How to Reduce Customer Acquisition Cost

In this clip from our eLearning series, Allison shows you some ways to reduce customer acquisition cost using the CAC to CLV ratio.

Reduce customer acquisition costs using the CAC:CLV ratio

In the example below, we can see that the CPC channel has a CAC:CLV ratio of about 1.2 - which isn't great.

graph of customer acquisition costs

The CPC channel spent $250K in CAC and got $321K back in CLV representing 1.2x

The ideal ratio between CAC and CLV is about 3x. In the example above, what can the brand do to increase that ratio from 1.2x to 3x?

A simple way could be to reduce customer acquisition cost until you achieved that 3x ratio. However, that's not the best approach.

Approaching CAC from two levels

What you should do instead is look at the CAC:CLV ratio from two levels. The first level is to look at overall CAC:CLV across the organization, and the second is to look at the ratio at the channel level. There's no exact science as to what you should do to bring the overall CAC:CLV ratio down, but by looking at the channel level you can make a judgement call as to whether or not that channel is bringing enough value for your organization to continue investing in it. 

Would those customers have come in otherwise from a different channel with a higher CAC:CLV ratio? It's hard to know for sure, so you just need to keep testing and optimizing the efficiency for each channel to reduce customer acquisition costs.