Acquiring a new customer costs anywhere from five to 25 times more than retaining one (Harvard Business Review). This cost of bringing a customer into your online world and through the checkout is called a CAC (Customer Acquisition Cost) and reducing CAC should be the aim of any business owner who wants to use their resources efficiently and become more profitable.
A subscription box model is a great way of maximising the time and money you invest in sales and marketing – thereby bringing your CAC down. And, the market for subscription boxes is booming. Which means, a subscription business model is a good way to get more bang for your buck in your business.
So, let’s take a closer look at CAC and how to calculate it in your business.
What are Customer Acquisition Costs?
CAC is an important business metric that helps you to measure the cost of converting a potential lead for your subscription business into a customer.
Simply put, your customer acquisition cost is the total sales and marketing cost required to earn a new customer over a specific time period. Sales and marketing cost includes all marketing costs, salaries, commissions, bonuses, and overheads associated with attracting new leads and converting them into customers.
The more often a customer buys from you – the lower the CAC.
Calculating your Customer Acquisition Cost
CAC is calculated by dividing all the costs spent on acquiring more customers (marketing expenses) by the number of customers acquired in the period the money was spent. For example, if you spent $1000 on marketing in a year and acquired 1000 customers in the same year, your CAC is $1.00.
In very basic terms – you will spend more money on getting new customers than retaining them – which means acquiring customers and then retaining them should be part of your business strategy and that is exactly what a subscription box business model enables you to do – acquire and retain.
If you’re new to the concept of subscription services our Guide to Subscription Model Types is a great place to get started.
But lowering your CAC costs is just one of the many benefits of selling on subscription. Whilst Subscription services offset CAC by creating a steady and predictable cash flow from returning customers, there are two other factors that contribute to the lowering of your CAC when you utilise a subscription box model in your business: churn and the power of happy customers.
The Churn rate is the percentage of subscribers to your service who give up the service in a given period of time. The fewer customers you churn out, the more you keep and the more profitable that customer becomes.
Once you have turned your one-time customer into a repeat customer, your job is to keep them ‘subscribed’ – thereby reducing churn and continuing to reduce the initial CAC of that customer.
You can reduce your churn rate by delivering an exceptional experience to your subscribers and ensuring they always see the value in the box they receive from you. Staying in touch with your customers and providing them that value is made so much easier when you use Keesubscriptions with Mailchimp for your email marketing.
Happy Customer Factor
Subscription boxes help you to build a long-term relationship with your customer which in turn creates more opportunities for them to tell their friends and family about your product – which in turn reduces the cost of acquiring your subscriber in the first place.
The word-of-mouth promotion that results from happy customers can be a huge boost to your marketing programs. But don’t just rely on your happy customers to become your advocates. You need to be active in asking them to help spread the word – referral & VIP programs, discounts and gifts are great rewards for customer loyalty. Using our Keepsubscriptions App with your Maropost Commerce Cloud store can help you manage this easily.
A good subscription box will delight a customer each time they receive it which helps you to forge a strong relationship with your customer and create a sense of presence in their life. Each of these things will help you to grow your business and maximise the time, energy and money spent on acquiring that all important customer in the first place.