“Understanding Jewelry ECommerce Data” Series Chapters:
Part 1: Customer Lifetime Value
Part 2: Sales Conversion Rate
Part 3: Average Order Value
Part 4: Cart Abandonment Rate
Part 5: Email Conversion Rate
Part 6: Social Media Conversion Rate
Part 7: Revenue By Traffic Source
Part 8: Customer Acquisition Cost (you are here)
“Customer Acquisition Cost (CAC) measures the cost of converting a potential lead into a customer. Businesses will use this metric to determine their profitability because it compares the amount of money they spend on attracting customers against the number of customers they actually gained. “
When you’re using online marketing to attract customers to your jewelry store or sell pieces online, it can be tempting to continue dumping money into your marketing to get customers any way you can–regardless of the cost, time, and energy.
However, if you plan on running a profitable company you will need to balance and measure the total cost of sales and marketing efforts that are required to acquire a customer, known as your Customer Acquisition Cost (CAC).
Naturally, you’ll want the lowest Customer Acquisition Cost so that you get the highest profit per customer.
If you continue to keep putting money into your marketing without knowing how much it actually costs to obtain each customer, it’s going to be tough to run a profitable marketing model.
There are two ways to look at Customer Acquisition, and it’s largely based on your trust in Customer Lifetime Value. You see, if you are confident that your customers will become lifetime customers for your jewelry store and will purchase from you many times throughout their life, then it’s worth it to spend more money to acquire a customer – the upfront cost of marketing to them will be minimal compared to the long-term profit they bring.
However, if you’re really focused on short-term goals, then you’ll need to keep your average Customer Acquisition Cost lower than the typical average single sale.
CAC = Total Amount Spent on Customer Acquisition / Total Customers Acquired
There are three clear ways to improve your CAC, which will ultimately make every sale more profitable.
Improve your marketing flow
Targeting your ads to more relevant people and increasing website clicks/impressions at lower costs are a surefire way to increase your CAC – because naturally that means you’re spending less money to reach higher quantities of relevant people.
Make it easier for people to become customers
Take time to improve your website performance and appeal. The better the experience someone has on your website, the more likely they’ll convert into a customer.
Focus on Remarketing
Remarketing remains one of the most crucial elements of converting website visitors into customers. The majority of website visitors are not ready to buy at that moment, which is why showing them follow-up “remarketing” ads for some time after they’ve left your site has shown to be such an important part of online sales.