What Is Customer Acquisition? Customer Acquisition Explained

Customer acquisition is the process by which a business converts potential customers into paying customers. The customer acquisition process is typically broken up into three or more phases in which the company generates awareness, encourages consideration, and facilitates a purchase. This method is often referred to as a customer acquisition funnel or sales funnel.

Customer acquisition funnels can vary from company to company, but they’re generally built around these three phases.

1. 1. Lead generation: The first step of the customer acquisition process involves generating brand awareness with a holistic marketing strategy. Companies reach new customers via TV advertising, digital marketing, social media marketing via influencers and Facebook ads, telemarketing, and direct mail. A diverse mix of acquisition channels exposes potential customers to your brand, creating awareness about products or services.
2. 2. Purchase intent: The next step focuses on providing more information to customers who are aware of your brand and considering making a purchase. Businesses use search engine optimization (SEO) to draw website visitors interested in their particular product or service. SEO is a core element of content marketing, or the process of creating online content of interest for your target audience. This content encourages email list sign-ups, which fuel targeted email marketing campaigns. The more informed potential customers are, the more likely they are to make a purchasing decision.
3. 3. Purchase decision: This final stage of the sales funnel involves providing incentives to new customers on the cusp of making a purchase. Offering first-time customer discount codes, free trials of one service in exchange for the purchase of another, and loyalty programs can all help new customers complete the purchase process.

Every business model involves some degree of customer churn. In any sales cycle, there will be a need to raise the total number of customers such that new clients replace the old ones who have moved on. This is why an efficient customer acquisition process is an important benchmark in predicting the long-term sustainability of a business.

When you set out to draw new customers to your business, use these tips to ramp up your conversion rate.

1. 1. Define your ideal customer. Before diving into a marketing campaign, develop a clear customer profile for the market you’re trying to reach. Research the demographics (age, gender, education level) and geographic location of your ideal customer to better tailor your messaging and ad campaigns.
2. 2. Set a budget. Businesses use a metric called customer acquisition cost (CAC) to gauge the amount of money they are spending on acquiring a single customer. Research the average customer acquisition cost for your industry and determine how many customers you can reasonably expect to acquire with your marketing budget.
3. 3. Focus on a few acquisition channels. Instead of spreading your budget to pursue every lead generation tactic, identify the channels you’re already primed to excel at to maximize your return on investment (ROI).
4. 4. Set goals. Determine a time frame for your new customer acquisition marketing efforts so you can track the progress and review the results.
5. 5. Maintain a consistent customer experience. In sales and marketing, the customer experience begins the minute a potential customer first encounters your brand. This may be via a commercial, your social media platform, or on the landing page of your website. Use unified design templates and slogans to help the customer subconsciously connect all their interactions with your brand.

You don't need advanced math skills to calculate CAC. Use the simple CAC formula below, where SC is total sales costs, MC is total marketing costs, and CA is the total number of new customers acquired within a certain period.

How you calculate your total sales and marketing costs will vary depending on your type of company. For example, an e-commerce startup will have different cost categories than an established SaaS company (software as a service). In general, the costs of sales and marketing efforts may include ad spend, marketing spend, technology costs (like CRM software), publishing costs, production costs, and sales team salaries (including commissions and bonuses).

Marketing costs that exceed total sales will obliterate your profit margins. Consider some tips for continually acquiring customers in a cost-effective manner.

1. 1. Focus on SEO. Appearing in organic search results is an affordable alternative to paid advertising. Build up your web presence with search-engine-optimized blog posts, webinars, and landing pages.
2. 2. Bring in new customers with a free tier. If you run a SaaS company, consider offering a free tier that offers basic functions and shows potential customers what your brand can offer. If they are happy, you'll have better luck converting them into paying customers. Free trials and free samples can also have this effect.
3. 3. Offer a referral program. Your most loyal customers provide a high customer lifetime value (LTV), but they can also serve as an organic marketing channel via word-of-mouth referrals. Incentivize these existing customers to spread the good word by offering them perks for new customers they recruit. For instance, some businesses offer a purchase credit to new customers and also the existing customers who brought them in via a referral code.

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