How to build an effective customer acquisition strategy in eCommerce
An effective customer acquisition strategy starts with targeting more customers like your existing best customers. Learn how to play smart!
Customer acquisition is an ongoing process that helps your eCommerce company grow and expand its market share. With so many emerging online stores, you need a strong customer acquisition strategy that attracts more new customers like your existing best customers.
Customer acquisition costs are constantly rising, so you want to invest your budget wisely, attracting customers that are more likely to become loyal customers.
One-time buyers might be good for business when you perform end-of-season campaigns, but they’re not the ones that will sustain growth. We’ll show you how to build an effective customer acquisition strategy that attracts the right customers to your store.
What is Customer Acquisition?
Customer acquisition represents the ongoing process you perform to attract new customers to your business. Customer acquisition aims to attract more customers like your company’s best customers.
Brands use customer acquisition tactics to convert potential customers to first-time buyers and retention tactics to transform them into repeat customers.
Your company’s sustainable growth depends on loyal, happy customers, so you want to know everything about them and use this knowledge to gain new customers similar to your existing best customers. Approaching the right potential customers will help you decrease customer acquisition costs, and the customer retention strategies will help you improve customer lifetime value.
Depending on your business model and the products or services you sell, not all customers will be profitable from their first purchase. Companies that keep track of customer acquisition costs and customer lifetime value can design more effective acquisition campaigns.
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How to Calculate Customer Acquisition Cost
Customer acquisition cost (CAC) is a comprehensive metric that allows you to calculate how much your company spends on acquiring new customers.
How do you calculate this metric? You might be tempted to do quick math by looking at the latest Google or Facebook ad reports, but that isn’t your customer acquisition cost.
To calculate CAC, you need to know your:
Media cost;
Marketing tools;
Marketing wages;
Agency fees;
Overhead costs.
The formula for CAC is the sum of all costs listed above divided by the number of customers acquired during the analyzed period.
The Customer Acquisition Cost Formula
How do you know if your company spends too much or too little on acquiring new customers?
The answer is simple: you keep track of the Customer Lifetime Value to Customer Acquisition Cost ratio, briefly put CLV to CAC ratio.
> Discover the Customer Lifetime Value formula + 10 KPIs that have a great impact on your CLV.
The formula for CLV to CAC ratio
Generally, a CLV to CAC ratio of 2:1 is a good ratio, meaning you’re spending the right amount on acquiring new customers.
If you want the most accurate result for CLV, our advice is to use the net margin when applying the CLV formula. When using the net margin for calculating CLV, a good CLV to CAC ratio is 3:1.
A CLV to CAC ratio below 2:1 or 3:1 shows you that you’re spending too much on acquiring new customers. Are you doing this on purpose to gain market share, or did things get out of control?
Keeping track of the CAC and CLV to CAC ratio helps you evaluate and optimize your customer acquisition strategy so you can attract and retain more profitable customers.
Customer acquisition strategy examples
You have many alternatives to get creative with your customer acquisition initiatives, mixing content marketing with email marketing, referral programs, social media, and paid ads. Still, a good marketing strategy starts with understanding who your best customers are and what motivates them to buy from you and not from another brand.
All that you need is your first-party data. You’ll start by identifying your ideal customer. Then, you define the ideal customer profile. You’ll dig product performance data in to find the sticky products that you’ll use to create irresistible and personalized offers. You’ll have better customer acquisition costs using lookalike audiences. In the end, you’ll evaluate the performance of your marketing campaigns using cohort analysis.
Identify your ideal customer and define the ideal customer profile
To attract more customers like the best you already have, you need to know who these customers are and their particularities.
Concentrating on the ideal customers helps you attract more than one-time buyers or deal hunters, bringing you more of those loyal customers who also are more likely to become your promoters or ambassadors.
One way to identify the ideal customers is to perform RFM analysis and use the RFM scoring system to identify the segment with the perfect score.
According to the CVO methodology, the ideal customers are part of the RFM segment named “Soulmates.” What you find about this segment through quantitative and qualitative research will help you define the Ideal Customer Profile.
For the qualitative research, we recommend the Jobs To Be Done (JTBD) framework, which will help you understand the journey a customer takes from the first thought to the moment of purchase and beyond as a satisfied customer.
The answers you get from your top customers during JTBD interviews will help you define the ideal customer profile, which will be essential in creating your marketing strategy and designing acquisition campaigns.
The Jobs To Be Done timeline (source: the CVO course)
An example of the importance JTBD has on customer acquisition strategy comes from one of our eCommerce clients. The subscription-based company sells natural anti-inflammatory supplements. After reaching a plateau in their retention and struggling with attracting new customers, they wanted to know who their most loyal customers really are.
Before the JTBD interviews, the client believed that their ideal customers were active people who love sports and needed their products to sustain intense training or recover from post-workout pain.
After going through the entire JTBD process, the company discovered that most of the people in their Soulmates segment are people who want to recover from a health problem and maintain a normal lifestyle. These new findings significantly changed how they approach marketing and sales strategies.
The JTBD framework helped the client identify the motivations behind the purchase, rethink the customer acquisition campaigns and messaging in your digital marketing campaign, and redesign their customer loyalty programs.
> Get actionable advice about the Jobs To Be Done framework from CVO Academy instructor Bob Moesta and start building a healthy foundation for your customer acquisition strategy.
