Learn the 12 optimization strategies we use to lower customer acquisition costs and customer lifetime value (LTV) across Google Ad campaigns.
Here you’ll find:
- What is customer acquisition cost (CAC)?
- 7 ways to improve CAC
- How do you measure CAC?
- Why is customer acquisition cost important?
- What’s the difference between CAC and CPA?
- Measuring CAC: Where do you start?
- Why clients choose ConversionIQ to lower CAC
- CAC and CLV: What is a good customer acquisition cost?
As both B2B businesses and consumers fully embrace digital adoption — moving business buying, grocery shopping, product research, online health, and other lifestyle utilities online — the opportunity to get new customers through digital advertising and other online channels is continuously growing.
In fact, global internet advertising revenue is forecasted to reach more than $723 billion by 2026.
By understanding your audience’s needs and behavior, you can advertise where they play, read, work, and check items off their task list. At the same time, competition is fierce and data privacy regulations continue to evolve, making precise targeting of the right customers for the right budget more challenging.
Research shows the average customer acquisition cost (CAC) increased 222% in the last eight years — from spending $9 to acquire a new customer in 2013 to more than $29 in 2022.
Measuring customer acquisition costs (CAC) as part of your digital advertising spend and overall marketing budget is crucial to grow a profitable business.
Let’s deep dive into customer acquisition costs; the differences between CAC, CLV, and CPA; and proven strategies to reduce CAC across Google Ads and other marketing strategies.
What is customer acquisition cost (CAC)?
Customer acquisition cost (CAC) measures the total costs of marketing to obtain a new customer, across all touchpoints with your business.
CAC looks further than first or last-touch attribution costs (e.g., behind-the-scenes costs that drive a person to click from an ad to completing a cart checkout).
Instead, CAC combines all of the costs across channels (and team salaries), influencing the customer to convert over time, and delivering a more complete representation of marketing spend. From there, you can look for ways to lower customer acquisition costs.
CAC helps you understand customer profitability and whether marketing and sales tactics are effective at generating new business.
7 ways to improve CAC
With your blueprint in hand, you know the marketing and sales tactics that are working, cost-effective, underperforming, or bleeding marketing costs.
The best part? Your plan is completely unique to your business and audience – approaching conversion rate optimization (CRO) from this perspective (versus flying by the seat of your pants) is a huge differentiator from competitors.
Look at these seven optimization areas to lower CAC:
- Better segment your audience
- Optimize ad campaigns
- Optimize landing pages
- Test and experiment
- Remarket website visitors
- Lean into loyalty campaigns and referral programs
- Take a cross-channel approach
1. Better segment your audience
Targeting everyone is a recipe for wasting money and tank conversions. Not everyone is in the market to buy your products and services.
The more focused your sales and marketing targeting is, the more you’ll learn from each audience to deliver more value in your marketing campaigns.
So segment your audience based on behavioral data (recent activity), past purchases, demographics, or region —whatever makes sense for your business.
Your audience size will decrease, but you can better personalize content to be hyper-relevant and helpful, and improve messaging, design, and offers to move paying customers over the finish line.
From there, expand into different audience segments, measuring success and learning what works best throughout their customer experience.
Keep in mind, some audience segments will be more competitive and costly than others. That’s why this exercise is so important.
You want to allocate more budget for the most valuable, highest converting segments and pull back the budget on low performing audiences, without impacting lead quality, relevance, and reach.
2. Optimize ad campaigns
Never set and forget your PPC ads. Your Google Ads strategy needs constant performance monitoring and optimization to ensure you’re paying for the most relevant clicks and conversions.
Regularly review your PPC analytics to refine keywords and search intent. Refresh the creative design, copy, and incentives in your campaigns, specific to your narrowed audience segments.
Let’s look at seven key optimization strategies to improve Google ads.
- Review target keywords: Use keyword research tools to find high-converting, lower-competition keywords. Add in some variety of short- and long-tail keywords and refresh your negative keyword list to weed out irrelevant traffic and improve ad targeting.
- Add ad extensions: Ad extensions call out additional information about your products and services in the ad, like adding location information or site links to complementary web pages. Ad extensions take up more prominent space in SERPs and enhance ads with additional information, improving click-through rates and lowering CAC.
- Improve your quality score: Objectively review your ad copy and landing page to find opportunities to make them more consistent and compelling to the audience. Improving your overall quality score can lower your cost per click (CPC) and improve ad rank.
- Personalize ads: Make ads as relevant and personal as possible. Try dynamic ads to increase conversions, where ads automatically change content and promotions, based on your landing page and what’s most relevant to each individual shopper.
- Lean into social proof: Incorporate social proof, like testimonials or reviews, to increase trust and credibility, and persuade new customers to try your products or services.
