CAC, or customer acquisition cost, is a vital metric to optimise for SaaS companies, as discussed in our epic post: The Ultimate SaaS Metrics Guide to Smarter, Faster Growth.
Working at (or running) a SaaS company you're therefore very aware that you need a strategy for reducing your CAC, as generally speaking there are two ways to become more profitable in SaaS: reduce CAC, or increase LTV (customer lifetime value).
In today's post I explain some of the many different ways you can bring your CAC down.
1) Reduce Reliance on Paid Advertising
Paid advertising returns are linear. Once you've optimised your sales funnel, it gets difficult to make big reductions in CAC if your entire marketing strategy is reliant on paid ads, like pay per click. You'll quickly reach a floor and struggle to move the metric further.
To get more customers with paid advertising once your campaigns are well optimised, you have to invest more. It's extremely predictable, but difficult to drive exponential growth in this way.
A better way to drive down your CAC in the long term is to invest in owned and earned media. Owned media consists of assets that you own: so your website, blog content, magazines, eGuides/whitepapers, research reports, infographics.. Anything you own and distribute. Earned media is any media not created by your organisation -- you earn it. Examples include other bloggers linking to your company's blog posts, news organisations writing articles about your company or someone sharing your eGuide with their network on LinkedIn.
The key benefit of owned and earned media is that they snowball over time. As you build up a loyal following, each blog article you publish or social media post you share progressively generates more business results -- with the same ongoing investment.
2) Identify & Target Ideal Prospects
We call ideal prospects buyer personas, in the inbound marketing world. A buyer persona is quite simply a profile of what one of your ideal customers looks like. You may have more than one. For example, if you sell HR software, you might have several buyer personas:
- The CIO at a large manufacturing organisation
- The head of HR in a mid-sized software organisation
- The CEO at a rapidly growing start-up
To learn more about creating buyer personas, check out my previous guide here: How to Create a Buyer Persona for Your B2B Inbound Marketing Strategy.
Once you have appropriate buyer personas developed, you then need to target all your marketing efforts at those specific personas. It becomes a quick litmus test for anything you do in marketing: would this effort help us to attract or convert one of our buyer personas? If the answer is no, then pass.
Lots of SaaS companies waste millions attracting the wrong kinds of people to their websites: writing blog posts that address the wrong problems, targeting pay per click campaigns at the wrong keywords, using the wrong social networks, failing to emphasise the right benefits... The list goes on.
3) Build a Great Marketing Funnel
Many SaaS companies have excellent bottom of the funnel processes: once a website visitor registers for a free trial, or requests a demo, they take a slick approach to onboarding and converting that lead into a sale.
What these companies often lack is the funnel above this point. They focus primarily on two things: converting to free trials/demos/purchases, and attracting website traffic. They fail to collect contact details from visitors when they're earlier in the buying process.
Building out an effective marketing funnel means creating top and middle of the funnel content like eGuides, research reports and case studies/brochures, then putting them behind forms. In effect, a visitor to your website gives you their contact details, in exchange for being able to download a premium piece of content. This is best achieved using specific landing pages, that you promote throughout your website and blog.
4) Use Automation
Marketing automation software is essential for SaaS companies. Marketing automation can help you to grow your business in a number of different ways -- by increasing the rate at which you close leads into sales; improving the targeting of emails you send; better aligning your sales & marketing teams; improving your measuring & reporting; increasing trial to paid conversion rates and more.
Without marketing automation software you'll restrict growth. SaaS companies that fail to implement marketing automation well tend to suffer one of two problems:
- They do not nurture leads well enough. They may generate lots of leads, but then only send out a monthly email to them all -- rather than custom tailored lead nurturing focused on moving leads through the buying process. Many leads get wasted.
- They expect their sales team to nurture all leads, which is a huge waste in resources. Sales teams have to look at every lead that comes in, and determine if it's worth following up with, then try to start conversations. Many leads get lost through overbearing pressure from a rushed sales team, and cost of sales surge.
We recommend SaaS companies primarily use two pieces of marketing automation software: HubSpot, and Intercom.io. HubSpot for managing leads pre-sale, and Intercom for maximising LTV and trial to sale conversion rates.
5) Reduce Human Touches
One method for reducing your CAC is trying to reduce the number of human touches involved in the sales and marketing process. Always be thinking about aspects of your sales/marketing that could be automated, or better streamlined -- you can often deliver a better customer experience with automation, too.
Human touches are expensive -- if each of your leads has to speak to someone for 5 minutes before they'll request a trial, and your software is £20 per month, you'll be amazed how much that 5 minutes is costing you in terms of CAC.
Of course, this needs to be balanced -- the power of human interaction in fostering customer loyalty cannot be under emphasised. Great SaaS companies will measure the impact that reducing human touches in the sales/on-boarding process has on customer lifetime value (LTV) too. At a certain point, decreasing human touches may have a more negative impact on your LTV than the measured decrease in CAC.
The more you charge, the more human touches you can afford (plus the more you'll probably need to close a sale).
6) Religiously A/B Test
Top SaaS companies are always A/B testing. They understand that testing is never over. Some ideas for A/B tests you can run:
- Landing pages - test both big and small changes. You can A/B test entirely new landing pages, but also just elements of them -- for example the length of text, title combinations, button text/colours and imagery. There is no limit to the number of seemingly minor things you can test. You'll be amazed at the impact seemingly minor changes can have.
A great site for learning more about A/B testing landing pages is ConversionXL.
- Emails - your emails can be A/B tested too. Test which get the most opens, clicks, and also measure their effectiveness. Clicks and opens are meaningless if they don't increase the chances of your prospect either: a) staying a customer longer, b) upgrading, or c) purchasing for the first time.
Emails can be split tested in much the same way as landing pages, and there's lots to test. Even the time of day you send them, for example. Mailchimp shares lots of ideas you can use for your email A/B tests.
- Call-To-Action's (CTA's) - a CTA is any button on your website that encourages a visitor to perform a specific action, e.g. download an eGuide, or request a trial. These can all be A/B tested to maximise performance. Some things you can change include font sizes, copy, CTA size and CTA colour, for example.
- Trial Processes - you can A/B test the instructions and ways you run your trials in order to improve conversion rates to your paid packages. For example, you could experiment with offering in-app tutorials, help videos, or a training academy.
- Website content - by changing the content on pages of your website, you will increase or decrease conversion rates. Could new copy help your homepage to convert better?
- Website navigation - your website's navigation can have a profound effect on the way people browse your website, and the pages they subsequently see. You can experiment with different navigation orders, and types of navigation to see which convert best.
- Forms - forms are great for A/B testing -- you can experiment with the number of fields on your forms; which inputs are required or not required; what you use in terms of labelling; the layout of your forms and more.
Remember, especially with forms, to weigh up benefits in terms of total lead volume vs. ability to segment your data. Shorter forms tend to convert better, but longer forms allow you to learn a lot more about your leads. It's important when you're testing changes to your forms that you don't just measure total lead volume, but also the rate at which you can convert those leads into trials/demos, and paying customers.
Software like HubSpot's can really help you with your A/B testing, and make the entire process simpler (note, A/B testing is only available on HubSpot Pro & Enterprise).
Of course, you always need to remember that reducing CAC isn't your only goal. You need to balance your CAC with volume (you want to aim to maintain/increase volume, whilst you decrease your CAC), and also LTV. It may be that lowering your CAC by changing the way you market attracts lower value customers, for example, which in turn reduces profitability. So keep an eye on your LTV:CAC ratio too -- we discuss this in more in The Ultimate SaaS Metrics Guide to Faster, Smarter Growth.