In a world of ever greater competition, intense battles for attention, and rise in costs, it’s no wonder that Customer Acquisition Costs (CAC) are rising across the board. But, a lot of the time there’s a greater problem if you see an increased CAC. Rising CAC can be a great indicator of a procedural error in the thought-to-be well-oiled machine of your sales, marketing, and revenue cycles.
While consulting your buyer journey is always a great jumping off point when CAC is up, a quick check-in might not reveal or solve anything. Diving deeper into each part of the go-to-market team will help you keep CAC down in a sustainable way..
Here’s some questions to get you started on a deep dive when CAC is high.
While often not where you’d think to start with CAC, Customer Success (CS) functions can help reveal a lot about why CAC may be high at your company at this time.
Are you tracking churn in a meaningful way? Cancellation reasons that you can pull reports on can help you identify trends in account types, so you can find your at-risk customers before they actually churn.
By quantifying reasons – and not leaving them to solely open text – you’re able to segment and better understand your churning customers. This data will be helpful in every other revenue focused function. Similar to an ideal customer profile, a churn profile enables your team to engage at the right time, helping with overall retention.
That age old adage that keeping a customer is X times cheaper than acquiring a new customer? It’s true. And often that “X” is anywhere between 5 to 25, according to Harvard Business Review. Plus, if you start losing customers, your acquisition costs are going to go up, because your GTM teams will have to acquire more and more new customers to cover your company’s revenue goals.
If your CRM is anything like most startups, there’s a lot of data and objects that may or may not be useful to, well, anyone. But when’s the last time you actually checked out what data points each of your teams are using?
It may sound redundant to dive in past the relevant key performance indicators (KPIs) for each team, but investigating might actually show you that there are glaring errors – or vital missing variables – affecting the team’s overall performance.
Maybe your sales team is seeing patterns in rejection reasons, but rather than having a much more trackable dropdown selection, they’re collecting rejections as open text. Maybe they’re simply not capturing essential data points. Maybe they’re collecting too much data that is not relevant to the qualification, onboarding, and ongoing success of your new clients. You won’t know until you examine things more closely.
Checking in and making sure that each team—sales, marketing, customer success, and even finance—are using the correct fields in your CRM is one step toward better navigating the digital landscape of your company.
And, maybe you want to make some of those important fields required, that way no one is trying to skip out on insightful information that can help you steer the business in the right direction, especially if CAC is high.
In hypercompetitive industries, there are often promotions attached to marketing campaigns. Whether that’s a pair of AirPods for every demo booked, a personalized gift for a meeting with an SDR, or simply a gift card if you sign up for a new subscription, each of these incentives can impact CAC in an overall negative way.
If you’re having to use incentives just to get people in the door, then it may be a good idea to re-evaluate your overall messaging and positioning. Perhaps you’re being too product-focused and not diving deep enough into your consumer’s problems and how your solution can help them.
After all, brands that tap into the customer’s needs are far more likely to see higher loyalty, better retention, less churn, and more successful cross-sell and upsell opportunities. So, how can you get to know your customers better?
Tap into your Customer Success teams. Talk to your customers—try running an annual customer survey, or dive into your existing NPS surveys. Find what makes them tick, how your product makes their lives easier, and what issues they have with your software or brand.
From there, you can find ways to construct promotions that offer an improved experience over a quick, one-time reward that just increases CAC. Think more about limited time offers, like an extended free trial or Black Friday deal, or borrow other ideas from B2C if you’re running a B2B brand. Your future customers may thank you.
As we settle into this world of increased CAC and uncertain economic outlooks, it’s important to take steps to evaluate our businesses from the inside out. Rather than continuing to increase spend, it’s better to find ways to create sustainable, long-term revenue growth than focus on short-term growth just to hit numbers.
By looking at infrastructure and current strategies, we can evaluate where we’re at currently and move toward establishing better internal practices to help create a business model that does not rely exclusively on paid channels and ever-increasing spend in the sales and marketing functions.
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