Customer acquisition costs are one of the biggest expenses that financial service providers face. In an article by Kitces, it was found that the average cost of acquiring new customers for financial advisors was approximately $3,119.00 (£2,516.53 at the time of writing).
Aside from the financial implications, CAC also brings along some significant, hard hitting challenges for businesses in the financial sector. It becomes that much harder to stand out in a highly saturated industry, when the cost of acquiring new customers eats into margins that could have otherwise been used to accommodate competitive prices.
Not to mention the direct impact that CAC has on profitability, ROI, hampered innovation due to tighter budgets, and long term sustainability.
In this blog post we’ll delve into the strategies you can adopt today to help you effectively reduce your average customer acquisition cost. You’ll be in a better position to enhance your bottom line and build a stronger foundation for long term success, as a result of optimised resources and improved efficiencies.
Why is it Important for Financial Services to Track and Reduce Customer Acquisition Costs?
Calculating CAC helps you understand the costs of acquiring customers and assess the effectiveness of your marketing and sales effort. This metric should be analysed in conjunction with other important metrics, such as customer lifetime value (CLTV). A good LTV to CAC ratio for financial services is 3:1.
Click here for a guide on how to calculate and track 9 essential KPIs and metrics.
Tracking and minimising customer acquisition cost is important for financial services providers for various reasons:
Financial services companies can make the most of their marketing and sales spending by keeping an eye on minimising CAC. By reducing the costs of acquiring customers, companies can allocate their resources more effectively and achieve a higher return on investment (ROI). This can directly impact the profitability and financial well-being of the business.
Reducing CAC can support sustainable business growth by enabling financial services providers to acquire more customers within realistic and well-informed budgets. If the cost of acquiring new customers is too high, it becomes challenging to scale operations and expand the customer base. But by optimising CAC financial services firms achieve controlled and sustainable growth over time.
Customer Lifetime Value (CLV)
Tracking CAC allows companies to assess the relationship between customer acquisition costs and CLV. An unsustainable business model is highlighted by costs of acquiring customer exceeding CLV. Understanding this relationship informs decisions on customer acquisition and retention strategies.
Strategic Decision Making
Tracking CAC provides valuable data for strategic decision making. It helps you identify which marketing channels, campaigns, or customer segments are most cost-effective and yield the highest return on investment. This data-driven approach allows financial services providers to allocate resources strategically and make informed decisions on future marketing and sales initiatives.
Leveraging Strategies that Mitigate CAC
Whilst you optimise your marketing channels also think about the strategies that will serve your business after acquisition. As these can save you spending money and even time on customer acquisition further down the road.
Like we’ve already discussed, making use of customer acquisition strategies such as WOM marketing and brand alliances demonstrate incredible ROI.
1) Strategic partnerships & collaborations
Strategic partnerships and collaborations significantly reduce customer acquisition costs through various means. First of all, they offer access to new customer segments. This is particularly important for financial service providers as low consumer trust is the typical sentiment towards them.
Where consumers previously might’ve refused to give their details, the existing trust and relationship that your potential partner has with them, could convince them to open up to your brand. The positive brand equity of potential partners therefore allow mistrusted financial firms a chance to tap into new customer segments without incurring acquisition costs.
Furthermore, collaborating with partners allows you to pool marketing resources, expertise and budgets. You can share marketing efforts, co-branded advertising campaigns can result in a good customer acquisition cost. The majority of consumers today are more drawn to co-created value. This approach of sharing the cost eases the financial burden of customer acquisition and as a result, yields more budget for other marketing initiatives.
2) Referral programmes
Referral programmes are a highly effective strategy for acquiring new customers at a lower cost. Encouraging your existing customers to refer their friends, family, or colleagues to your business, taps into a powerful form of marketing; word-of-mouth. People tend to trust recommendations from those they know and therefore more likely to try out your product or service. This is essential for financial services as one of the least trusted sectors.
Offer incentives or rewards to your existing customers for referring new customers. This could be discounts, freebies, or even cash rewards. Not only does this motivate your current customers to refer others, it shows your appreciation for their loyalty and support.
In addition to being a cost-effective way to acquire new customers, referral programmes also have the potential to create a positive feedback loop. As more customers refer others, your customer base expands, and the cycle continues, helping you to simultaneously reduce CAC and grow the success of your business.
3) Optimise lead funnels
According to First Page Sage, financial services see some of the highest average costs inorganic and organic leads. Sometimes that’s just the nature of the game due to a highly competitive and saturated market. However, by analysing and optimising your marketing channels, you can identify leads most likely to convert to brand advocates.