Identify and prioritize the products and services that attract new customers that are likely to become repeat customers
You want to attract customers who will return to your store and recommend you to others through your referral program. The products that you promote to your potential customers play an essential role in the success of your acquisition campaigns.
A product assortment analysis will help you distinguish sticky products from toxic ones and optimize your offers for all customer types.
Your sticky products are the products with the best results among your loyal customers, helping you boost CLV and attract new customers that will return to your store again and again. Toxic products might look good in terms of sales volumes but are associated with high customer churn rates, so they’re not profitable in the long run.
The Product Optimization Framework (source: the CVO course)
Let’s look at another customer acquisition strategy example from a fashion store that sells boho-folk outfits for women. This online store has defined its ideal customer profile and has a good retention rate.
The customer support team noticed a lot of returns for a particular dress advertised as a handmade product in one of the historical regions in Europe, while the label on the product indicates that the dress is made in India.
The marketing team dug a little deeper and discovered that first-time customers who ordered that dress never turned back. Although the dress was attractive and looked good in terms of sales, it harmed the user experience and the brand image.
The store eliminated the item from their offer and understood the importance of performing product assortment analysis regularly to spot top and toxic items. This experience also determined the company to make sure there are no differences between the online product description and the labels of the products they sell.
> Learn all you need to know about the Product Assortment Framework & customer acquisition techniques from CVO Academy instructor Valentin Radu.
Personalize experiences and use your top customers to build lookalike audiences
You know what your customers need from the Ideal Customer Profile and what your best customers buy from your product assortment analysis. Use everything you know about them to personalize the online experience for potential customers.
Set some quizzes on your website to help you identify the job they want to hire you for and show them personalized landing pages and offers. The sooner you find their motivations, the better you’ll get at building relevant customer experiences on all channels, from website to email marketing and sponsored ads.
Your customer data is your goldmine for attracting more customers like the best ones via paid ads. Using lookalike audiences for Facebook ads is one of the best ways to target audiences similar to your best customers and keep the customer acquisition costs under control as you don’t waste money on people who don’t fit the ideal customer profile.
You can generate your lookalike audiences either manually, by extracting data from your store and uploading it to Facebook, or automatically, by using integrated tools like Audience Builder by Reveal.
How to generate a custom audience in Audience Builder within REVEAL
Facebook is one of the most vital customer acquisition channels that helps you extend the customer base with new profitable customers.
The stores that use the Audience Builder feature in Reveal for customer acquisition efforts want to automate their lookalike audiences and focus more on crafting the best messaging and offer that will attract the right audience in their customer acquisition funnel.
An example of Audience Builder used in optimizing the customer acquisition strategy comes from an online store that sells bio foods and wants to gain more customers like their Soulmates and reactivate their loyal customers who haven’t purchased in the last 60 days.
The company created a lookalike audience based on their Soulmates to attract new customers and used this dynamic audience in their Facebook ads, improving their targeting on this social media platform and spending the budget wisely on customer acquisition.
To reactive the dormant customers, the store created a custom audience targeting only those who haven’t purchased in the past 60 days, reducing churn risk and generating a new purchase to keep recency and frequency high.
> Attract the right people into your sales funnel and reengage existing customers using the Dynamic Audience Builder.
Use cohort analysis to evaluate your customer acquisition strategy
You want to keep track of what happens with your newly acquired customers after they place their first purchase. Cohort analysis helps you evaluate your customer acquisition strategy, observe seasonality and measure acquisition campaigns’ performance in terms of stickiness.
Cohort by First Purchase Moment report in Reveal
The image above shows the second-month stickiness for an eCommerce store that sells products with high purchase frequency. The results show that the cohort of new customers attracted during March 2020 had the best 2nd-month stickiness as 18% of them returned in April for their second order.
The data extracted from this cohort analysis report helped the store identify the elements that bought the excellent campaign performances in March and use the insights to generate new successful acquisition campaigns.
Wrapping up
While the eCommerce landscape is forever changing, building your customer acquisition strategy based on the most profitable customers will always be a winning recipe. Despite the rising advertising costs and aggressive competition, your success always depends on how connected your business is to its customers.
Customer-centric companies are dominating the eCommerce industry. If you want to level up your skills, you can join the CVO Academy and learn everything from acquisition to retention from world-renowned experts.
Frequently asked questions about customer acquisition strategy
What is customer acquisition strategy?
The Customer acquisition process helps your company attract new customers, grow the business, and gain market share. Companies that want to attract customers that will become repeat customers are creating strategies based on their most profitable customers. Designing acquisition strategies with customer retention in mind will help you lower customer acquisition costs and increase customer lifetime value.
What are acquisition strategies?
Acquisition strategies help companies convert potential customers into new customers. To design an effective strategy, you have to identify what type of customers you want to attract, their motivations, and what products or services win their trust and transform them into repeat customers and brand ambassadors.
How do you write a customer acquisition strategy?
Your team needs a documented customer acquisition strategy for better results. All the data and insight you gather in the analysis phase should be included in your strategy: who are you targeting, what are your goals, what channels will you use, what products and services will you promote, what messages are you going to use, how do you measure success and improve your customer acquisition strategy.
What is a customer acquisition model?
A customer acquisition model includes all strategies your company uses throughout the marketing funnel. Your model is defined by the strategies you’re using for generating new leads, nurturing those leads, and transforming potential customers into new customers.