Customer Acquisition

Updated on March 20, 2024
Article byPallabi Banerjee
Edited byPallabi Banerjee
Reviewed byDheeraj Vaidya, CFA, FRM

Customer Acquisition Meaning

Customer acquisition is the process that companies adopt to convince customers to buy or subscribe to their products and services. It converts prospective buyers into actual buyers. People who were previously just aware of the presence of a product in the market now decide to purchase them.

Customer Acquisition

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This strategy helps businesses win new customers, increase revenue and earn profits. But a business needs to implement a suitable strategy depending on the type of market and product. It also has to take proper steps to retain the acquired customers. It is a continuous process requiring patience, persuasion, planning, and research.

Key Takeaways

  • Customer acquisition is convincing and converting prospective buyers into actual buyers or subscribers of products and services.
  • Companies adopt this method to gain business, earn revenue and increase their profit margin.
  • It requires a lot of persuasion, patience, and planning to identify suitable customers and convert their knowledge into actual purchase decisions.
  • The customer acquisition strategy works best if it is designed considering the type of product, buyers, and their needs and preferences.

Customer Acquisition Process Explained

Customer acquisition and retention attract the correct clients for any company and try to retain them. This process is essential for the business to run smoothly, continue earning revenues and expand.

A well-designed customer acquisition strategy will be able to create a brand-loyal customer base and leverage them for growth and expansion. In addition, it will be able to withstand the ever-changing taste and preferences.

Once customers buy one company product, they will likely check out other products and services of that company too. Then, if those products suit some more needs and preferences, these customers might refer them to more prospective buyers. Thus, like a chain reaction, the news of good and quality products spreads automatically, creating brand knowledge and increasing sales.

Any new customer acquisition is a chance for the business to enter a new geographical region, explore a new type of buyer or get a fresh innovation idea for product improvement. Thus, it is also essential to making the business financially stable and surviving competition.

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Steps

There are a few steps for any entity to follow while acquiring new customers. 

  1. Identify customers – Customer or market identification is extremely important since this will lead to the correct client acquisition.  
  2. Understand business goals – Next, the business should understand when and why it wants to acquire new clients, how it will benefit the industry, and how much cost it might incur in the process. 
  3. Choose acquisition method – Entities follow various customer acquisition methods. However, all are not suitable for every business. Therefore, it should be able to identify the correct way to plan for increasing the customer base. 
  4. Develop a strategy based on product and buyer – The company must understand which plan will work for which product and what buyer may buy them. For this, the company has to do proper market research.  
  5. Convince the buyer – The next step is to convince the prospective buyer to buy the product, thus, converting mere knowledge into actual sales.
  6. Strategy improvement – During sales, the business should identify which features support the sales process and which do not. Finally, they should try to bring innovation and improvement in product and sales processes, which will help reach out to more customers. 

Channels

There are some methods or channels that can be used for customer acquisition, which are as follows:

  1. Social Media – Social media can increase the client base. It can be free or paid, but it can reach many clients quickly.
  2. Displays – Displays using billboards, pamphlets, etc., help in the visual advertisement so that people know of its existence in the market.
  3. Search Engine Optimisation – In this method, the company boosts its website with good content, videos, useful links, etc., to make it rank higher in search engines like google and amazon.
  4. Emails – Sending emails to prospective clients is another way to increase customers. But the business should be able to identify customers who might respond to such emails. It is useless if emails are sent randomly.
  5. Content marketing – This method uses blog posts, infographics, and videos to inform customers about products. It also involves answering questions and solving problems.
  6. Affiliate Marketing – Affiliates or websites selling similar goods are paid for product promotion in this process.
  7. Organize Events – Some companies organize events or programs to promote their product, where the products are physically displayed and demonstrated to show their uses and benefits.
  8. A Mix Of All Channels – Manufacturers might also use a combination of different marketing channels to reach out to customers.

Examples

Let us understand the customer acquisition and retention process with the help of some examples.

Example #1

Max Enterprise is a baby product manufacturing company. It has gained a substantial market share through its wide range of baby care products that are readily available and has a very user-friendly packaging system.

