Lead generation alone isn’t enough, which is where most efforts are applied

AAARRR Pirate Funnel — Acquisition

39% of efforts in the acquisition of a growth funnel yield a 51- 100% return.

Acquiring a new customer is 5 times costlier than keeping an existing one — OutboundEngine

Background

Put simply, customer acquisition cost (CAC) is the cost of acquiring a new customer. CAC is a metric no organization can afford to ignore. CAC is important as it guides organizations to make such decisions as:

• Which channels should we put more effort into?
• What promotional activities yield the best returns?
• Is it worth spending more on reaching quality leads?
• Who are the customers who yield the highest return?
• How to lower costs?
• Should we change our price?
• How can we segment our customers better?

Such strategic questions help to leverage two important things, lower costs, and increase the yield on spending. Strategies for reducing customer acquisition costs are using levers like conversion rate optimization, shortening your sales cycle, rewarding referrals, and creating added value.

Context

The cost of acquiring a customer is vital to ensuring your unit economics work. From the cost of a customer to the lifetime value, those metrics need to be well-measured and guide strategic optimization decisions. Here is a look at the average CAC in a variety of industries:

• Travel: $7
• Retail: $10
• Consumer Goods: $22
• Manufacturing: $83
• Transportation: $98
• Marketing Agency: $141
• Financial: $175
• Technology (Hardware): $182
• Real Estate: $213
• Banking/Insurance: $303
• Telecom: $315
• Technology (Software): $395

By nature, demand increases over time in healthy industries, indicating that the cost of acquiring new customers will always go up. That said, so does the customer lifetime value

Takeaway

Getting customer acquisition costs down and customer lifetime value up is the name of the game. Keeping track of costs, and ensuring strategies that lower costs over time are effective is vital. At the same time, understanding the increasing value of customers over the lifetime of a customer needs to leverage value-creation that makes sense and is profitable.

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ABOUT — Growth Thinking

Growth Thinking is a design methodology for growth hacking by the bestselling author of Ready Set Growth Hack, Nader Sabry. It has been applied as a book and a $1 million challenge known as the 10-day growth hacking challenge, which has generated $138m in revenue. This methodology has been adopted by universities like Harvard and Stanford, fortune 500s (Google/Microsoft), and unicorns.