4 Simple Steps to Lower Your Customer Acquisition Costs

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In advertising, as in baseball, nobody hits a home run on every at-bat.

The average baseball player has a batting average of around .250 (technically .244). That means for every 4 at bats, they get one hit.

Heck, the career batting average king of all time, Ty Cobb, still only had a batting average of .366.

I mean, he was best hitter of all time, and he got a hit in only 1 out of 3 at-bats (instead of 1 out of 4).

The same thing holds true for digital advertising.

Nobody gets it right every time. Not me, not the marketing department at companies like Apple or Nike—nobody.

Even the best marketers in the world have to turn off at least half of their ads, ad sets, and campaigns because they’re underperforming. We’re all batting under .500, so to speak.

One big difference between a marketing pro and an amateur is how they handle that failure. An amateur will throw in the towel. A pro will take what didn’t work, learn from it, and iterate. Do that enough times, and you’re bound to hit on something that works sooner or later.

Because here’s the good news: in marketing, you can have as many at-bats as you want. All it takes is the willpower to step up to the plate.

But how do you do that, exactly?

How do you take a campaign with a customer acquisition cost that’s too high and tweak it until it becomes a profitable source of new leads and customers for your business?

That’s what this article is all about.

First Things First: Check These 3 Metrics

Okay, so your customer acquisition cost (CAC) is too high. That means you’re paying too much per lead or per customer, making your campaigns unprofitable.

But just knowing that your CAC is too high isn’t enough information to find a solution. There are several secondary metrics you’ll want to look at to help figure out where the problem lies.

We recommend focusing on these 3 metrics:

Link CTR & Link CPC

You’re probably familiar with clickthrough rate (CTR) and cost per click (CPC). But let’s clarify those with a quick note on what Facebook calls “link clicks” versus “all clicks.”

All clicks refers to any click on your ad—which could include someone clicking on your call-to-action button to visit your website, or it could include liking the post, or adding a comment, or sharing the post with your friends.

Link clicks refers only to those clicks that bring people to your website—including clicks on the call-to-action button, the image, and any URLs you might include in the ad copy of your ad.

(Another way to think about it is that link clicks is a traffic metric, while all clicks is more of an engagement metric.)

For the purpose of analyzing CAC, you’ll want to look at these 2 secondary metrics, focusing on link clicks:

  • Link clickthrough rate (link CTR)
  • Cost per link click (link CPC)

Link CTR tells you how many people click through from your ad to your website, and link CPC tells you how much you’re paying on average for every visitor to your site.

So what’s a good benchmark for what your link CTR and link CPC should be? These numbers can vary quite a bit from one industry to the next, so don’t take this as gospel truth. But in general, you should shoot for a link CTR above 1% and a link CPC less than $1.

Again, these can vary. Especially if you’re in a B2B industry.

But even so, these numbers can be really helpful, because they can tell you if you’re on the right track and where you need to focus your efforts.

If you have a low CTR & a high CPC, you probably need to work on your ads. This is a sign that your ads may not be working as well as they could. They’re not reaching the right people or grabbing their attention. As a result, you’re paying a premium for your traffic—which makes it hard to achieve a good customer acquisition cost.

We can illustrate this with some simple math. Let’s say your target cost per action (CPA) for an opt-in page is $5. And let’s say your link CPC is $2.50. Given that situation, you’d need to have a 50% conversion rate on the landing page in order to hit your target CPA.

That’s technically possible, but very difficult to pull off.

If your link CPC is $1, on the other hand, then you’d only need a 20% conversion rate to hit a $5 CPA. That’s much more manageable.

If you have a high CTR & a low CPC, but your CAC is too high, you probably need to work on your website. This is a sign that you’re getting fairly inexpensive traffic, which means your ads are working (at least in terms of driving people to your offer). So if your CAC is still high, it’s likely to be a problem on your landing page, or possibly a bigger problem such as having the wrong targeting with your ads.

One last note:

Remember that link CTR and link CPC are secondary metrics. If you have an ad that’s working—it’s generating customers and revenue at a CAC or ROAS that works for you—then don’t pause it just because the CTR is less than 1% or the CPC is above $1. These metrics benchmarks are more helpful for diagnosing the source of the problem when something isn’t working.

Conversion Rate

The next secondary metric to consider is your landing page conversion rate, which is just the percentage of visitors who take the action you want them to take.

For an opt-in page promoting a free lead magnet, this means the percentage of people who give you their email address. For a product page or sales page, it means the percentage of people who buy your product.

