve success than a strategy narrowly focused on one area. You also protect yourself from failure - if one channel doesn't work out, you've got other ones to fall back on.
As mentioned in a previous section, the ability to continual optimise is one of the most efficient ways to improve your ability to acquire customers, and to bring costs down.
AB testing should be something every business prioritises, even if it's something as simple as changing the colour of a button on a landing page.
Some very common areas you can test are your:
- Website and landing pages - changing layouts, moving items around on the page, and changing colour schemes.
- Emails - subject lines, preview texts, and testing text-only vs image-based body content.
- Forms - how many questions you ask, where it's located on the page, the button colour, and the button text.
For a more comprehensive review of AB testing, check out our guide to conversion rate optimisation.
Re-Engage Old/Cold Customers
Another way to increase your CLTV is to re-engage old customers to entice them to make a repeat purchase. This is one of the simplest ways to boost your customer acquisition efforts, and something every business should do regularly. Try sending a re-engagement email campaign to get old customers back.
Another useful tactic is to employ remarketing, which is when you reach out to audiences who have already engaged with you in some way, usually through visiting your website. You can use platforms like Facebook to retarget past visitors with tailored ads that speak more closely with their experience with you.
This tactic can be a great way to increase your efforts to bring in new customers since you're reaching people who already know you, rather than continually trying to find 'cold' audiences. It's usually a more cost-effective approach and can greatly improve your conversion rates.
Reviews and Social Proof
Gone are the days when consumers would believe every word a business said about themselves or their product. These days we rely so heavily on the opinions of others, especially when it comes to making a purchase. We want to know that what we are about to buy will do what it says it will, and that it can solve our problems.
Asking current customers to give you a review, and clearly displaying these on your website can be a great way to improve your ability to acquire customers, since you're making it easy for them to trust the opinions of others.
Use Automation and Chatbots
For a lot of businesses, customer acquisition can be costly and time-consuming. When someone is ready to buy from you, it usually requires a bit more effort from you to make the sale, especially if you are a B2B business or selling a high-ticket item such as a luxury car or expensive surgery. This added time can quickly increase your marketing costs (remember that your CAC includes ALL the costs of marketing, including the salaries of those involved).
One way to help reduce this cost is to make the most of automation tools, such as HubSpot. Utilising chatbots is also another great tactic as they can be pre-programmed with responses to commonly asked questions. This can help qualify potential customers more, so that when it is time for you or the sales team to become involved, you can hopefully spend less time going over details and close the deal sooner.
Improve your Call-To-Action
When we think of customer acquistion, it's easy to also think about how well we can attract leads in the first place. If you can master the art of persuasive writing, and really nail your call-to-actions across all stages of the buying journey, you can greatly improve your ability to land new customers.
Think of it like this - if you visit two websites, one which has well-written copy and speaks directly to you and your problems and makes it easy for you to take the next step (through a well-crafted call-to-action), and the other looks great but doesn't make it clear what it wants you to do after visiting the site, which one are you going to progress with? 9 times out of 10 you'll go with the first one with a clearly defined journey and call-to-action.
Improve Your Reporting
"If it can be measured, it can be improved," or so the saying goes. The not-so-secret trick to improving anything is to first understand the problem in detail. This is where accurate, detailed reporting becomes so vital. We speak with a lot of clients who know they aren't getting the results they want, but can't figure out why. Once we set them up with a proper dashboard and clear reports, it is pretty evident where we need to spend time to help them achieve their goals.
Increase your CLTV
The final tip in this non-exhaustive list of tips, is to try and increase your customer lifetime value, or the total amount of revenue a customer represents to you over their time of being a customer. When we look back at the ratio of CAC to CLTV, we can see that boosting revenue is a sure-fire way to improve our metrics.
How you increase your CLTV will vary depending on the type of business you are, who your customers are and what you sell, but some easy things to try include:
- Launch new products and upsell current customers
- Cross-sell new customers to other offerings that compliment their original purchase
- Implement a referral scheme where happy customers can bring in new ones
- Increase your prices (be careful with this one!)
There you have it, a beginner’s guide to customer acquisition for small businesses. While this article has got you covered for the basics, finding the perfect mix of strategies to attract and close more customers can be complex, and every business will have a different approach.
We help small businesses cut through the noise and focus only on the tactics most likely to help them succeed. If bringing in more customers is a major challenge for you, let's chat!