Customer acquisition cost (CAC) is the amount you spend on acquiring customers. It is a critical metric that determines your business profits.
The bad news: The average eCommerce CAC is rising. This could be because of one or multiple factors in your eCommerce business.
From higher competition and marketing costs to poor product-market fit to ineffective pricing strategies in your subscriptions and memberships.
To help you reduce customer acquisition costs in your Shopify store, this blog focuses on strategies you can implement in subscriptions and memberships.
Curious to know more? Let’s get started!
Why eCommerce CAC is rising and its challenges
According to a study by Harvard Business Review, acquiring new customers costs 5 to 25 times more than retaining existing customers. Customer acquisition costs are rising. 57% of retailers say it’s one of the biggest threats to their sales goals. But what exactly are the reasons for its rising costs? Let’s find out.
1. Increased competition
There are 28 million active online businesses in the world. More and more businesses are competing for the same customers. This is leading businesses to spend more on marketing, promotions, and customer acquisition campaigns. Besides, increasing costs of resources, advertising, etc. adds to CAC.
2. Ineffective customer targeting
Another reason the average eCommerce CAC is rising is because of ineffective customer targeting. Lack of personalization in marketing messages, poor targeting, lower engagement rates, and not using data strategically are some of the reasons for increasing marketing costs and CAC.
3. Customer behavior is changing
Due to an overload of information and options, customers’ engagement is decreasing. Brands are finding it harder to capture their attention. Moreover, customers’ expectations have increased. They expect more sophisticated and personalized experiences. Privacy issues are another reason customers are wary of interacting with multiple brands. All these factors are leading to a higher CAC.
4. Product and pricing factors
Lack of product differentiation, poor product-market fit, and inappropriate pricing can lead to lower engagement and sales. These factors tend to increase customer acquisition costs as they may require more marketing costs.
How eCommerce subscriptions and memberships reduce CAC?
Ecommerce subscriptions and memberships are marketing strategies that help increase recurring revenue, nurture long-term customer relationships, and hence, reduce customer acquisition costs. Let’s understand how they help do so.
Ecommerce subscriptions
How subscriptions reduce customer acquisition cost
Subscription models are based on the concept of recurring or repeat purchases at predefined intervals. Here’s how subscription can lower customer acquisition costs:
- Subscriptions focus on retaining subscribers/customers rather than only acquiring new customers
- With subscriptions, customers get into long-term association with brands. This increases customer lifetime value (CLV) and reduces CAC
- Happy subscribers end up advocating for your brand, bringing new customers for free. This reduces CAC
- Subscriptions help businesses gather insightful data about customers’ behavior, helping with targeted marketing. This improves customer retention, and lowers CAC
Example
Subscription features that help increase retention and reduce CAC
Offering basic and traditional subscription models that only offer discounts does not attract customers anymore. Customers want an all round excellent subscription experience. Here are some features that you must consider for your Shopify subscription model.
1. Convenience
Subscriptions provide customers the convenience of receiving products and services on a regular basis without having to repeatedly place orders. This sort of convenience leads to longer associations with the brand and reduces the need to spend on acquiring new customers.
2. Flexibility
Ecommerce subscribers have the flexibility and freedom to swap, pause, or change products when they want to. This offers a certain level of comfort, leading to a better customer experience.
3. Tiered subscription options
Subscriptions can have different tiers, which makes it easy for customers to choose a tier based on their preferences. Different tiered subscription levels and pricing offers customers the ability to choose what fits their requirements.
How to structure eCommerce subscriptions to reduce customer acquisition cost?
Here are some tips to structure your subscriptions in a way that they help reduce CAC.
- Price subscriptions strategically in a way that it offers lifetime value as well as benefit on individual transactions. Price in a way that you recover CAC within the first few months.
- Offer flexible subscription models for better CAC. For example, multiple frequency options – weekly, monthly, quarterly. Allow customers to make changes easily.
- Bundle complementary products and services within subscriptions. This helps increase the average order value (AOV).
- Design a tiered subscription model that caters to different customer segments. This can help increase lifetime value as customers can upgrade or downgrade plans based on their needs.
- Automate data-driven personalization to offer personalized benefits to customers based on their behavior patterns. It can increase retention and reduce customer acquisition cost.
- Design subscription CX and logistics in a way to maximize convenience and minimize friction. Automate tasks using an intuitive subscriptions app, such as Appstle Subscriptions App.
Ecommerce memberships
How eCommerce memberships lower CAC
Memberships are designed to enhance customer experience and drive customer loyalty. These aspects help reduce CAC. Here’s how:
- With memberships, you can increase upsells and cross-selling, increase AOV and reducing CAC
- Loyal members end up spending more over time, increasing value to your business
- Membership programs offer incentives and perks that help retain customers, reducing CAC
Example
Membership features that help increase retention and lower CAC
Here are some eCommerce membership features that lead to enhanced customer experience, increased retention, and lower customer acquisition cost.
1. Personalized incentives
Since memberships last for a long period, Shopify merchants are able to collect customer data and use the insights to offer personalized incentives. For instance, free shipping, personalized discount, early access to collections, etc.
2. Community and groups
Memberships offer a feeling of belonging and community with other like-minded members. This sort of emotional connection leads to greater customer satisfaction and hence longevity.
3. Higher engagement
With features, such as personalized product recommendations, new incentives, freebies, and special benefits, membership programs provide consistent engagement to customers.
How to structure eCommerce memberships to reduce CAC?
Follow these tips to structure memberships in a way that it helps increase retention and reduces CAC:
- Identify various customer segments. Creating segments helps in deciding perks and benefits for each segment. It will also help you price your membership plans based on the various segments.
- Understand what motivates customers to make purchases. Collect feedback, conduct online surveys, and listen to members to understand what perks and benefits they experience.
- Define membership validity – monthly, annual, or lifetime. Doing so will help you proactively run campaigns to get them to renew, engage, and stay for long.
- Have a clear value proposition. Show members the benefits and value in the long run. For instance, if the membership fee is $100, show them how they would save $200 – $300 instead.
- Price membership plans strategically, based on data and competitor analysis.
- Integrate your membership plan within your Shopify store and experiences by using an efficient Shopify membership app – Appstle Membership App.
Example:
Wrapping up: reduce CAC with Shopify subscriptions and memberships
If you thought your Shopify subscriptions and membership models only help increase sales and revenue, you’re wrong. There’s a hidden benefit they offer – reduce customer acquisition cost.
To maximize ROI and reduce CAC, you have to strategically plan and manage your Shopify subscriptions and memberships. And to do that, you will require a smart app.
Appstle Subscriptions App is designed for Shopify and Shopify Plus stores. The app has various features that make it one of the best subscriptions apps in the market. Let’s look at some of its features:
- Easy setup and management of subscription models
- Multiple types of subscriptions
- Automated features for tiered discounting, messaging, personalization, etc.
- Efficient customer portal that allows easy self-management
- Integrated marketing and personalization features
- Easy third-party integrations
Appstle Memberships App is built for Shopify and Shopify Plus stores that want to offer membership experiences that stand out, and bring results. Here are its features:
- Easy setup, management and automation for membership plans
- Comprehensive perks and benefits that differentiate your business
- Automated billing, messaging, communication, and more
- Customized perks, membership tiers, pricing, etc.
- Customizable member portal
Install Appstle Subscriptions App and Appstle Memberships App on your Shopify store today to reduce CAC.
