Improving Your Amazon Customer Acquisition Cost (CAC)
Maybe you’ve recently set up an Amazon business and you’re still trying to figure out what works and what doesn’t. Maybe you’re an experienced Seller and want to tweak your market strategy to optimize your performance. Either way, any successful business knows that it all comes down to the customers. It’s one thing to know how to get them, but a whole other thing to know how to get them cost effectively.
Amazon is super competitive — every dollar spent that doesn’t help your business improve isn’t just holding you back, it’s letting someone else get ahead.
Spending too much to acquire customers restricts the amount you have left to invest elsewhere, can limit your future PPC campaigns and damage your business’s bottom line. In short, it keeps you behind the competition. So improving your Amazon customer acquisition cost (CAC) is crucial to increase your profit margin and gaining an edge on the competition.
Fortunately, Amazon analytics tools draw together all your Amazon data in easy-to-understand dashboards to help you improve your CAC.
Here we’ll show you the best way to improve your Amazon CAC. But keep in mind, improving isn’t always about simply reducing…
Find out your current CAC
If you want to improve something, you need to know what needs to change. So first things first: you need to know your current CAC.
Trouble is, Amazon doesn’t make this easy to find. It’s out there somewhere, across multiple databases, but you need this data to hand as a starting point from which to make decisions. Who’s your average customer and do you have high customer engagement? Do your customers come back a number of times for repeat buys, or is it mainly one-offs?
With a CAC calculator like Nozzle provides, you can quickly see what it costs to get a new customer to buy from you. There’s analysis as well as overview too, so you can see where your ad spend is going to waste, and where it’s going just right.
Easy to understand CAC data
Nozzle provides a comprehensive data service which gives you both a birds-eye view of what’s going on across your Amazon business, alongside an in-depth review of your CAC data. From this you’ll get actionable insights that are specific to how your business works, ensuring growth that’s based on real-life data instead of a guessing game.
You can get insight on:
- Total number of customers acquired
- Customer acquisition cost (CAC)
- The number of new customers
- And the number of repeat customers.
But the CAC figure alone might not give you all the information you need. Understanding what the acquired customers bought, when they made their purchase and the cost of their purchase is crucial information. By knowing what entices customers and when, you can make data-led advertising decisions.
Our insights tool lets you see:
- Accumulated profit, accumulated sales and returning customers by %
- CAC by month
- Ad spend
- Price of a customer’s first purchase.
By finding and understanding your CAC, alongside related data, you know exactly how your marketing efforts are performing, instantly.
All of this helps to make sure you’re focusing on the right people for your business: those with the highest customer lifetime value (CLV). Targeting ad spend here helps you acquire customers that will provide greater value in the long run…
Find out what your CAC is, and develop a greater understanding on how well your marketing efforts are performing. Start your free trial.
Target the right people
Some people are looking for just one thing. They find it, buy it and never return. But some people might want to browse a bit, or like the look of a few things you’re offering, and can end up buying from you once, then again and again and again.
To improve your CAC, businesses should focus on acquiring this second type of customer. Why?
- They provide the greatest value to your business over their lifetime — this is customer lifetime value
- A higher CLV means a lower CAC over the long term
- If you focus on acquiring one-time buyers your CAC will skyrocket because you’ll constantly be spending on acquiring new customers, time and time again.
How to target the right people
It sounds simple enough, but without access to the data and the analysis to gain insights from that data, it can be difficult to get right. To be able to confidently (and consistently) target the right people and keep your CAC low, you’ll need to make the most of your marketing efforts through focused advertising campaigns.
With Nozzle’s CAC analysis, you can easily work out if you’re getting the most out of your ad strategy, enabling you to optimize your spend. This means you can focus your advertising on the products people are most likely to buy, and direct those ads towards the customers you’re more likely to acquire. As a bonus, this helps reduce your ACoS, too.
With unique and trackable customer IDs you can see a total breakdown at a customer level of the cost of acquiring customers via targeted ad spend. You can see how this impacts your profit, and how that profit increases over time. Nozzle’s analytics tools help you do this and makes it easy to understand through clear visualisations on spend and profits.
From this, you can see how profit changes over time against the amount spent acquiring them compared with keeping them for further purchases. Simply put, profit increases per customer after each new purchase, keeping your CAC low — but only if you’re targeting the right customers. The data’s there, you just need to cash in.
Viewing acquisition through a CLV lens
But improving your CAC doesn’t always mean lowering it. Instead, it’s about finding the right balance for your business. By viewing your CAC from a CLV perspective, spending more up-front to acquire customers that have a higher lifetime value makes that initial outlay a better investment.
Even if you’re spending more in the short term, perhaps even spending more than your break-even ACoS, in the long term you’re more likely to recoup that investment and see the possibility of higher total profits.
On the other hand, a lower CAC spent to acquire customers with a lower lifetime value might give you that short-term win, but it could easily end up costing you more in the long run. Repeated, smaller spends can quickly add up to more than what a bigger initial outlay will cost you, especially if those smaller spends aren’t giving you the returns you need.
You can see how this works through your CLV to CAC ratio: the cost of acquiring a customer compared to the value they bring in over their customer lifetime, and how healthy the arrangement is. In short, if your CLV is bigger than your CAC, then you’re on the right track. If it’s the other way around, however, you’re going to need to work on balancing those scales.
Getting this metric right is more important than focusing entirely on your CAC. Understanding your CAC through a CLV lens helps you see the full, long term picture of your Amazon business.
Don’t forget the customers you already have
One of the best ways to improve your CAC is by making use of something you already have: your existing customer base. By making sure you’re increasing customer retention you can improve your customer acquisition cost with barely any extra spend.
Though it may sound counterintuitive, acquiring and retaining customers are more linked than they initially seem. There are tons of metrics and graphs out there about different marketing strategies for both of these and how they’re linked, but a really easy way of putting them together is by thinking about ‘word of mouth’ marketing. If customers are satisfied enough to keep coming back, they’re going to tell their friends, family and peers about your business.
According to one survey, a massive 81% of people said they trust family and friends over business advice.¹ So if you can keep your existing customers loyal, the money you spend acquiring initial customers is going to have a massive multiplier effect. In fact, up to 42% of consumers have said that a recommendation from a family member or friend would influence their purchase decision more than promoted ads or a sale.²
So if you can get your initial customers to spread the word, then that brings further customers, and then those customers bring more customers — you can see where this is going. And all for free.
Improve your CAC with Nozzle, for the long-term
Nozzle has the tools you need to understand your CAC, and then analyze it to use it to your advantage. But not just this, Nozzle understands that improving your CAC isn’t necessarily about lower spending, it’s about smarter spending.
Looking at it from a long-term, CLV point of view is how you get the edge on your competitors and keep that edge as long as you want.
With understandable graphics at a glance and highly interactive, actionable insights that let you take your marketing strategy to the next level, Nozzle’s a no-brainer. As the market leader for customer analytics, if you want to improve your CAC this is how to do it.
Start your free trial today to see how Nozzle can help you.
- The Hard Truth About Acquisition Costs (and How Your Customers Can Save You)
- The Secret Ratio That Proves Why Customer Reviews Are So Important | Inc.com