Customer acquisition cost (CAC) is the dollar amount that you’re spending to acquire customers. It’s a crucial ecommerce metric that gives insight into how profitable your business is. A low CAC indicates that your marketing efforts are effective. A figure on the higher end of the scale, particularly one that supersedes your customer lifetime value, means you’re spending more money on acquisition than you’re making in profit.
Customer acquisition costs are rising across the board. One report found back in 2013, it’d cost the average merchant $13 to acquire a new customer. By 2022, that’d risen to $29—a 222% increase in just eight years.
Brands in all industries are feeling the impact of recent industry changes, like iOS 14’s privacy regulations and Google’s looming ban of third-party cookies. It’s harder than ever to track potential customers, driving up the money you need to spend to acquire new ones, so it’s critical to adopt effective strategies to mitigate these expenses. This guide shares how to do it, complete with brands that have successfully lowered their customer acquisition costs in spite of the challenges against them.
Proven strategies to lower customer acquisition costs
1. Make the most of top-performing locations
To minimize customer acquisition costs, you’ll need to maximize the return on investment (ROI) of your advertising and marketing spend.
Instead of treating your target audience as equal, analyze your ecommerce analytics to locate your highest-converting paying customers. Prioritize this region in future campaigns—your ecommerce data has proven that you’ll spend less to acquire a customer in this area.
Let’s put that into practice and say you’re a global ecommerce brand that sells products in 20 different countries. Despite your HQ being in the US, the Netherlands is your top-performing location. Campaigns here have a 23% higher ROI than other territories.
Some marketers would prioritize another region and aim to bring it up to par with the top-performing location. But sometimes, a more fruitful approach—particularly if your goal is to reduce customer acquisition cost—is to hone-in on the Netherlands campaign. This might mean:
- Assigning more of your advertising budget to the Netherlands ad set
- Localizing your marketing campaigns to translate content, including social media and website copy, into Dutch
- Expanding your accepted payment methods to include iDEAL (the Netherlands’ most popular payment method) to reduce cart abandonment
2. Highlight best-selling products
People can shy away from making a purchase if they’re unsure whether they’re making the right decision.
Best-selling products have an element of social proof baked into them. Simply highlighting the fact that best-sellers are loved by other people can induce herd mentality—the idea that people follow the crowd to fit in, often at the expense of their own judgment.
Highlighting specific items as “best-selling” also improves brand perception. It subtly implies that other people are buying your products and love what they’re receiving, rather than being a faceless brand with no external validation to lean on.
Check your ecommerce analytics to determine your best-sellers. You could:
- Add a sticker on the product photo to indicate that it’s a best-seller
- Create a “best-sellers” category for people to locate popular items quickly
- Feature the best-sellers on high-traffic pages, such as homepage and landing pages
- Recommend them to email subscribers who’ve completed a relevant quiz
- Feature best-sellers more prominently in advertising campaigns
- Include them in product recommendation carousels
- Cross-sell best-sellers to people who have similar, related items in their cart
- Gift the product to influencers who might promote it to their audience
3. Engage effectively with your audience
Community has never been more important to consumers. Ever since the COVID-19 pandemic forced people to find their crowd online, humans have been searching for ways to find online connections. It’s a hard task—the World Health Organization recently declared that we’re in the midst of a “loneliness epidemic.”
For a long time, community building was seen as a byproduct of social media marketing. It’s your job to talk to your customers. If they talk among themselves, that’s an added bonus. Now, many social media marketers are pivoting to community-first content. They’re inviting creators to produce content for their accounts, hosting livestreams to chat with viewers in real time, and even launching branded online forums that give potential customers a virtual home to chat about the things they love.
Take Duradry, the deodorant DTC brand that built an online community around its products. They worked with Shopify Collabs to find authentic creators who already love and use the deodorant. These people were prime candidates for producing user-generated content (UGC). They had lived experience with the issue Duradry’s products solve, and already had an affinity for the brand.