Just as we saw before, these metrics can vary. But here are some general benchmarks to keep in mind when looking at your conversion rates:

  • A good opt-in page conversion rate should be at least 20%, though you should aim for more like 30-40%.
  • If you’re then targeting opt-ins with a low-dollar tripwire offer, a good conversion rate on that offer is somewhere round 5-7%.
  • Sending cold traffic to an ecommerce or information product page or sales page? Average is around 1-3%.

Again, though, these can vary significantly from one industry to the next and from one company to another. Wordstream did an analysis of this and found conversion rates ranging from 1.84% up to 24.48%:

Source: https://www.wordstream.com/blog/ws/2014/03/17/what-is-a-good-conversion-rate

Obviously, you want your conversion rate to be as high as possible. Higher is certainly better.

But again, this is a secondary metric. A sub-1% conversion rate may work for you, especially if you have a very high-priced offer and/or if you’re able to generate very cheap traffic.

There’s often an inverse relationship between CPC and conversion rate, by the way. By which I mean: the more expensive your traffic is, the higher your conversion rate needs to be to make that traffic profitable. On the flipside, a high conversion rate means you can afford to spend more money on traffic and scaling up your campaigns.

Now that you know some of the important metrics to be aware of when diagnosing a high CAC, let’s go through 4 steps we recommend to lower your customer acquisition costs.

Step 1: Pause the Ads/Ad Sets That Aren’t Working

One of the first and most obvious steps to take when your CAC is too high is to pause those things that aren’t working well. Usually this means pausing ads within an ad set, ad sets within a campaign, and/or possibly even whole campaigns that aren’t converting.

The idea here is to funnel impressions away from the things that aren’t working and toward the things that are working. So by pausing those ads that aren’t converting, you can decrease the average CAC in your campaign.

If you’re not sure where to find your CAC in Facebook Ads Manager, it’s easy. Just choose the “Performance” view. It should be the default view, but if you’ve navigated away from it, just clicks on “Columns” and then “Performance (Default):”

If you’re targeting a different metric instead, like return on ad spend (ROAS), you can also insert that column by clicking the blue plus sign:

From here you can sort by “Results” and “Cost per result” to quickly get an idea of what’s working and what isn’t.

What do you do with this information?

Well, let’s say you have an ad set with 6 ads and these metrics:

Ad

Cost

Conversions

Cost/Conversion

Ad 1

$1,004

120

$8.37

Ad 2

$1,079

55

$19.62

Ad 3

$850

87

$9.77

Ad 4

$911

92

$9.90

Ad 5

$1,202

61

$19.70

Ad 6

$1,146

58

$19.76

Total

$6,192

473

$13.09

And let’s pretend your target CAC for this ad set is $10. As it stands right now, your CAC is over that threshold at $13.09. But if you simply pause the poorer-performing ads (ads 2, 5, and 6), then the CAC for the remaining ads is $9.25—right in the sweet spot.

This is a common strategy that works very well. Think of it like trimming the fat from a steak. You cut away the fatty parts until all that’s left is the good stuff.

A note on data & the Facebook algorithm:

The example above was intentionally simplified to demonstrate the concept. In reality, things aren’t always quite so clear-cut. You also need to consider the fact that the Facebook algorithm needs data in order to find the right people who will convert on your ads.

If you have an ad set targeting 2 million people, not all 2 million of those people are going to be potential targets for you. Maybe 100k-300k are going to be potential “converters.” So what the Facebook algorithm does is to identify who those converters are, then circle wagons around them with your ads.

But if you don’t allow enough time for the algorithm to identify those converters, then you might be pausing things before they even have a chance to work.

So, how long is long enough?

Facebook wants you to let your ads run for at least 7 days to allow for continuous learning. We find that Facebook usually starts to figure things out faster than that—often after 3 or 4 days.

So just keep in mind, it’s a bit of a balancing act between pausing those ads that are sinking your budget, while still making sure to give Facebook enough time to find the right audience and optimize your ads for conversions.

Step 2: Test Your Landing Page

If your CAC is too high, but your CTR and CPC are both working (high CTR, low CPC), you’ll want to work on improving the conversion rate of your website. The best way to do that is with a split-test.

Using a tool like Visual Website Optimizer, you can test 2 different versions of a landing page and track the results to see which one works better. Or if you’re not yet ready to implement a solution like that yet, you can also do this inside Facebook using 2 URLs.

When split-testing your landing pages, the biggest mistake I see companies make is testing changes that are too small to have an impact.

