How To Lower Customer Acquisition Costs For Shopify Growth

Customer acquisition cost (CAC) is an essential metric that measures how much it costs to win a new customer. It’s important to know because when paired with other metrics like customer retention and lifetime value (CLV), it tells you a lot about your Shopify store’s health.

In this article, we’ll answer questions like “What is customer acquisition cost?”, share the customer acquisition cost formula, and teach you how to calculate customer acquisition cost and lower your customer acquisition costs so that you can grow or scale.

Customer acquisition costs are the sum of your marketing and advertising activities, the technology you use to win new customers, and all the staff involved. Workflow automation apps like MESA can help you lower CAC through our innovative tools that help reduce churn, boost conversion rates, and reduce overheads through automation.

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What is the customer acquisition cost?

how to calculate customer acquisition cost

Customer acquisition is the total monetary cost of winning a single paying customer. It is the sum of all customer acquisition activities, including paid and organic marketing campaigns and relevant software and staff.

Calculating customer acquisition costs uses a simple formula:

CAC = Total Marketing & Sales Costs / Number of New Customers Acquired

So, to use an example, let’s say your sales and marketing spend for the month was $9,000, and over that period, you acquired 250 new customers.

Then CAC is $9,000 / 250 = $36

The importance of CAC for Shopify and other ecommerce stores

Knowing your CAC is crucial for an ecommerce brand for several reasons.

  • Knowing the average amount you spend to acquire a customer can tell you if your marketing efforts are producing a sustainable return on investment (ROI)

  • It helps you make decisions about your marketing budget

  • Tracking CAC over time gives you valuable insights into your efficiency and ability to scale your marketing campaign.

Difference between CAC and customer lifetime value

CAC and customer lifetime value (CLTV) are highly related.

  • CAC measures the average cost of winning a new customer

  • CLTV measures the average revenue a customer will bring during your entire relationship.

The relationship between these numbers strongly influences growth.

For example, if it costs you $100 to win a customer, and they only spend, on average, about $200, your CLTV:CAC ratio is 2:1. Typically, experts suggest something in the region of 3:1 is healthy, with 4:1 considered excellent.

A CLTV:CAC ratio around 1:1 or below 2:1 suggests that you’re losing money acquiring customers once other business costs are subtracted. 

Is a low customer acquisition cost good?

Yes, a low CAC is a good thing. Low CAC means:

  • You have a better chance of being profitable

  • Your sales and marketing are efficient

  • Your Shopify store can scale

However, there is some context you must understand. Lowering CAC at any cost can harm your brand.

For example, aggressive, spammy, and overly broad targeting might be cost-effective, but it’s rarely a good way to build long-term relationships.

Some problems associated with driving CAC too low are:

  • Low-quality customers that generate little revenue

  • High customer churn

  • Positioning your brand as low-value

Striking a balance is essential if you want profitable and long-lasting customer relationships.

Optimizing marketing strategies to reduce CAC

Efficient targeting is a great way to lower customer acquisition costs. In effect, it’s about understanding the target market who needs or wants your product and spending your money getting ad campaigns in front of them.

Using target audience profiles helps you lock in on the people who will convert through your sales funnel. Paid ad platforms allow you to get granular, which boosts precision and, ultimately, conversion rates. 

Ensure that you think about CAC while you formulate your paid advertising strategy. 

Finally, understand your target audience and your product’s solution then, target the channels where they congregate.

Leveraging organic marketing efforts

Paid ads are great because they produce instant results about your sales cycle. However, marketing automation can help you lower customer acquisition costs while building meaningful customer relationships and growing your brand.

Some organic marketing strategies that you should consider for your Shopify store include:

  • Search engine optimization (SEO)

  • Content marketing

  • Social media posting, engagement, and community building

Other excellent organic marketing strategies involve leveraging social proof, testimonials, and user-generated content. These campaigns take time to produce results, but they’re cost-effective, sustainable, and go a long way toward building deep consumer trust.

Can CAC be reduced?

In recent years, the average CAC has gone up across the board. There are a few reasons, including data privacy regulations and increased competition in digital marketing and social media platforms. However, with the right approach, you can lower customer acquisition costs.

