One thing that differentiates SaaS from other industries is the emphasis on customer acquisition. Acquiring good customers and retaining them for a significant amount of time is important for SaaS businesses as SaaS products are typically subscription-based. Such businesses make money through recurring subscriptions, and not just from a one-time purchase.
However, it’s not that easy to acquire SaaS customers as they always make informed decisions and go through multiple stages of buyer’s journey and sales pipeline. As per research of The Marketing Blender website, 80% of decision-makers prefer to get company information from a series of articles rather than an advertisement.
To be successful, SaaS businesses need to find a way to reduce acquisition cost while simultaneously increasing their conversion rates. In this post, we’ll give you some ways to decrease SaaS customer Acquisition cost.
What Is Customer Acquisition Cost?
Customer acquisition cost (CAC) is the amount of money that a company spends to acquire a new paying customer.
Customer Acquisition Cost Formula
Customer Acquisition Cost = Total Sales & Marketing Expenses / Number of New Customers.
It could also be calculated for a specific marketing channel. For example, if you Spend 50000 on Google ads that bring 20 paying customers then,
CAC through Paid Search Engine advertising = ₹ 50,000/20 = 5000 CAC
Customer acquisition expenses include ad expenses, outsourced agency fee/in-house specialists’ remuneration, marketing automation tools’ charges, etc. that directly help in lead generation and client onboarding.
Suggested Read: Top B2B SaaS Marketing Strategies for Customer Acquisition
Importance of Reducing SaaS Customer Acquisition Cost for SaaS business
The concept of CAC is important because it allows startups to track and measure how much they’re spending to acquire new customers and compare it to their lifetime value (LTV).
A company’s customer acquisition costs can have a major impact on its overall profitability. If a company is spending more to acquire customers than it is making from selling to them, then it will eventually go out of business.
Lowering CAC helps you to increase the ROI and ensure long-term growth. It also boosts the confidence of shareholders and investors of the company.
If a SaaS company lowers its customer acquisition cost while increasing its customer retention rate, it will have more money to reinvest in other growth initiatives and developing the product rather than being in a rat race.
Ways to Reduce Customer Acquisition Cost
Lowering CAC for SaaS is a challenging task that requires continuous tracking, analyzing, improvisation, and testing. There are two ways a SaaS company can lower acquisition cost. The first one is lowering lead generation cost and generating larger number of leads or increasing conversion rates with higher number of sales.
Tips for Lowering Lead Generation Costs
Reducing lead cost requires a personalized data driven approach and is often short-term. Here are some of the tips that will help capture more prospects at lower ad expense:
- Use Multiple Marketing Channels
When it comes to running ads for SaaS product, the target market could quickly be saturated on one marketing channel.
For example, if you are advertising a predictive analysis tool for business consultants on LinkedIn, you can only generate a specific amount of lead per day since it’s a niche SaaS product. Increasing budget of the ad will either bring in irrelevant leads or increase the bid per click.
Therefore, it’s important to run campaigns on multiple channels to optimize your cost per lead (CPL)
- Leverage Retargeting
Retargeting is one of the most effective methods to reduce customer acquisition costs and bring back lost prospects into the lead funnel. Retargeting visitors through other channels with better pitch or USP would help you to run cost effective campaigns.
Suggested Read: How Can SaaS Companies Drive Growth with Word of Mouth Marketing
- Follow Data-Driven Approach
A personalized and data-driven approach is the key to success when it comes to reducing customer acquisition costs. By using data to segment and target your audience, you can create highly personalized ads that will resonate with your target audience and result in lower SaaS customer acquisition cost
- Automate Campaigns
By automating your marketing campaigns, you can reduce the amount of time and manpower spent on manual tracking, retargeting, or ad campaign optimization.
- Referral and Affiliate Programs
Last but not the least, one of the most effective ways to reduce customer acquisition costs is by implementing a referral or affiliate program. By incentivizing customers or affiliates to refer new prospects, you can increase your acquisition rate without burning much cash.
- Reduce Free Trial Friction
The goal of a free trial is to allow users to experience the value of your product before they make a purchase. However, if you make it difficult for users to sign up for a free trial by adding email verification, asking debit/ credit card details, etc. they may never get to experience your product and you’ll miss out on a conversion. To reduce free trial friction, make sure you have a clear and concise call-to-action (CTA) that lets users sign up for a free trial with just a few clicks.
- Optimize Lead Generation Funnel
Conversion rate could be increased by optimizing the lead capture forms, follow up emails and call to actions (buttons, popups etc.) on the website. A/B testing can help identify which forms, follow up emails, and CTAs are working best for your company.