The results of Duradry’s creator program were two-fold: existing customers felt like part of the club when they worked with the brand they loved, and Duradry got a library of high-quality UGC that they could use to recruit new customers on social media. Now boasting over 250 creators who’ve driven $50,000 in affiliate sales over just seven months, Duradry reduced customer acquisition costs by 29% just from this strategy.
The difficulty with social media engagement is that it needs to be consistent. Email subscribers need an omnichannel customer experience so that what they’re seeing on social media, in-store, or in search results is reflected in their personalized offers.
“The narrative is not what it used to be six years ago”, says Jeremiah Curvers, cofounder and CEO of Polysleep. “We don't cut the middleman to save money anymore. We cut the middleman to pay more for Facebook and Google ads, but ultimately, the cost is acquisition. It's getting pretty close to having a proper brick and mortar store. Ultimately you have to follow that narrative where it makes sense for the consumer. You can't work your way around that."
4. Strategize cart abandonment recovery
A study from Baymard Institute has aggregated data from 48 different studies on ecommerce cart abandonment, with the average abandonment rate found to be 69.9%.
Checkout design optimization is a hidden revenue generator. The cost of acquisition can go down if you provide outstanding checkouts designed to decrease cart abandonment rates. If someone converted during their first checkout, you wouldn’t have to follow them around and drive lost customers back to your site through abandoned cart recovery campaigns
Effective ways to optimize the checkout and reduce CAC include:
- Enabling guest checkout: Almost a quarter of people abandon their carts because the site wanted them to create an account. Guest checkout requires the bare minimum—a customer’s name, shipping address, and payment details—so people spend less time debating their purchase at checkout.
- Displaying trust signals and security badges: Some 18% of people who abandoned their cart did so because they didn’t trust the site with their credit card information. Customer reviews, five-star ratings, and celebrity endorsements can help build that trust needed to cross the final hurdle.
- Accepting more payment methods: Mobile wallets, credit cards, and buy now, pay later payments are increasing in popularity. But they’re not just a preference—some 9% of people will exit the checkout process if their preferred payment method was unavailable.
The simplest fix? Shopify Checkout—the #1 converting accelerated checkout on the internet, based on a study completed with a Big Three global management consulting firm in April 2023. Shop Pay can convert as much as 50% better than a typical/guest checkout, and the mere presence of Shop Pay drives a 5% lift in lower funnel conversion. In other words, even if someone doesn't use Shop Pay, the presence itself leads to a conversion lift.
“Brands that provide personalized experiences to their customers, including a supporting checkout they know and trust, are able to remove some of the friction within the buying journey to ensure higher conversion,” says Travis Hess, EVP of DTC at The Stable, Part of Accenture Song. “Shop Pay is an ideal solution for these retailers and a proven way to increase conversion.”
The long-term effects of Shop Pay also help reduce CAC. You won’t need to spend as much money retargeting—our data shows that Shop Pay users are 77% more likely to make an additional purchase with Shop Pay on any Shopify store after making a purchase. They also have a 9% higher repurchase rate.
5. Streamline conversion funnels
It’s rare for customers to land on a product page and complete their purchase within the same session. People might exit your site in search of reviews, check out your social media content, or visit your FAQ page to see how long they can expect to wait for shipping. This journey is called a conversion funnel: the pathway people take from first becoming aware of your brand to purchasing a product.
Conversion funnel analysis pulls data from various sources to identify where people drop off. The highest drop-off rate typically occurs between starting a session and viewing a product, but if you’re driving people toward specific product pages, it might happen just before they checkout. Shopify’s integration with Google Analytics will be able to tell you (provided you’ve set up events in Google Analytics).
Say your highest drop-off rate is between your product and cart pages. Your product pages would be top priority for any optimization. You might want to:
- Look at heatmaps to figure out which sections people tend to look at immediately before leaving.
