If you are familiar with Customer Acquisition Cost (CAC), then you should be afraid... very afraid of high customer acquisition costs! The final cost to acquire every single user for your app will have a major impact on the marketing success and overall growth of your business.
CAC is a metric that needs to be carefully weighed against the average Lifetime Value (LTV) of each user on your platform and it must always be lower than your LTV. Ultimately, there is no right or wrong CAC — it will always be entirely dependant on the expenses unique to your team. That said, the wrong CAC is one that is higher than your LTV, and the right CAC is as low as you can go without sacrificing your business integrity.
Here are a few strategies to help you reduce the cost of user acquisition for your app!
Focus On Conversion Rate Optimization (CRO)
One of the most effective ways to reduce the cost of user acquisition is to focus on conversion rate optimization (CRO). CRO is a calculated procedure of improving the rate in which targeted prospects take a desired action. This could be anything from downloading an app, following a CTA on a landing page, or even clicking on an ad.
Realistically, not every impression will turn into a lead, and not every lead will turn into a customer. However, every single impression and lead will contribute to your overall cost of user acquisition.
If you can increase your conversion rate, then you will decrease your CAC because you are netting more new customers through your marketing efforts. Successful CRO relies on understanding how users behave when they interact with points of your marketing funnel and learning how to make changes that demonstrate a greater appeal to them.
But wait! Before you go spending on CRO, you should be aware that any new costs will increase your customer acquisition cost, so be confident that these changes will have a positive impact before you act on them.
Establish Customer Referral Programs
Word-of-mouth is almost always one of the best ways to grow a business. In fact, the LTV of referred customers is 16% higher than customers acquired through other marketing channels.
One strong method for reducing your total customer acquisition cost is to 'piggy-back' on already acquired users by establishing a referral program of some kind. If you can operate a referral program that generates new users for zero/nominal cost from your existing users, then you can make a significant reduction to your CAC.
There are many great examples of apps who have developed strong referral programs that actively participate as a key part of their growth strategy. That said, one common trait of successful referral programs is to provide an incentive to users in exchange for every referral that they can generate.
Improve User Retention
It's always cheaper to keep a customer than it is to find a new one.
Unfortunately, most apps aren't that good at holding onto their users. In fact, apps on average have only a 42% retention rate over the first 30 days and a measly 25% retention rate over a 90 day period.
However, in this fact lays opportunity for those who can improve their user retention rates and it is also a great way to reduce the overall cost to acquire users. Every user lost is another user needed to stay afloat, but improving user retention goes beyond that simple equation. It also extends into the overall UX and success of the app. Higher retention rates can usually be equated to a better UX, which means that users will be more likely to recommend your app due to a positive experience. This will help drive even more growth organically or through an established referral program.