Customer Acquisition For Startups + 7 Proven Tactics
Customer Acquisition — 15 min read
A strong customer acquisition strategy is essential for startups. The better you’re able to acquire customers, the faster you’ll be able to grow your user base and revenue. Just as importantly, a customer acquisition strategy helps you build traction, which is a great way to impress investors. When they see you have a sustainable method of acquiring new customers, they’ll almost certainly feel more confident in your startup's current position and its chances of success.
What Is Customer Acquisition?
Your customer acquisition strategy is the method (or methods) you use to attract potential buyers and convert them into customers. The typical customer acquisition process is very similar to the sales funnel. Both are designed to help your sales reps generate leads and close sales with those leads.
The main difference between the sales funnel and the customer acquisition funnel is the end goal of each. The sales funnel is used to drive revenue, while the customer acquisition funnel is used to grow your user base and aid customer retention (both of which indirectly help your bottom line).
- The top of the customer acquisition funnel focuses on lead generation. This is when you should be promoting brand awareness and using tactics to pique consumers’ interest in your product.
- The middle of the funnel focuses on turning leads into prospects. This is when you should be developing your leads’ interest further and nudging them from consideration toward intent.
- The bottom of the funnel focuses on turning prospects into customers. This is when you should pull out all the stops to close the sale and convert the prospect.
- While the sales funnel ends here, the customer acquisition funnel extends a bit further into retention. Retention is the ongoing effort to keep the customer after you’ve closed the first sale.
But before we get into some customer acquisition tactics, we need to talk about cost.
What Is Customer Acquisition Cost?
Customer acquisition cost (CAC) measures the amount of money needed to gain a new customer. Tracking this metric can help you manage your startup’s growth and evaluate the sustainability of your business model.
CAC is an important metric for two major reasons. First, your CAC tells you how much money you can allocate for sales and marketing costs while still remaining profitable.
Second, your CAC helps you measure the efficiency of your customer acquisition strategy. A low CAC is a sign of sustainable growth, whereas an unusually high CAC signals that you might have difficulty scaling up.
For a startup, the second reason is more relevant. A CAC that’s too high is a big red flag for investors. You’ll have a better chance of getting outside funding if you can leverage a low CAC as evidence for long-term sustainability. The first reason will become more important a little later in your startup’s life after it’s picked up significant traction and generating profit starts to take priority over impressing investors.
The definition of a “low” CAC and a “high” CAC depends heavily on the industry you’re in. The best way to understand the actual impact your CAC is having on your bottom line is to factor in your industry’s average customer lifetime value (CLV, sometimes LTV), which is the total amount of money each customer spends on your products during their time as a customer. The more money your customers spend on your products, the more expensive the CAC strategy you can afford.
In general, a good CLV to CAC ratio is about 3:1. That means you’re spending about a third of the profits from each customer to acquire them. Here are some estimates of typical CACs in a few popular industries:
Customer Acquisition Cost by Industry
Industry Average Customer Acquisition Cost
B2B Software $200 - $340
Manufacturing $660 - $910
Financial Services $640 - $1,200
Medical Devices $500 - $760
Pharmaceutical $160 - $200
How Do You Calculate Customer Acquisition Cost?
You can calculate your startup’s customer acquisition cost by adding the amount of money you’ve spent on sales to the amount you've spent on marketing, and dividing the total by the number of new customers you’ve acquired.
We can visualize this calculation with the following customer acquisition cost formula:
Here’s a breakdown of each element in the formula:
- Cost of sales: This is the amount of money that was spent to produce and sell products during the given period of time. This includes the cost of the labor utilized, as well as the cost of any other materials or resources that were required.
- Cost of marketing: This is the amount of money that was spent on marketing during the given period of time. It includes the cost of direct advertising, pay-per-click advertising, content marketing, or any other marketing efforts.
- New customers acquired: This is the number of new customers you’ve gained during the given period of time.
Let’s look at a hypothetical scenario in which ignoring your CAC could cause major problems.
If you spent $50,000 on sales and marketing last year but only acquired 40 new customers during that time with an average customer value of $1,000 each, you’ve lost about $250 dollars on each customer. See for yourself:
$50,000 (sales and marketing costs) / 40 (number of new customers) = $1,250 (CAC)
Now, we need to subtract the average total amount each customer spent on your products last year (the customer value) from the average amount you spent to acquire each new customer (the CAC).
$1,000 (CLV) – $1,250 (CAC) = –$250
Even though it might sound logical that funnelling more money into sales and marketing will result in more visibility, more sales, and higher profits, you have to be careful not to let your budget outpace your actual customer growth. Otherwise, you might end up taking a loss on each customer just like in the scenario above. By calculating your customer acquisition cost, you can approach your sales and marketing strategy with a practical budget ceiling in mind.
(There may be other business expenses that affect your actual profit per customer — for the purpose of this example, we’ve taken only CAC into account.)
