The Best Methods to Optimize Cost per Acquisition in the Startup Environment

 

Most entrepreneurs will agree that successful startups are built upon three pillars: team, product and market. They usually emphasize the product/market fit as one of the most important factors that can make or break any startup.

However, while these three factors are crucial, they are not solely responsible for a startup’s success.

Some of the savviest startup leaders understand that continuously optimizing the cost of acquiring new customers, also known as cost per acquisition (CPA), is key to sustainable growth. 

That being said, let’s explore some of the best ways you can optimize your CPA.

  1. What is CPA and how to calculate it?

Cost per acquisition is a marketing metric based on which a business can accurately measure the cost of acquiring new customers.

This metric also allows businesses to see just how successful their marketing campaigns are.

To calculate your CPA, you divide the total campaign cost by the number of new customers it has generated.

So, if your campaign managed to bring in three new customers, one costing $2, the next $3, and the third $4, your average CPA for those new customers will be (2+3+4)/3=$3.

It’s important to note that your average CPA will be based on your actual CPA, or the actual amount of money you spent on acquiring new customers. With that in mind, your average CPA may sometimes differ from your target CPA.

Target CPA is a predetermined amount of money you wish to spend on acquiring new customers. Needless to say, if your average CPA exceeds your target CPA, this may indicate that you need to redesign your campaigns.

Ideally, every business – and particularly startups – should aim to keep their average CPA equal to or lower than their target CPA.

  1. How to optimize your CPA?

Now that we know what CPA is and why it is so important for sustainable growth, let’s look at some CPA optimization methods.

  1. Stay on top of your customer acquisition costs

To be able to drive your customer acquisition cost down, you need to track your CPA regularly. The only way to know if you are making progress, what is working and what is not, is to test and observe.

Here, you will also need to calculate the average purchase value which will tell you how much your customers end up spending on your products. 

Aside from this, you will need to determine the average lifespan of your customers, or for how long the customer is interacting with your business. This also contributes to customer loyalty. 

And finally, you will also need to determine your customer lifetime value, which will help you determine how much money your customers will spend on your business during their lifetime.

  1. Make sure your content is targeted and relevant

Long gone are the days of one-size-fits-all marketing strategies. To be competitive on digital channels, focus on developing targeted and relevant content.

Let’s take website content as an example and let’s assume that your office management business has branches across the US, but you want to target audiences in Illinois.  

You hire a Chicago web development and design agency that understands and can create content that targets your audience’s unique pain points such as maintaining outdoors under Chicago’s infamous winds.

If your audience sees their needs reflected in your content, they are more likely to convert.

It’s important to note that the longer it takes to turn a lead into a customer, the greater your CPA will be. So, to capture the right audiences from the get-go, you will need to determine your buyer personas and tailor your content to them. For example:

Segment your newsletters –Personalize your campaigns and offers based on audience segments to increase click-through

Target relevant keywords – By targeting relevant keywords, you will make it significantly easier for your audience to find your business. Not only will you boost your startup’s exposure on Google and Bing, but you’ll also offer more value to your customers as your solution will pop up when they need it, i.e., search for it.

Create educational content – Customers prefer businesses that offer value, aside from the products or services they’re trying to sell. What this means is that an average consumer prefers branded content that educates to that which simply tries to sell them on something. Going back to our earlier example, let’s assume you also want to reach audiences in LA and Hollywood; You can easily consult with professional Los Angeles web developers to create landing pages and blog content that targets LA clients’ unique office management needs.

  1. Develop a conversion rate optimization strategy

A conversion rate optimization strategy is a subset of consumer acquisition that focuses on converting prospects into customers.  

For example, you can funnel a lead to your website, but if your website doesn’t provide them with the information and easy conversion path, this lead will bounce and your acquisition rate will go down.

Some of the most effective tactics include:

Show social proof –About 81% of consumers check reviews before purchasing and/or are more likely to purchase if they see positive reviews. So, investing in online reputation, including programs to incentivize reviews, can affect your brand’s credibility and increase your conversion rate as a result.

Make your website accessible and easy to navigate – Your website is your main marketing tool. If it’s inactive, takes too long to load or is difficult to use, your leads will bounce; in other words, you will lose them.

Tell your audience their data is safe with you –Educate your users on the measures you take to keep the data they leave on your website safe, as well as how you will use their data, especially if you expect them to leave any type of personal information on your website.

  1. Turn customers into brand advocates

A sort of an end goal for all businesses, regardless of their size, is to turn their customers into brand advocates.

According to research, it’s about 5 times cheaper to retain an already-existing customer than it is to attract a new one. It’s also worth noting that word-of-mouth customers are even cheaper to acquire.

To encourage brand advocacy, you can:

Create a customer loyalty plan –By offering incentives to your most loyal customers, not only will you encourage repeat sales, but you are likely to inspire them to share their love for your brand with the people they interact with. This is free and, arguably, the most valuable exposure for your startup.

Be environmentally and socially responsible –Today’s customers, especially Millennials and Gen Z, are looking to support businesses that echo their values. Today’s consumer is much more critical of brands’ behavior and has more access into the behind-the-scenes to hold brands accountable. On top of that, 73% more Millennials are willing to spend a bit more on sustainable goods, while 62% Gen Z prefer to buy from sustainable brands.

Practice social listening – In the end, just as it is important to encourage your customers to talk about your business, you also need to listen to what they are saying. Your customers’ honest conversations about your brand are an excellent source of new ideas for improvement, as well as content creation.

  1. Test your landing pages

Finally, another great way to improve your conversion rates is to test your landing pages.

Create a few variations of your landing page and test them out to see which of these will bring in the most users as well as convert them.

Run A/B test by checking your users’ average time on page and click-through rates to determine the best layouts and messaging.

In doing so, you can make data-based observations and optimize your website for conversions.

 

  1. Recap

Every business, and particularly startups, need to understand the importance of their CPA and find a way to optimize it for maximum efficiency. In order to do this properly, one will need to:

  • Understand what CPA is and how to calculate it

  • Learn how to optimize their CPA by

  1. Monitoring their acquisition costs

  2. Creating relevant and targeted content

  3. Developing the right optimization strategy

  4. Turning their consumers into brand advocates

  5. Testing their landing pages

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