- Add an on-site survey to ask people what they’re looking for, then incorporate the most popular answers on the product page itself. If people say they’re looking for a concealer that targets blemishes and your copy doesn’t currently say this, A/B test whether drop-off rate decreases when you add it.
- Add time-sensitive offers that prevent people from leaving with a mental note to return later, such as countdown timers for free shipping or discounts.
“Shopify has enabled us to leverage insights from millions of direct connections that merchants have with their customers so we can reach high-intent buyers,” says Josh Bultz, chief revenue officer at Nathan James. “The reporting Shopify offers is a game-changer for DTC merchants. We are now able to invest in the right areas where there is measurable ROI.”
6. Foster customer loyalty and referrals
Loyalty programs and referral strategies are cost-effective means of acquiring new customers through existing ones. Studies have shown that although repeat customers account for just 21% of a brand’s customer base, they generate almost half of all total revenue. Retaining them is also five times cheaper than acquiring new customers.
“Up until recently, success of consumer companies was measured by how well they can use the Facebook ads arbitrage system,” says Eli Weiss, senior director of CX and retention at Jones Road Beauty. “If their CAC was low, they could earn and churn customers to success, because each order was profitable.
“As iOS 14 rolled out and paid acquisition became a highly competitive space, investors are looking at CAC to LTV ratios, and businesses are learning that retention is not just about squeezing more money from current companies, but rather a somewhat direct route to creating brand evangelists and superfans.”
Customer retention squeezes more money out of the loyal customers you’ve already acquired, which increases CLV and gives you more cash to play with in campaigns designed to acquire new customers.
A loyalty program also supercharges repeat customers’ influence on other people. Existing customers, particular those who identify themselves as brand evangelists or superfans, make for ideal influencers—even if they don’t boast a social media following of millions. Almost 7 in 10 consumers trust recommendations from their own network over those coming from influencers.
With a loyalty program, you don’t have to invest cash into reaching that network—the customer is doing it for you. You’ll just need to give something in return, like a discount on their next order or a free product. But let’s say your CAC is currently $55. Even a 25% discount on a loyal customer’s next order would reduce the amount you’d have to spend on acquiring the person they’ve referred—not to mention the extra revenue you’d generate from either person.
7. Smart pricing and bundling
Customers cross the finish line when they see more value in buying your product than exiting the site without it. Bundles influence that, especially when you’re combining several products to solve a certain challenge or help customers achieve a particular goal.
Take Caraway, for example. The cookware brand places huge emphasis on their customer acquisition strategy. “We do see continued pressures and costs elevating in the customer acquisition space,” says Connor Dault, Caraway’s VP of growth and digital product. “It's what 50% of my team is focused on 100% of the time, so it's obviously a huge, huge area of priority for us.”
One solution was to bundle together their cookware into a set—matching items that are available to buy separately, but at a higher cost than the bundle offers. Each item solves the target customer’s problem: finding non-toxic, high-quality cookware that fits a certain aesthetic.
On the product bundle page, Caraway uses decoy pricing to show how customers get a great deal. People can save $100 when they buy the bundle, but it’s only available for a limited time. They need to take action now if they want to take advantage.
The added bonus of bundling is that kitting helps you reduce the expense of shipping each item individually. The bundle is shipped together in a single box, from a single warehouse, with units that were packed simultaneously. There are no extra costs associated with packing multiple individual items and the shipping materials required for each order.
In a bid to combat rising customer acquisition costs, Caraway supercharged their product bundle with Shop Campaigns—a way to target users with the Shop Pay app who haven’t yet bought from the brand. The campaigns nudge people to make their first purchase with a Shop Cash incentive: if a customer buys through the campaign, they’ll increase the dollar value of what’s in their wallet.
The beauty of Shop Campaigns is that brands set a fixed CAC that they’re willing to pay, and they’re only charged per successful sale. For this reason, Shop became a huge acquisition channel for Caraway. The cookware brand drove over $1M in revenue at a fixed CPA, and saw a 16x growth in Shop app orders during 2023. “We were looking for efficient customer acquisition, and we found it,” Connor says.