Some essential tips include:

  • Refine your targeting so that only interested people see your ads

  • Analyze your marketing channels and rotate your budget into the platforms that produce results

  • Produce high-quality content marketing

  • Use referrals or product-led growth 

Workflow automation apps like MESA can also help you reduce customer acquisition cost by automating email marketing campaigns, delivering actionable insights, and reducing operational costs. MESA gives you the information to make data-driven decisions to lower customer acquisition cost.

What is low CAC?

What is considered a low CAC depends on many factors, including:

  • Industry

  • Product price

  • Business model

As we’ve shared above, a CLTV:CAC ratio of 3:1 is seen as sustainable. However, it would be best to benchmark against relevant competitors to know that your CAC is low.

Here’s how you can do that.

  • Calculate your CAC

  • Gather industry data and benchmarks

  • Compare against similar Shopify stores

Improving website conversion rates

One of the best ways to lower customer acquisition costs is to improve your Shopify store’s conversion rate. If you optimize your store, you can make more sales from your existing traffic. Moreover, you reduce wasted ad spend and marketing costs because fewer customers are bouncing from your store.

Some of the best strategies here include:

  • Easy navigation, fast-loading pages, and detailed product descriptions and photos

  • Clear, colorful, and well-written calls to action (CTA)

  • Mobile responsiveness

  • A/B testing of all your creatives and copy to ensure the best wins out

Using data analytics to drive down costs

Data analytics are a great way to understand the customer journey. Tools like Google Analytics can help you know things like:

  • Which customer segments deliver high CLTV

  • Which marketing channels are producing results, and which aren’t?

  • How much revenue you can attribute to different points on your customer journey

  • Where are the bottlenecks in the customer journey

Predictive analysis tools use AI and ML to help you understand who your potential customers are. For example, it can let you build profiles of the people you should target with digital marketing. Predictive analysis tools can also help you boost retention by finding the patterns in consumer behavior that forecast customer churn or even openness to cross or upselling.

Customer retention as a strategy to lower CAC

Customer retention is a crucial strategy for businesses that want to lower customer acquisition costs. When you provide value to customers and develop long-term relationships, you can unlock the following benefits:

  • Lowering your customer churn rate reduces your reliance on marketing spend to drive revenue

  • Holding on to more of your existing customers means average CLTV will rise

  • CAC is more expensive than retention, and thanks to cross and upselling, these efforts can produce a fantastic ROI.

  • Retention also increases the chance of referrals and word of mouth as loyal customers become advocates.

Collaboration and partnerships for cost-efficient acquisition

Of course, there are many novel ways to reduce customer acquisition costs. 

Partnerships

Collaborations and partnerships with other complementary brands or influencers are great ways to engage paying customers without increasing your CAC to unsustainable levels. Some of the significant benefits here include:

  • Expanding your reach by accessing your partner’s audience

  • Sharing the load of marketing and advertising costs

  • Increased trust and credibility due to your partnerships.

Affiliate marketing

Affiliate marketing is a proven way to outsource content creation, SEO, and audience targeting to potential customers with credibility in your niche. Some of the benefits of affiliate marketing include:

  • You only pay for marketing that results in sales

  • Affiliate marketers do the work of identifying and attracting your ideal audience

  • Affiliate marketing is easy to scale.

Conclusion

There are many ways to minimize customer acquisition costs for your Shopify store. Some of the best ideas involve marketing automation, customer experience improvements, customer data analysis, and customer retention. 

It’s important to remember that lowering CAC is a constant process. It would be best to stay vigilant, experiment, and collect and use as much data as possible to stay ahead of the competition. What works for one ecommerce store might not work for you. Make adjustments, focus on customer retention, and watch your revenues grow.

When you want to get serious about lowering CAC, get MESA.

MESA helps Shopify stores automate a wide range of strategies that help drive down CAC without compromising growth and revenue. By simplifying these processes, MESA supports you to boost conversion rates, customer retention, repeat customers, and marketing spend efficiency while you focus on running your store.

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