Although lowering lead generation is possible to some extent for SaaS businesses, ultimately it could only be optimized to an extent after which it gets stagnant. Therefore, it’s important to focus on the other half of the cost reduction i.e., optimizing the conversion rate.
- Increasing Conversion Rates
Higher conversion rate means that you can convert more leads into paying customers. Here are some tips to increase conversion rate.
- Reduce Dependency on Outbound Marketing
Outbound marketing approach allows you to reach customers while inbound marketing approach lets customers reach you. One example of outbound marketing is the leads generated through ad campaigns, which have lower conversion rates than organic lead.
More effective marketing strategies will be organic social media promotion and focus on SEO and Content marketing. You can also provide free tools, eBooks, data, and other resources for higher engagement.
- Enhance User Experience
The experience a user has with the SaaS website or product can make or break a deal. Your challenge is to design an intuitive user experience (UX) that engages, and guides leads through your conversion funnel to becoming customers.
- Better Prospect Engagement
It is important to keep interacting with your prospects to convert them into paying customers. The more your leads engage with your brand, the better are the chances of them purchasing something from you. SaaS companies can engage customers through polls, feedback, chatbots, emailers, SMS, and more.
- Address Negative Feedback and Reviews
Negative reviews about SaaS brands on social media handles or other platforms have a huge impact on conversion rates as buyers always research well before buying a product. It is essential to address negative feedback and reviews and keep improvising the product or customer service. This helps in lowering SaaS customer acquisition cost in the long run.
Suggested Read: SaaS CRM: Everything You Need to Know About
- Optimize Sales Funnel
SaaS company should be able to move potential customers through the sales funnel as quickly and efficiently as possible. One way to do this is by using marketing automation tools to score and grade leads. Lead scoring and grading helps sales teams to focus their efforts on the most qualified prospects, speed up the sales cycle and improve close rates.
Another way to optimize the sales funnel is to create targeted content for each stage of the funnel. For example, a blog post about the top 10 benefits of a product would be appropriate for the awareness stage, while a case study would be more appropriate for the decision stage.
How can Techjockey Help to Lower Your Customer Acquisition Cost?
Techjockey is a leading platform for business software & solutions that helps business owners and decision makers choose the right software for their organization. Techjockey’s website currently has more than 4 Lakh visitors per month, the majority of whom are entrepreneurs, senior managers and business owners. The website holds more than 6000+ software listed across 400+ categories.
Techjockey helps you to make your SaaS product visible to a large number of potential buyers boosting your brand image and resulting in more leads and conversions.
Here is how Techjockey helps you to lower your Cost Per lead (CPL) and optimizes your conversion rates.
- The perfect mix of outbound and inbound marketing activities that are clubbed together for premium leads.
- Free consulting services for clients pitching them the right software as per their business requirements.
- In-house experts with a deep understanding of SaaS to run campaigns with maximum efficiency for relevant leads.
- Get only nurtured leads with pre-scheduled demo for your product
Customer acquisition costs can be a significant deciding factor for the survival of SaaS businesses. It is important that SaaS businesses should continuously improve and track the cost of acquiring new customers to increase the ROI of their business.
Organizations should focus on both short-term goals and long-term objectives to reduce the overall CAC.
- How can SaaS businesses reduce customer acquisition costs?
SaaS businesses can reduce customer acquisition costs by optimizing their conversion rates, improving their prospect engagement, and addressing negative feedback and reviews.
- What is the average customer acquisition cost (CAC) for SaaS Businesses?
The average CAC for SaaS businesses varies depending on the specific industry, scope of the SaaS product and competitors' marketing strategy. It is represented better when calculated in ratio with the Life Time Value (LTV) of client. The average ratio of CAC to LTV is 1: 3.
- How can SaaS businesses lower their customer acquisition costs in the long run?
To SaaS customer acquisition costs in the long run businesses can invest in improving their inbound marketing strategies, optimize sales funnel, leverage automation, enhance user experience.
- How do SaaS companies calculate CAC?
To calculate your SaaS company's customer acquisition costs, you need to track your sales and marketing expenses for a set period and divide that number by the number of customers you acquired during that time period. For standardization, you can express the CAC in ratio to LTV of clients.
- Why is CAC important in SaaS?
Customer acquisition cost (CAC) is important in SaaS because it provides insights into how much it costs to acquire new customers. If a SaaS company's CAC is too high, it may need to reevaluate its sales and marketing strategy. Lowering CAC helps them to focus on product and customer retention for long term growth.