Try calculating your startup’s own CAC. If it’s not a metric you’ve given much attention before, now is a good time to start.
How Do You Lower Customer Acquisition Cost?
If you’ve calculated your CAC and it’s higher than you were hoping, you might be feeling apprehensive about it. Luckily, there are plenty of ways to lower your customer acquisition cost. To do so, you need to use the right tactics, which we’re going to share with you in a moment.
Alternatively, you could take a shortcut and talk with a mentor. Even the best strategy to lower your CAC is no substitute for one-on-one advice from an experienced founder who’s been in your position and came out the other side successfully. You can book a call with one of our mentors today.
How To Create A Customer Acquisition Strategy
A successful customer acquisition strategy is built upon the three M’s of marketing: market, message, and medium. Using the three M’s, we can break down the process of building a customer acquisition strategy into three simple steps:
Step 1 - Define Your Avatar and Market
It’s important to define your market first because your decisions about message and medium will depend on the market you’re trying to impact. You probably already have a broad idea of who you want to reach with your product. But now, it's time to get more specific and narrow in on a customer avatar.
A customer avatar (also called a buyer persona) is a detailed description of who your perfect customer is. How old are they? What’s their occupation? What kinds of likes and dislikes do they have? What’s their financial situation? Answering questions like these can help you develop a picture of the type of person you should be targeting with your message and medium.
(If your startup is targeting businesses, not consumers, you can still come up with a customer avatar by posing questions about the values and needs of the ideal brand you want to sell to.)
Step 2 - Craft the Right Message
Once you’ve defined your market, you can continue to the next step and create a message that appeals to that market. The better you’re able to pinpoint your market and your ideal customer, the more effectively you can personalize your message to connect with them.
Try to craft a customer-centric message, not a business-centric one. This means you need to tell your potential buyers how your product can solve their problems or improve their lives, not tout the accomplishments of your brand.
Step 3 - Pick the Appropriate Medium for the Message.
Choosing the right medium for your message is tougher than ever. In the past, marketers were mostly limited to placing advertisements on billboards, TV channels, or radio stations, or pursuing more direct tactics like email campaigns or cold calling. All of these media could still be effective in the right contexts, but modern customer acquisition methods have evolved mostly toward content marketing like blog posts or online videos.
The medium you choose should align with your message and your market. If your market includes mostly people in their 20s and your product is an app, a short video posted on social media might be the best way to get people excited about your startup. However, if you’re selling fintech to businesses, emailing decision makers directly might be a better way to deliver your message.
Customer Acquisition Strategy Examples
Let’s look at a few real examples of companies that have succeeded in using the steps above to craft their customer acquisition programs:
GoPro is a great example of a company that uses social media to its advantage. Their customer acquisition strategy involves posting pictures and videos that their customers take with their GoPro products. You can find hundreds of posts on GoPros’ Instagram account featuring the various adventures their customers have taken their GoPros on.
This is a brilliant customer acquisition strategy for a variety of reasons. First, it shows off what their product is capable of. They’ve essentially curated an account full of demos from real users. Second, it creates a strong sense of community around the brand. As a customer, you can log onto Instagram and connect with other GoPro users via shared experiences. To top it off, by sourcing content directly from users, GoPro itself doesn’t have to spend the time and resources filming their own promotional content.
Spotify uses a freemium model to attract new customers. This means the basic features of the platform are free for anyone to use, but the best features are reserved for paying “premium” subscribers.
By using this model, Spotify shows an astute awareness of its product and its market. Even though it's a music streaming platform, its product isn’t music, per se. Its product is a more convenient way to access music. Charging customers up front would fight with this core brand ethos, so instead, Spotify lets users jump right in and start listening. Once they realize how useful the service is, they’ll be more inclined to pay for access to premium features to improve the experience further.
Some people feel that email marketing is outdated, but Medium’s customer acquisition strategy shows that you can still run an effective email campaign as long as you do so appropriately.
The reason Medium’s emails work so well is because they know their users well. Users can follow writers or specific publications they enjoy, just like with other social media. This model allows the user to customize their own experience, which Medium then learns from and uses to craft a personalized weekly email newsletter. These weekly newsletters share recent highlights and popular stories from the writers and publications each user follows and suggest similar content, giving users their own unique reasons to keep coming back to the site.
Admittedly, this is more of a customer retention strategy than a customer acquisition strategy. But, the two actually go hand in hand — in fact, the only thing better than a successful customer acquisition strategy is a successful customer retention strategy. But we’ll get to that in a moment.
7 Proven Customer Acquisition Tactics and Techniques
Now that you have an idea of what a successful customer acquisition strategy looks like, here are some practical tips for incorporating similar techniques into your own strategy. All of these are tested methods that, if implemented correctly, can help you acquire more customers. Let’s dive in:
Content marketing is broadly defined as a marketing strategy that focuses on creating and publishing “content,” a frustratingly vague term. Content is simply any information published for consumption that offers some kind of value of its own.