- Finetune ad timing: Review analytics to understand the days and times your ads convert the highest and schedule your ads to taget those time frames. Similarly, identify blackout times users are less likely to click on your ads.
- Refocus your budget: Improve your ad spend by setting daily and monthly budget limits. Review ad placement, targeting parameters, and bidding strategies to maximize conversions and lower CAC.Move budget from low-performing ads to ad groups converting at a higher level or driving a higher average order value (AOV).
Debbie Chew, Global SEO Manager at Dialpad, the largest AI-powered cloud communication platforms and business phone systems, explains.
“Instead of rigidly adhering to a fixed budget allocation, I recommend implementing dynamic budget adjustments – tracking performance and reallocating budgets based on real-time data,” she says. “For example, if we notice that a particular campaign is consistently delivering lower acquisition costs than anticipated, we can divert more budget to it.”
This flexible, data-responsive approach optimizes budget allocation over time, making sure that resources are continuously channeled toward the most cost-effective strategies, and adapting to changing market conditions and campaign performance.
We agree – continuously finetune your Google Ads strategy by optimizing keywords, creative, offers, and budgets. Look for data trends to pinpoint what’s working and why, and apply those learnings to improve CAC across your ads and overall digital marketing strategy.
3. Optimize landing pages
There’s nothing more frustrating than clicking on an Instagram ad for that perfect holiday sweater, to be dumped onto the homepage with no sweater in sight. Are you going to take the time to search the website to find that perfect sweater? Of course not – you’re clicking the back button and abandoning, and the sweater website already paid for your ad click.
Every ad campaign should link to a complementary landing page — not a catchall webpage. Review each ad campaign and landing page to ensure it’s a logical, on-brand, and consistent user experience to enhance the sales funnel.
Here are a few areas to optimize the landing page:
- Link directly to the final destination: For example, link product ads directly to the product detail pages (PDPs) for a seamless conversion. No bait and switch — give people the page they’re seeking.
- Align creative and copy: Show similar visuals and messaging as the ad for a consistent experience.
- Improve calls to action: Is your CTA in a prominent position on the page? Is the copy persuasive (e.g., talk to an expert, not submit.)?
- Personalize the landing page: Copy and imagery should reflect your target audience (industries, job titles, etc.)
- Test and optimize all web forms: Reduce the number of fields in your web form and ensure clear helper text on form fields, so users can complete it without frustration.
- Get website fundamentals right: Ensure the landing page is ADA-accessible, secure, and mobile-optimized.
- Improve your checkout experience: Reduce the number of steps in your checkout or add visuals or messaging to indicate steps in the process (e.g.; each step has a 1 out of 4, 2 out of 4, guiding the visitor through the steps.) Make things as easy, straightforward, and clear to shoppers to set their expectations and reduce friction along the way.
- Dial up the social proof: Add testimonials and reviews to put customers at ease
- Build trust and credibility: Add security seals, payment gateway logos, data privacy opt-in language, and other visual cues to demonstrate you take visitors’ privacy and security seriously — especially if you’re taking online payments.
Psst…want a leg up on the competition? At HawkSEM, we use our proprietary software, ConversionIQ’s AI insights, to pinpoint key optimizations on your landing pages and ads to supercharge performance. All of our clients enjoy the benefit of finding the best keywords to optimize ads with for higher conversions.
4. Test and experiment
Every business and audience is unique, and you want to lean into that differentiation — why should customers choose your business over alternatives?
Experimentation and continuous testing is the best way to determine what resonates with your audience. By a/b testing the copy, creative, offer, and audience continuously, you gain insights into what grabs attention, drives conversions, and reduces your CAC.
Testing and experimentation is one of the best ways to improve your paid ads strategy and optimize landing pages. Tools like ConversionIQ make this easy – using powerful AI insights and full-funnel attribution to pinpoint how to optimize campaigns, audiences, and landing pages for better results.
In fact, for big time clients Nike and Verizon, we identified campaigns with high conversions, but low average order values. We optimized the campaigns to target customers most likely to make repeat purchase — increasing lifetime value and improving ROAS by 109%.
5. Remarket website visitors
Combine remarketing emails and retargeting ads to drive repeat visits from people familiar with your business.
Improve retargeting campaigns by personalizing the ads based on the visitor’s previous interest. If they browsed a specific product category, like “running sneakers for women,” feature the same product imagery in your ads, with incentives for women’s running sneakers.
Retargeting campaigns are hyper-relevant and personal, increasing the likelihood that visitors return to the site to convert – at a lower cost than introducing your business to a brand new customer.
6. Lean into loyalty campaigns and referral programs
It’s more cost-effective to drive repeat business from existing customers, than to acquire a completely new customer relationship.
