Getting a new customer to buy from you creates a fantastic and deeply-rewarding feeling. But what if the cost of acquiring that new customer puts your profit margin in danger and robs you of your ROI?
This is where knowing the average customer acquisition cost for eCommerce comes in handy!
As a business owner, you undoubtedly want to grow and expand your brand. More often than not, this means:
Increasing your customer base
Getting them to buy
Then keeping them coming back for more.
In other words, you have to stay on top of your customer acquisition game!
But, do you know the cost implications of your business acquiring one new customer?
Over the years, savvy marketers have realized that acquiring new customers is great, but not when it happens at any cost.
Thankfully, understanding the finer details of customer acquisition costs can help you set your marketing priorities right and balance out your customer acquisition to ROI ratio.
So, before we explore the average customer acquisition cost for eCommerce, what is CAC?
What Does Customer Acquisition Cost (CAC) Mean?
Customer Acquisition Cost, or CAC, represents the amount of money that any business (or eCommerce) spends in getting a new customer.
In other words, your customer acquisition cost encompasses the expenses of your marketing (including the cost of the sales team) that went into gaining one customer.
The CAC is an essential metric for measuring the returns of your marketing and advertising efforts. So it’s no wonder many brands and businesses now pay close attention to their CAC numbers.
As more brands and businesses use web analytics to make informed decisions, this becomes a more renowned concept. This parameter is used to measure the return on investment of efforts taken to grow your clientele even further.
Beyond that, calculating your customer acquisition cost gives you insight into whether your business can afford to spend that much on acquiring new customers. Or you’ll need to make some changes to your marketing strategy.
Here are some factors that affect the customer acquisition cost of any business — small or large:
Cost of maintaining your marketing team
Cost of running your sales team
Fortunately, you can do more specific business marketing and advertising with recent online marketing innovations. So, calculating your customer acquisition costs becomes more straightforward.
What is the Average Customer Acquisition Cost for eCommerce?
Like most industry benchmarks, it is very challenging (if not impossible) to put an exact number on the cost of customer acquisition in eCommerce.
This is because of the differences between businesses across the enterprise — from business sizes to target products, brand products, and even order value.
Thankfully, we did arrive at an average customer cost for eCommerce as a guide for you.
The average CAC on the eCommerce scene is around $45 to $50. However, this is only a range, with many small businesses typically spending about $20. Furthermore, eCommerce giants such as Amazon and eBay spend as high as $150 to acquire a single customer.
On the extreme end of the spectrum, eCommerce businesses in the electronics, beauty, and industrial sectors sometimes spend above $200 during the customer acquisition efforts.
Remember, there is no hard and fast rule to customer acquisition costs. As long as the customer lifetime value for each prospect is at least three times your CAC, then investing in their acquisition is a great decision.
So, treat the average customer acquisition cost in eCommerce only to guide your business decisions.
How To Calculate Your Customer Acquisition Cost
Calculating the average customer acquisition cost for your eCommerce first requires knowing how much you spent acquiring new customers.
To calculate your business’s CAC, you’d first add up all the costs associated with gaining new customers (including advert, marketing, and sales expenses).
Then, you divide the total amount by the number of people you acquired from that particular advertising campaign.
The result you get is the total cost your business incurs when acquiring a single customer.
Now, let’s express this information with numbers.
Suppose your business spent $1,000 on marketing and acquired 250 new customers during a specific period. Then, your CAC would be $1000 divided by 250, which translates to $4 per customer.
Remember, you need to add up all your expenses to get an accurate result.
As a general rule of thumb, the goal for every business is to have their customer acquisition cost as low as possible. Or at least, their CAC should be proportional to their returns on marketing and advertising expenses.
Not surprisingly, the average customer acquisition cost varies from industry to industry, including eCommerce. But, we’ll get into that in a moment.
Why Do You Need To Know Customer Acquisition Cost?
Without any doubt, customer acquisition cost reveals essential information and is a crucial part of any online store. The following are some of the reasons you need to know customer acquisition costs:
It improves your profitability
A business that understands its CAC has an increased ability to boost its profit margin. How? You compare the value of each customer to the amount you spend on acquiring them.
Once you do this, all you have to do is find a way to reduce your CAC to boost your profits!
It simplifies decision-making
Your customer acquisition costs highlight essential information you need to guide executive decisions within your company. For instance, you can carry out better budget allocation for your various marketing and advertising channels.
Furthermore, calculating your customer acquisition cost may also show you if there’s a new switch or review your marketing strategy.
It helps you optimize your marketing to focus on customer lifetime value
Knowing your customer acquisition costs can help you allocate resources efficiently.
By comparing your CAC to your customer LTV, you can amend or increase your marketing efforts to ensure maximum returns in the long run.
It helps you determine your payback period
Depending on how much you spend on acquiring a new customer and their estimated lifetime value, sometimes you’d want that money back in your business much sooner rather than later.
Thankfully, knowing your business’s CAC will guide the timeline for gaining your money back from your customers.
Knowing your business’s customer acquisition cost can provide valuable insight into how well your brand is doing to acquire new customers and the ROI for the efforts.
Understandably, many factors that influence your CAC are beyond your control. However, now that you know the average customer acquisition cost for eCommerce, you can optimize your marketing strategy and boost your profits!
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