8. Implement A/B testing for continuous improvement
It’s rare for things to stay consistent when you’re managing an online store. Whether it’s consumer preferences that are changing, evolution in your market, or new products you’re releasing, you can’t settle. Lowering CAC is an ongoing task.
A/B testing keeps you on the front foot. By split-testing different elements, you can spot trends and patterns before they become common knowledge. This is a competitive advantage—you can get ahead of your competitors and deliver user experiences that secure a first-time purchase with a new customer. And because A/B testing can take place in marketing campaigns, you could diminish customer acquisition costs while also increasing revenue.
Use your conversion path analysis to prioritize which parts of the customer journey need the most attention. From there, remove friction points and improve conversion rates by A/B testing elements like:
- Landing page design
- Advertising copy
- Creative elements, such as images and video
- Formatting choices, such as bullet points and microcopy
- Calls to action
- Product positioning
- Cross-selling and upselling items
9. Enhance UX with CRO
Driving traffic to your website is one of the most expensive parts of customer acquisition. You might’ve spent money on retargeted email campaigns, social media ads, or display ads that influence someone to click. Conversion rate optimization (CRO) influences more people to buy products once they land on your website, so you don’t have to repeat the expensive process of driving traffic again.
“We've optimized our website for a superior user experience, making it easier for customers to find and purchase products,” says Guillaume Drew, founder of Or & Zon. “Real-life testimonies and reviews about our products and service have also enabled us to build trust with potential customers, which, in turn, has helped lower our CAC.”
When replicating this strategy for your online store, experiment with the following elements and record whether they impact conversion rates:
- Adding your value proposition to different page elements
- Incorporating live chat for customers who have pre-purchase questions
- Offering an incentive, such as free shipping
- Displaying your returns policy for on-the-fence shoppers
- Creating categories for a specific challenge or purchase motivation, like “Anniversary gifts” for an online store that sells jewelry
- Compressing code to improve page load speeds
Guillaume adds that Or & Zon expanded its scope to fine-tune the user experience across all touchpoints: “We have been engaging enthusiastically with our customer base through social media and deploying SEO strategies that highlight our brand's uniqueness and sustainability ethos. We've also invested significantly in creating educational content around our products and practices, supporting our customers' journey, and in return, earning their trust and loyalty.”
These efforts have proven fruitful. Guillaume says that Or & Zon originally started with a CAC of $40. The CRO tactics have dropped this to $32—a 20% reduction in customer acquisition cost.
Take a multifaceted approach to lowering CAC
As the ecommerce landscape continues to grow more crowded and technology makes it harder to target potential customers, there’s never been a more pressing time to employ a multifaceted approach to lowering CAC.
New entrants and established players are all vying for consumers' attention—but that’s not to say your CAC has to take a hit. Whether you’re promoting best-sellers or split-testing paid advertising campaigns to determine the most effective creative, it’s these small wins that compound over time for improved profitability and growth.
Lowering customer acquisition costs FAQ
What is the average customer acquisition cost?
- Arts and Entertainment
- Average CAC: $21
- Health and Beauty
- Average CAC: $127
- Fashion and Accessories
- Average CAC: $129
- Home, Furniture, and Garden
- Average CAC: $129
- Electronics
- Average CAC: $337
How can online stores reduce customer acquisition costs?
What marketing strategies effectively lower customer acquisition costs?
- Prioritize customer retention
- Launch a referral program
- Build a community
- Display social proof
- Enable guest checkout
- Run retargeted win-back campaigns
- Optimize your marketing funnel
- Leverage influencer recommendations
Why is CAC vs. CLV analysis crucial for ecommerce success?
How do loyalty programs impact customer acquisition costs?
Customer loyalty programs require minimal marketing costs—other than the incentives you’re giving to customers who refer you. People are also more likely to convert into new customers when they’re given a recommendation from someone who’s opinion they trust.