Testing small things like button color and font styling can help—you might get a 5% boost to your conversion rate—but a 5% lift isn’t enough to really move the needle.

(Some people refer to these kind of split-tests as “meak tweaking.”)

Instead, you’re better off testing drastic changes: like different hooks, different messaging, different offers altogether. Test a video versus long-form copy. Test sending people to a product page versus a native ad.

These are the kind of tests that are more likely to give you a big lift that you’ll notice in your CAC numbers.

If you’re having trouble coming up with test ideas to improve your landing page, consider hiring or consulting with a copywriter, a designer, or even a conversion rate optimization (CRO) expert.

Step 3: Increase Your Ad Scent

If you’ve never heard of “ad scent,” it refers to the congruency between your ad and your landing page. You want your landing page to deliver whatever was promised in your ad, in a way that feels as consistent as possible.

Probably the quickest and easiest way to demonstrate this is with an example.

Poor Ad Scent

Ad:

Landing Page:

This example does a poor job of maintaining ad scent. The ad promises a solution for restaurant chains, yet the landing page doesn’t say anything about restaurants. If you clicked on that ad because you were looking for a restaurant-specific solution, you would probably be disappointed by the landing page. There’s a good chance you’d hit the “back” button.

Better Ad Scent

Ad:

Landing Page:

This example does a much better job. The ad promises an ebook to master the art and science of Facebook advertising, and the landing page presents the same offer front and center. Also notice that the look and feel is similar: they both share black backgrounds with similar imagery and fonts.

As a result, when you arrive at this landing page, you feel like you’re in the right place. And you’ll be more likely to convert, as a result.

The more congruency you can bake in between your ad and your landing page, the better. That means ad copy, hook, design, images, colors, and so on—make them as consistent as possible. If your company uses a spokesperson, use the same one in the ad and the landing page. And so on.

This is one of those marketing tricks that isn’t always obvious to us as marketers, because we don’t always experience our marketing materials the same way a prospect does. It’s also an example of why it can be helpful to step back, sometimes, and try to see the big picture of how all the pieces of your marketing fit together into a cohesive whole.

Step 4: Revisit Your Targeting

Finally, if you’ve tried the 3 previous steps and your CAC still isn’t where it needs to be, then it’s time to take another look at your targeting.

If there’s an issue with your targeting, then it will probably fit into one of these buckets:

Your interests are off, and you’re not finding the right avatar.

Or…

Your avatar itself is off, and you’re targeting the wrong kind of person to begin with.

Let’s say your avatar is dads, and so you’re targeting dad-like interests such as sports and home improvement. But the targeting just isn’t working.

It could be that you’re just not targeting the right kind of dads. Not all dads like sports and home improvement, after all. Maybe the kind of dads who appreciate your product are more likely to be interested in wine, fine dining, and the stock market. This would be an example of not having the right interests to reach your avatar.

Or, it could be that dads aren’t the ones buying your product after all. Maybe the product is intended for dads, but most of the time it’s being purchased as a gift by spouses, children, and coworkers. This would be an example of having the wrong avatar altogether.

In either case, it means that you’ve built this awesome campaign and put it in front of the wrong people. The good news is, you might be closer to a successful campaign than you think: you just need to test new targeting.

The best tool for this is still Facebook’s Audience Insights. You can go here to learn more about the people interacting with your ads. You can put in a root phrase of what your target avatar is interested in, and start to learn about what other interests they have that you can use as potential targeting options.

Still Having CAC Problems?

If you implement the 4 steps outlined above, you should absolutely start to see your CAC going down over time.

I know, I know. Easier said than done.

But here’s the thing: at Tier 11, we don’t just talk about how to do this stuff. We actually do it. Day in and day out, for some of the savviest and fastest-growing companies in the world.

We’ve launched many thousands of ad campaigns, in dozens of different markets. We’ve seen it all. And when a campaign isn’t working, we know where to look and what to do to turn the ship around.

If you need that kind of help in your business, click here to schedule a free strategy call with us. We’d love to learn more about your business and find out how we can help you.

After all, even Ty Cobb had a batting coach.

And don’t think our help has to be relegated to Facebook and Instagram ads, either. These days we are taking a much more comprehensive and holistic view of our clients’ marketing efforts, through something we call our Customer Acquisition Amplification™ (CaAMP™) process.

In a nutshell, it means that we’ll work with you to optimize and scale every part of your marketing—from running highly effective paid ads to improving your marketing funnel to providing creative direction and data analysis.

If you think your company might be at a place where you’re ready for the kind of support we provide, click here to claim your free strategy call today.

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