Loyalty programs reward customers by offering incentives for larger or repeat purchases. They’re low cost to set up and easily automated using marketing automation technology. It’s a win-win – customers feel the love of personalized outreach and offers, while you benefit from repeat business.
Referral campaigns, on the other hand, are a great way to introduce your business to a new customer, with the added credibility from a word-of-mouth referral. Customers close faster and at a higher rate (without costly marketing efforts) when referred to you from a trusted source.
Both of these approaches (promoted via email campaigns, Facebook ads, and paid ads) drive new and repeat business at a lower cost.
7. Take a cross-channel approach
Lower CAC by balancing paid, earned, and owned channels.
For example, email, content marketing, and organic social media are low-cost channels; typically the investment is marketing team resources versus spend.
Your marketing strategy should encompass many different channels to maximize your budget and lower CAC.
Test campaign messaging and creatives on social or in email to see how it performs. Take the best performing themes, copy, and imagery to use in paid ads – after testing and vetting its conversion potential.
By spreading budget across channels, you’ll learn what resonates with your audience and can apply those trends to paid channels, improving overall conversion rates and lowering CAC.
We took a cross-channel approach to optimizing CAC for Nava Health, an innovative group of holistic health and treatment centers.
Not only did we optimize landing pages, content, and campaign bidding strategies, but we also connected offline and online channel data to properly track physical appointment visits along with calls and online form fills.
This cross-channel approach gave us a clear picture of attribution and optimization opportunities, ultimately reducing CPA by 39% and increasing form submissions by 588%.
These seven approaches to lowering CAC require regularly tracking performance KPIs and continuously optimizing to improve conversions across your holistic marketing strategy.
Next, let’s look at Google Ads specifically — how can you lower CAC on PPC ads?
How do you measure CAC?
Measuring CAC is straightforward.
Take your full marketing spend, and divide it by the number of customers you’ve acquired — that’s your CAC.
Let’s say, your digital marketing company spent $27,000 on marketing and sales tactics in Q1. During the same period, you gain 100 new customers. The customer acquisition cost is then ($27,000 / 100) or $270.
From there, you can quantify the number of new customers needed to achieve revenue goals and work backwards to set a quarterly budget (leave some wiggle room to account for customer churn.)
Why is customer acquisition cost important?
Measuring CAC compares campaigns and channel strategies, to understand which tactics are most effective, relative to spend, to acquire new customers. Businesses obsess over CAC to learn how to get new customers in the most profitable and sustainable way.
Let’s say you run a hospital gift shop and spend an average $30 per click in advertising dollars. But, customers only purchase a $20 stuffed bear to send to loved ones. Your customer acquisition costs are higher than the revenue generated per customer. You’re losing $10 on every sale – too high to be profitable long-term.
It’s not sustainable to spend your ad budget this way — you’re losing money on every sale. You must optimize your campaigns to lower ad costs or start nurturing these customers to spend a lot more over time.
If you have a CAC problem, don’t give up. Focus resources on improving lower-performing campaigns, by updating the creative, copy, landing page, or audience segmentation to incrementally improve performance.
When all else fails, call in a professional. The PPC consultants and conversion rate optimization experts at HawkSEM can optimize your CAC to boost profits.
What’s the difference between CAC and CPA?
CAC looks at total spend across the customer journey — measuring all of the sales and marketing investments leading a prospective customer through awareness, engagement, and conversion stages.
It’s frequently mixed up with cost per acquisition — a campaign-level KPI measuring the cost to generate a lead (e.g., through a content download or demo sign-up).
Both should be measured and fine-tuned to optimize campaign performance, balance budget and costs, and improve success across your marketing strategy.
Measuring CAC: Where do you start?
Every business needs a strategy to measure marketing and advertising spend, and whether those dollars are acquiring new or repeat customers.
First, take the time to understand your costs, losses, and successes to form a benchmark for continuous improvement to decide how to decrease customer acquisition costs.
Audit marketing and sales performance
Looking at customers closed last year or your “ideal” customer, review the length of the sales cycle, types of sales and marketing touchpoints, number of employees involved in the sale, and other details.
Take note of the channels and tactics effectively guiding potential customers through the conversion funnel. Which have a low customer acquisition cost?
If you’re an e-commerce brand, going from ad to click to conversion may be short. If you’re a B2B business, you’re looking at a much longer sales cycle with far more touchpoints.
The goal here is to understand:
- Historical spend: Analyze historical data to understand the tactics yielding the lowest customer acquisition costs to inform an initial budget allocation.
- What worked best: Review the mix of audience segments, channels, campaigns, and sales touch points converting new customers. Note campaign performance metrics, return on investment (ROI) per channel, number of customers acquired, length of time for acquisition, and costs at each touchpoint. Takeaway? Do more of what works best.
