On this page, we’ll break down customer acquisition cost by both traditional and online channels and take a look at which channels provide the greatest return on investment (ROI) for your company.
Call 888-601-5359 to speak with a strategist about digital marketing plans from WebFX, or keep reading to learn more about which channels provide the best customer acquisition costs for marketers today.
What is customer acquisition cost?
Customer acquisition cost (CAC) refers to the expense associated with gaining a new client or causing someone to purchase products or services.
CAC is calculated by dividing all the marketing expenses spent on acquiring more customers by the number of new customers acquired during the time period the money was spent. For example, if a company spends $1,000 on marketing in one year and earns 100 new customers during that year, their CAC is $10.
When calculating CAC, you have to keep in mind that money invested in marketing may not yield immediate results. For instance, your company may invest money in marketing in a new region or you might be in the beginning stages of an SEO campaign. In this case, you’ll want to wait a few months before evaluating the success of your new strategy.
In addition, it’s important to evaluate CAC in terms of profits per sale. While a $20 CAC may be great for a BMW dealer, it would be a bit hefty for a company that only makes $2 per sale.
Why is customer acquisition cost important?
With Internet marketing, you can track prospects as they move from leads to loyal customers. You can also create highly targeted campaigns to convince prospects to purchase your products and services.
CAC can be used to optimize your ROI from advertising investments. If you can reduce the amount of money it takes to convert new customers, you will enjoy a higher profit margin and can provide greater value to customers.
It’s also important to understand CAC per marketing channel. This will help you to determine where to increase your marketing spend to get the greatest ROI and which channels you can eliminate. When you allocate more of your budget into lower CAC channels, you can reach more customers for a fixed budget, allowing you to maximize your profits.
Acquisition cost per channel
Let’s take a look at CAC broken down by popular marketing channels.
Like all advertising channels, television advertising has its pros and cons. While you have the potential to gain exposure and reach a wide audience via TV ads, it’s expensive and easy to waste money on unqualified customers.
With television advertising, you will likely spend between $63,000 to $8 million on setup costs and around $342,000 per 30 second advertisement. In addition, if you choose to continue TV advertising, you will likely be charged an agency hourly rate.
Though TV ads can be very effective, it’s important to consider whether they are worth the investment for your company. After all, you can produce a YouTube video and post it to your social media channels for a considerably reduced price, and online advertising is projected to surpass TV advertising by 2019.
When calculating CAC for TV advertising, you will need to take into account the immediate impact of each TV slot, as well as delayed site visits and conversions, and increased conversions due to familiarity with your brand.
Due to the lack of analytics data, it’s difficult to determine how many customers you acquire per TV advertisement, making it challenging to quantify CAC for television ads.
The cost of radio advertising varies based on the station and spots you choose.
While some radio stations will offer to produce your ads for free, setup costs typically range from $300 to $1000. In addition, it costs about $3 to $500 per 60 second radio advertisement plus the cost of additional spots to continue advertising on the radio.
Much like TV advertising, though, it’s difficult to determine exactly how many new customers you earned due to these ads, since there’s no way to track who visited your store or site as a result of hearing one on the radio. As a result, it’s nearly impossible to calculate CAC.
Advertising in national magazines can increase brand awareness and help your business reach a wide audience.
However, like TV and radio advertising, you can waste money trying to reach people who aren’t interested in purchasing your products and services.
Magazine ads typically cost anywhere from $500 to $397,800 for setup costs and about $250,000 per advertisement. If you plan to continue advertising in magazines, you will likely also pay an agency hourly rate in addition to the cost of media. This means that you can easily spend your whole budget advertising in one magazine.
People may read your advertisements in a magazine, you’ll never know which ones become customers as a result. Therefore, it can be difficult to determine CAC for magazine advertising due to the lack of analytics data associated with traditional advertising methods.
Local newspaper ads have the potential to be one of the most affordable forms of advertising in terms of upfront cost. But these newspapers don’t receive as much attention as TV, radio, or even magazine advertisements.
For national newspaper advertising, setup costs typically range from $11 to $1.4 million, and about $113,000 per ad. You may also have to pay for additional design in the future.
Much like other traditional advertising channels, it’s also difficult to track conversions from newspaper ads, making it a challenge to calculate CAC for newspaper advertising.
Direct mail marketing can be cheaper than other traditional marketing methods since sending ads via mail is less expensive than paying a publication for ad space, but you have to take into account the cost of publishing and postage.
You can expect to pay around $52 per direct mail order in addition to setup costs of $50 to $7200.
While direct mail allows you to specifically target potential customers, many of them ignore direct mail pieces, so your ad could end up in the trash. There’s also no way to determine exactly how many customers you acquire through direct mail advertising.
Though direct mail is often cheaper than other traditional advertising methods, it is still more cost-effective to establish relationships with customers via email and other online channels.
Did you know that the Federal Trade Commission receives 18,000 complaints each year about telemarketers?
Let’s face it, nobody likes telemarketing, and you will likely only annoy potential customers with this advertising technique.
While telemarketing allows you to directly reach potential clients, you can rack up hefty advertising fees depending on the number of outbound calls your company makes.
For telemarketing, you can expect to pay $7-$70 per hour or $35-60 per lead in addition to $100 to $5200 to get started. And it costs about $20-$60 each hour to continue with telemarketing.
Then, you can calculate CAC by dividing the total amount of money spent on telemarketing by the total number of telemarketing conversions in a specified time period. This means that unlike most traditional advertising channels, it is possible to calculate your CAC with telemarketing.
