In the digital world, it is essential to understand the difference between customer acquisition cost and customer lifetime value. Companies focus on low CAC and high CLTV. Here is a blog that lists the information related to the strategies for start-ups and online companies, the methods to calculate acquisition costs, and the uses of CAC for investors. The subject is relevant to the cost accountancy subject. It throws light on the modern way of marketing and cost management.
The difference between CAC and CLV:
CAC is the cost or expenditure amount. CLV is the value or revenue from regular customers. CAC is for short-term goals and marketing strategies. CLV is for long-term business goals and investment strategies.
What is acquisition cost in cost accounting?
Acquisition cost is the cost of acquiring a new customer or buying an asset. Acquisition cost is calculated based on the expenses, discounts and transaction costs. The cost of acquisition has two different calculations in the purchases and sales departments. In the purchases department, the cost of acquisition is the cost incurred for purchasing an asset. In the sales department, the cost of acquisition is the expense or cost of acquiring new buyers.
On the inventory side, the cost of acquisition includes purchase price, cost to ship, cost for installation, and cost to make it work. On the marketing side, the cost of acquisition includes promotional materials, advertisements, sales commissions, and travel costs by the sales team. The cost of acquisition directs the companies to plan the purchases, sales, and future expenses.
The strategies for online and start-up businesses:
The customer relationship gets its reflection in customer retention. Customer retention shows trust, value, customer expectations and customer lifetime value. The calculation of customer retention is with a formula. The formula divides the customer at the end of the period by the customer at the beginning and multiplies the answer by a hundred. It shows the customer retention rate. It is calculated for one month, a quarter a year and after a full year. The calculation educates the business to think about ways to increase customer relationships. The old customers think about discounts, new product changes and old product quality. The big brands that rely on customer value are Amazon Prime, Starbucks, and Apple. It also improves word-of-mouth marketing among buyers. It gives a natural brand identity to the products. The following strategies help new businesses and internet-based services to prosper in the competitive market:
- Address the issues:
Customer behaviour and expectations require timely solutions. Enhancing the quality metrics according to customer expectations is a straightforward method to increase sales.
Personalisation differs depending upon the business. In a manufacturing business, personalisation is with the discount, delivery mode, colour and model. In a service-based business, personalisation is with the time, period and unique needs. In start-up companies, the rule of personalisation wins the competition. The market is perfect competition market. Many sellers produce or serve to satisfy the buyers.
- Customer relationship:
Customer relationship is the communication skills of the manager or customer care executive. Customers talk to the top management to complain or expect something from the company. Attending the customer and giving time-specific and money-specific solution, retains the customers.
- Loyalty programmes:
Companies introduce loyalty programs like discounts, rewards and membership benefits. This program is exclusively for old customers. Regular customers are identified with their buying patterns or special occasions. Greeting the customers on their birthdays, anniversaries and festivals make them happy. Introducing special points for old customers increases sales. This offer is to provoke the idea of purchase. Building a relationship with loyalty creates trust among the customers.
- Social engagement:
Social engagement is creating an image or video and promoting the material through e-mail, social media, websites, and YouTube. Customers of educational services use e-mail, websites and YouTube to compare similar products. In that case, the company owner should use the same channel with a variety of content to reach the customer or attract the buyer. Customers of a household product check the TV channel, social media or shopping app to compare similar products. The marketing channel of a product is decided according to the customer preferences. The customer is the hero creating marketing stories.
- Follow-up calls:
After-sales and before-sales, the follow-up calls create a bond between customers and sellers. Before sales, the customers require counselling. After-sales, the customers require a feedback and review channel. Providing these materials with personalisation help with sales conversion.
- Community building:
Facebook page, Instagram page, and WhatsApp group is grouping the customers under one roof. Attracting customers with different products, discounts, and advertisements and getting together make them proud.
- Affiliate programs
Affiliate marketing spread the product information and convinces the customers to buy the product. Website, YouTube, and social media are the tools that promote affiliate marketing. Websites use content marketing. YouTube and social media use video marketing. Marketing is a quantitative and qualitative tool. The quality of the content and video attract buyers. The number of content and video also increase the followers count.
- User experience:
User experience is adding aesthetic elements to the website, adding a call to action, and enhancing customer satisfaction. The landing page analytics throw light on the user experience. The conversion rate of a product increases by the sales funnel of the product. The sales funnel should satisfy and guide customers towards sales. The customers expect discovery, awareness, intent, evaluation, intent, loyalty and purchase.
- Make buying easy:
Online shopping is a workable solution for working professionals. Meeting the customers at their doorstep is an idea of making shopping simple. The technical problems and hidden costs make the customers think of dropping the shopping idea. So, keep the platform efficient and reduce the hidden costs to the customers.
How do investors use CAC value?
The investors think about the competition and cost of acquisition. If the market competition is high, the producers spend money on the costs of acquisition. This competition is the real story behind the success of Telecommunications Companies, streaming services and cable companies. They introduce family plans and festival-time offers designed to attract new customers. In the share market, the investors analyse the intangible asset value, intellectual property value, brand identity, competition and customer acquisition costs. These parameters drive the marketing team of the company. So, investors analyse the value and costs associated with the sales promotion.
The demand and competition drive the market. The long-term and short-term goals of the business become successful by understanding customer behaviour and satisfaction. Cost accountants use effective strategies depending on the nature of the market.