- What underperformed: Analyze poor performing strategies to decide whether to improve your approach or reinvest in more successful tactics.
- Your audience: Look at the greater marketplace. Is your target audience engaging elsewhere? Could you be missing a profitable audience segment? Survey customers to ask where they hang out online or how they research a purchasing decision. Look at different social media channels or popular websites like Reddit, and listen to what customers share. The goal is to understand your current customer base better, while finding any untapped markets to expand your strategy and widen your audience reach.
- Think critically: Is there an imbalance in investment and outcome? Are there bottlenecks lengthening the sales process? Are too many team members involved in each sale? Where can you optimize performance and reduce costs?
With this data in hand, you can measure your CAC and possible methods to improve it.
Benchmark your CAC
Do the math – calculate current costs to acquire a customer to decide the best strategies to reduce those costs.
Take all of the costs noted above, including personnel salaries, and divide it by your total number of customers acquired in the same year. That is your current CAC — and the bar to beat.
You’ll continuously return to this benchmark, documenting performance and costs across campaigns to find ways to decrease CAC. Your goal is to lower advertising costs, shorten sales cycles, improve performance, and get more customers.
Now the fun part begins — let’s look at seven key areas to optimize to improve CAC across your sales cycle.
Why clients choose ConversionIQ to lower CAC
You need a robust tracking and attribution strategy in place to understand performance, identify optimizations, and lower CAC. High-level reporting won’t cut it, you risk making poor decisions based on gut instinct or an incomplete picture, instead of objective data.
That’s why we rely on ConversionIQ to track every step of the customer journey, attribute conversions to campaign specifics, and identify where to reallocate marketing funds.
With CIQ, we confidently help clients refocus their budget on those higher performing campaigns, to reduce human error, bias, and wasted spend.
Plus, CIQ’s full-funnel visibility enables us to easily apply its customer data to less expensive channels, like paid search or social.
CAC and CLV: What is a good customer acquisition cost?
Customer Lifetime Value (CLV) estimates how much revenue a business generates from a customer over the length of their relationship. This differs from CAC, which measures the many costs of acquiring that customer for the first time.
CLV measures the potential value of every customer, taking into account their likelihood to purchase again, average order value (AOV), and success rate for cross-selling or upselling. CLV differs based on your audience and business offering.
A company selling roofs, for example, is selling a high-ticket item with a high AOV, but they’ll likely only sell one or maybe two roofs to a single customer. Each roof lasts approximately 20 years, and many people move before needing to replace a new roof.
A company selling soccer cleats, on the other hand, sells a lower AOV product, but consumers are likely to repurchase every year, as their feet grow and the shoes wear.
AOV, customer retention, and propensity for repeat purchases all factor into estimating CLV.
Will Yang, Head of Growth & Customer Success at Instrumentl, an all-in-one grants platform, explains, “If you’re trying to figure out whether it’s worth spending $1 or $10 on advertising for a new customer, you’ll need to know how much will they spend over time? How long will they stay? What kind of discounts should be offered to incentivize them? All of these factors are part of calculating CLV, and all affect how much profit you can expect from each new customer.”
CAC is a short-term KPI that tells businesses the effectiveness of their marketing and sales tactics. It’s used to determine budgets and channel investments. CLV is a longer-term KPI to help businesses retain and maximize the value of every customer.
Improving CAC means better aligning your audience and offer and investing money in channels with the highest conversions or lower costs. Improving CLV may mean investing in customer success personnel, creating loyalty programs, or offering self-serve portals to deepen customer loyalty and drive repeat purchases.
Both metrics are crucial for healthy businesses to understand, measure, and improve. The larger the CLV, the better your margins and budget for marketing and sales tactics to drive customer acquisition goals.
Customer acquisition costs (CAC) take into account all touch points across the sales funnel — sales, ads, email marketing, social, website, etc. to measure the costs of engaging and converting a new customer.
Businesses must understand their current CAC and analyze marketing channels, sales costs, and conversion rates to optimize for better performance and more effective spending.
By identifying your most effective pay-per-click ads, you can confidently increase your ad spend to do more of what’s working or reduce your budget on strategies that aren’t driving as many conversions.
Properly measuring the holistic customer journey (like the full-funnel attribution we capture in ConversionIQ, our proprietary marketing technology), empowers marketers to improve every customer touchpoint, gain eye-opening audience insights, and optimize campaign performance and spend.
Lowering CAC is challenging, but critically important for a sustainable and profitable business. Need help? Reach out for a free consultation with a HawkSEM advertising and CRO expert, and make sure to demo ConversionIQ.