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Search engine optimization (SEO)
Search engine optimization (SEO) is the process of improving your website so that it ranks higher in search engine results pages for keywords and phrases related to your business.
With SEO, you have the potential to bring a steady stream of qualified traffic to your site. Plus, your efforts build upon themselves, meaning that instead of using ads that stop reaching customers as soon as you stop paying for print space or airtime, you’re investing your budget in a strategy that will continue to improve over time.
A well-planned SEO strategy will help your site achieve higher rankings in search engine results for the keywords and phrases your potential customers are searching. This means that instead of targeting a huge demographic that may not be interested in your services, you’re making your business as visible as possible to the people who actually want to find it.
You can expect to pay about $4,000 to $10,000 for SEO setup costs and about $1,000 each month if you are working with an Internet marketing firm.
To calculate customer acquisition cost for SEO, you will need to add together all of your SEO costs including total man hours and other monetary investments. Then, you can divide that number by the total number of SEO conversions, which you can track via analytics software.
For example, if you spent $10,000 on SEO in one year and acquired 10,000 new customers through organic traffic, your CAC would be $1.
In addition to being an affordable advertising option, SEO allows you to reach your best prospects where they’re already searching online.
Pay per click advertising (PPC)
Pay per click advertising (PPC) allows you to select which keywords and phrases you want to trigger your advertisements. Then, if your bids are among the highest, your ads will display above organic search results for targeted keywords and phrases.
One of the best parts of PPC is that you don’t have to wait for results. As soon as you launch a campaign, your ads can start driving relevant, targeted traffic to your website. If you’re looking to quickly boost revenue and sales for your company, PPC is a great option.
PPC is also cost-effective. After you cover the initial setup cost of $4,000-$10,000 to launch your PPC campaigns, you only pay a few cents each time people click on your advertisements. WebFX offers three different PPC packages, so you can select the plan that best reflects your budget and PPC goals.
In addition, PPC increases conversion rates and helps you generate more revenue because it targets people who are searching for the products and services your company provides.
With PPC advertising, you can use analytics software to track the number of people who convert after clicking your PPC ads. This means that you can easily determine CAC by dividing total PPC spend by the total number of new customers acquired through PPC advertising.
And if you use major platforms like Google AdWords, these calculations are automatic – meaning all you have to do to see your CAC is check the analytics section of your account.
The costs of email marketing are fairly similar to the costs of implementing SEO or PPC campaigns. You can expect to pay anywhere from $4,000-$10,000 initially, a few cents to $3 for each qualified visitor, and around $500 per month to your Internet marketing firm.
In the U.S., 72% of adults prefer communicating with businesses via email, and unlike telemarketing, email marketing allows potential customers to interact with your content in a way that doesn’t interrupt their daily routine.
Email marketing has the potential to be one of the most cost-effective marketing channels, and it generally produces high quality leads because the people on your mailing list have chosen to be there by signing up for a newsletter.
With email automation, you can also follow up with your visitors based on their behavior on your website and provide targeted content designed to move them through the purchase funnel.
You can easily track people who convert after clicking on your email advertisements, using software like MyEmailFX. Then, you can simply divide that number by your total email marketing expenses in a given time period to arrive at CAC for email marketing.
Content marketing costs anywhere from $6,000-$12,000 initially. However, if you choose evergreen topics, your content can continue to yield results years after it is published, and you won’t have to pay a cent to continue bringing in new customers.
Because content marketing has no continuing costs, your CAC for each piece will continue to decrease as more and more customers convert from it.
In addition, content marketing adds value to the buying cycle by educating consumers about products and services that they might be interested in purchasing.
For example, if you’re an interior designer, you might consider publishing an infographic with tips for redesigning a basement. Then, if someone comes across your infographic online, they will be more likely to check out your website to learn more about the services you provide. They may even recommend your business to friends and family members in need of interior design services.
Using tools like Google Analytics, you can see the last channel a customer visited before completing a sale with your online business. This will help you determine the role your content played in attracting and converting new customers. For example, someone might visit a blog post and then follow your CTA to a product page where they complete a transaction.
To determine CAC, you can total your content marketing costs for a specified period and divide that number by the total number of new leads earned during that time frame.
Tips for reducing CAC
Now that you understand how to calculate CAC for popular marketing channels, let’s take a look at how you can reduce CAC to maximize your profits.
Improve conversion rates
Conversion rate optimization (CRO) allows you to maximize conversions with the same amount of traffic, and you want to convert the most visitors as possible into paying customers. In other words, high conversion rates equate to lower CAC.
One of the most popular CRO methods, A/B testing, allows you to text various elements on your website and online content to determine which version produces the most conversions.
You can also experiment with various site layouts, calls to action (CTAs), and design elements to improve conversion rates and lower the costs associated with acquiring new customers.
Marketing automation software can help your business streamline the lead generation process and reduce customer acquisition costs.
For example, you can buy three days’ worth of marketing automation software for the cost of 5 minutes of human work.
This will save your business both time and money and help you attract more leads at a lower cost.
Focus on innovation
The Internet marketing world is constantly evolving, and your business should focus on finding innovative ways to reach new customers. When you work with a trusted Internet marketing firm, like WebFX, this is easy.
We’ll help you identify and implement new solutions that can help you cut customer acquisition costs and get the most out of your marketing dollars. In addition, we’ll help you test new ideas and analyze data to help you make the most informed decisions.
Want to learn more?
Interested in learning more about how Internet marketing can help you acquire more customers at lower costs?
WebFX is a leader in the Internet marketing field, and we’ll work with your business to design a custom plan that helps you attract and convert more customers.
Contact us today to learn more and get a free quote.