The company has decided to venture into adult skin care products too. For this purpose, it has been noticed that client acquisition from all adult age groups will be complex since many competitors exist. So, Max Enterprise targets only clients with a hectic travel schedule and less time for self-care. It arranges customer databases from various airlines and travel agencies, checks their travel schedule, and designs the strategy so that most frequent travelers are contacted first.

Proper and detailed planning leads to a very high customer acquisition of new clients, and the company successfully ventures into the new market. However, this example shows that for the customer base to increase, it is necessary to understand the business plan and the type of customers for whom the product is suitable. Otherwise, it will be a waste of time and money.

Example #2

According to research, a steady rise in the cost of acquiring new clients is eating up the profits earned by e-commerce companies. Of course, this cost plays a significant part in any company’s growth. But for e-commerce companies, since they are targeting advertisements through social media, there is a rise in the customer acquisition cost because it is difficult to target the actual customer type.

Example #3

Google’s new campaign, Performance Max, aims to bring new business to the company, which means acquiring new clients. Of course, there will also be extra charges that the company will incur. But through this campaign, the advertisers can identify new business opportunities.

How To Calculate Customer Acquisition Cost?

It is possible to understand whether acquiring new customers has been profitable or valuable for the business. It is measured by calculating the customer acquisition cost (CAC), which is the cost of bringing in a new client. Also, it includes various advertising, marketing, research, event organizing, or product cost and is calculated based on a specific period or campaign.

CAC helps the business determine how profitable the customer acquisition has been and calculate the return on investment (ROI), ensuring that the strategy is suitable for this entity rather than leading to loss or resource wastage.

Customer Acquisition Cost

The acquisition cost ratio (LTV / CAC) is a good metric for analyzing whether the new customer addition process adds value. The LTV is Lifetime Value. Thus, if LTV/CAC is more than 1, it is profitable for the business. But if the ratio is less than 1, the customer acquisition process is a loss.

Benefits

Some benefits of new customer acquisition are mentioned below:

  1. Increases brand awareness – The entity will try to reach a broad market to spread awareness about its products and services, which will help people know the brand.
  2. Boosts sales – Getting more customers means making more sales. Thus, revenue increases, thereby increasing the profit margin.
  3. Make the company financially stable – Due to the increase in sales and revenue, the entity becomes economically solid and durable.
  4. Save cost– Getting new customers will result in covering the overall cost of operation, thus, increasing profitability.
  5. Analyse customer choice and needs – If the business wants to acquire new clients, it is essential to analyze the type of market and identify what type of clients will suit the company. Studying the clients’ choices and needs in the process is necessary.

Customer Acquisition vs Lead Generation

Customer acquisition is acquiring new clients to generate sales and revenue, whereas lead generation is finding potential customers. However, there are some differences between them, as follows:

Customer AcquisitionLead Generation
It is the method of getting new buyers. It is the method of identifying new buyers.
These clients are the ones the business has already acquired. These clients may or may not get converted into actual clients. 
Leads are needed to reach customers.Prospective customer data is necessary for achieving customers leads. 
It includes lead generation. It is a step before client acquisition.

Frequently Asked Questions (FAQs)

1. How to reduce customer acquisition cost?

The acquisition cost can reduce with the adoption of a proper strategy. The business should be able to identify what type of clients they are targeting, their needs, and whether acquiring such clients will add any value to the company. If the Lifetime Value (LTV) increases, then the overall cost of acquisition gets compensated or covered.

2. Why customer retention is more important than customer acquisition?

Customer retention is more important because even though the business may get many clients if they tend to switch to competitors easily, the entire acquisition cost and effort are wasted. Therefore, retention is more important to save costs and increase the customer base.

3. What is customer acquisition rate?

The rate at which an entity can acquire new clients is the acquisition rate. It can be calculated in the following way:
                Acquisition rate = Number of new clients acquired/Total Number of clients

This article has been a guide to Customer Acquisition & its meaning. We explain its examples, channels, steps, benefits, and comparison with lead generation. You may also find some useful articles here –

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