A TV ad is not content marketing, because the ad itself doesn’t benefit the reader—it simply informs them about a product. A YouTube tutorial, a meme on social media, or, say, a blog post about customer acquisition would all be considered content marketing because each offers value to the consumer even if they don’t buy anything.
The goal of content marketing is to educate or entertain as well as inform. It’s a great way to build brand awareness before many people are likely to be searching directly for your products. If you put out content that discusses the problem your product solves, you can attract viewers who are looking for a solution like yours.
Search Engine Optimization (SEO)
We can’t mention attracting viewers to your online content without mentioning SEO. Search engine optimization is the process of tweaking your content or your website to make it more visible in search engines.
There are countless other brands competing for space on search engine results pages. When a consumer enters a search term that’s relevant to your startup, you obviously want your content to show up high on the list. Not many people venture beyond the top few Google results, never mind to the second page.
SEO is an enormously complex practice with more nuance than can be adequately explained here, but a couple of the most common SEO techniques include conducting keyword research and posting high-quality content frequently.
A landing page is a page on your website that people are taken to when they click on a link in your content or other marketing material. Landing pages are specifically tailored for conversion, meaning they’re designed to prompt visitors to pursue a specific action. Whereas your site’s homepage probably gives visitors an overview of your whole brand with links to various other pages of the website, a landing page focuses on one thing: getting customers to sign up or make a purchase.
Usually, landing pages either present products directly or ask the person to provide information, such as an email address, that can be used to pursue them further. Designing a dedicated landing page for your startup’s website can help boost your lead generation (which, as we mentioned earlier, is the first step in the customer acquisition funnel).
You can use the emails you collect from your landing page to stay in contact with leads. They’ve already expressed interest by visiting your landing page, so you know they’re a worthwhile prospect. Following up with a personalized email offer can sometimes be enough to keep them interested.
Email marketing is also one of the best ways to maintain relationships with customers after acquiring them. Well-crafted email campaigns like Medium’s can keep your brand at the forefront of your customers’ minds and give them opportunities to continue to engage.
Social Media Marketing
Social Media is a great platform for developing your brand’s personality and building visibility. It also gives you a way to interact directly with consumers and foster a community of users. These are all essential objectives for building momentum and pulling in more customers.
From a marketing perspective, one of the best aspects of social media is that nearly everyone uses it. No matter what your customer avatar looks like, you’ll likely find them on social media. However, as you probably already know, different social media platforms have very different user demographics. You need to focus on the platforms being used by your market to see the best returns from your social media marketing efforts.
As counterintuitive as it may sound, sometimes the best way to get customers to pay for your product is to give them something for free. This could be a simple one-time event like a promotional giveaway to generate interest in your brand. You could also build your whole customer acquisition strategy around this idea by offering a freemium model like Spotify’s.
This tactic can be especially useful for softening skeptics when your startup is young and doesn’t yet have much of a track record. Some people will simply never be convinced with words or demonstrations. Acquiring these stubborn customers is easier when you offer them something free up front. Even if they had no intention of trying your product, hardly anyone turns down free stuff. Some of them may just take the freebie, but others will realize they like the product and reconsider paying for more.
Consumers trust brands less now than they ever have. If you advertise your product as the best in the world, few people are going to take you at your word. Recommendations from friends, colleagues, and family members are far more reliable at convincing customers that your product is what they’re looking for.
Offering incentives for customers to spread the word about your brand not only aids customer acquisition, but it can actually lower your customer acquisition cost. If you’re approached by an interested prospect who was told by a friend to check out your product, that prospect has essentially skipped right to the end of the customer acquisition funnel. Since acquiring them required no marketing on your part, you can consider them a “free” customer as far as CAC is concerned.
Why Is Customer Retention Better Than Customer Acquisition?
Customer retention is the natural extension of customer acquisition that begins immediately after a customer has been acquired. As soon as they’ve signed up for the service or purchased their first product, you’ve successfully acquired them and now you need to retain their business. Whereas customer acquisition is concerned with attracting customers, customer retention is concerned with keeping them around as long as possible.
Acquisition and retention are both important. Obviously, you need to acquire customers before you can retain them. However, once you’ve established a customer base, retention becomes even more important than acquisition. This is simply because acquiring customers is far more expensive than retaining them. The exact size of the gap is different for every startup, but most marketers agree on the rule of thumb that it costs about 5x less to retain a customer than it does to acquire one.
A customer acquisition strategy is your most valuable tool to grow your user base, which should be a high priority for any startup. There are all kinds of tactics you can use, from prioritizing SEO and posting social media content, to holding giveaways and offering referral programs — but if you remember one thing about customer acquisition from this article, remember the three M’s. Once you define your market, plan your message, and select your medium (in that order), you’ll have everything you need to implement a successful customer acquisition strategy.
No one builds a perfect customer acquisition strategy on the first try, though. If you’re feeling frustrated or want feedback, talking with a mentor is a great next step. You can book a call with one of our experienced startup mentors today.