Examine your customer acquisition strategy and pinpoint any obstacles or points where potential customers lose interest. By fine-tuning each step of the conversion process, starting from building awareness to finalising the sale, you can enhance the overall conversion rate and minimise the costs of acquiring new customers.
4) Enhance customer retention
When you acquire a new customer the goal is to retain them long enough so that they become advocates for your brand. Then they refer others to your business through word-of-mouth marketing.
Social proof is a powerful motivator for previously unfamiliar prospects to jump onboard your company. People trust the recommendations from those they know. Likewise, your brand advocates qualify leads more effectively, as they’ll recommend products and services to who they think will enjoy them the most.
Even before a customer becomes a brand advocate, retention plays a significant role in reducing the cost of acquisition in several ways. Typically, acquisition of potential customers requires businesses to invest in various marketing channels e.g., advertising, content creation and lead generation.
Yet, with optimised marketing channels resulting in a higher quality of leads, a portion of your acquisition budget can be transferred to retention strategies. It’s 5 to 25 times harder to sell to a new customer than an existing one. Which just goes to show that customer retention opens upselling and cross-selling opportunities.
As a result, customer churn and attrition rates fall. Low churn rates mean you don’t have to invest as heavily in acquiring potential customers to compensate for those lost.
For more tips and customer retention strategies check out our other blog here.
5) Analyse and optimise marketing channels
Your marketing efforts have a direct impact on the total cost of acquiring customers. Whilst marketing spending saw growth in the past year, a turbulent economic environment has seen almost half of US companies slash their budgets going forward.
This may seem a sensible move at first. However, without the right analysis process in place, financial services providers – or any business for that matter – risk slashing or optimising marketing channels that work well already.
Proper analysis and optimisation of marketing channels requires the following: attribution modelling, ROI calculation, testing and data analysis. Here’s what you need to do.
Attribution modelling is a method of scoring your marketing channels. Marketers use attribution models to analyse the effectiveness of their marketing efforts. This helps them to determine the channels with the highest impact and thereby allocate resources accordingly.
There’s various models you can use. In terms of customer acquisition, there’s the First-Touch attribution model. This is where you give full credits to marketing strategies at the awareness and consideration stage of the customer journey. Of course, this doesn’t reduce the cost of acquisition, rather the opposite. However, in the long run, this model helps marketers understand which channels resonate most with leads before they convert.
6) Split testing
Split testing netted Bing.com a 10-25% improvement on their annual revenue per search. And yes, the process of conducting an A/B test certainly has its costs but with every iteration of the experiment, your test could uncover insights that ultimately reduce CAC.
That’s because split tests allow financial services to identify the most effective marketing strategies within each of their channels. Marketers can test different visuals, messaging and CTAs.
Financial services providers can actually supplement the test and target approach by segmenting their target audiences. Categories could include various factors ranging from demographics, behaviours, their needs and preferences. Even going so far as to implement insights gained from attribution modelling. Marketers can target the right audience with the right message at the right time using the most effective channels.
7) Social media and online advertising
In today's digital age, leveraging targeted social media advertising platforms and online ad networks is crucial for effectively reaching specific customer segments. These platforms offer a range of tools and features that allow businesses to set specific budget limits, enabling them to control their advertising costs more efficiently.
Social media advertising platforms, such as Facebook Ads and Instagram Ads, provide businesses with the ability to target their ads to a specific audience based on various demographics, interests, and behaviours. This level of targeting ensures that your ads are being shown to the right people who are more likely to be interested in your products or services. That way you maximise the impact of your advertising efforts and increase the chances of converting those leads into customers, thus reducing CAC.
8) Content marketing and thought leadership
Content marketing is an incredibly powerful tool that can help position your company as a thought leader in the industry. By creating valuable and informative content, such as engaging blog posts, insightful articles, detailed white papers, and interactive webinars, there's opportunity to showcase your expertise and naturally attract potential customers.
You provide immense value to your target audience when you share knowledge and insights through these various content formats. This not only helps you establish credibility and build trust with your potential customers, it also positions your company as a go-to resource in the finance sector. Consistently delivering high-quality content that addresses the pain points and challenges of your target audience cultivates strong relationships and fosters meaningful engagement.
One of the greatest advantages of content marketing is that it can significantly reduce the need for expensive advertising campaigns. You can harness the power of content to drive organic traffic and generate high-quality leads instead of relying on paid advertisements to reach your audience. In other words, valuable content that truly resonates with your target audience attracts genuinely interested prospects to your company.
9) Customer onboarding automation
Streamlining and automating the customer onboarding process is crucial for financial service providers looking to reduce manual labour and associated costs. Businesses can significantly reduce paperwork, administrative overheads, and the time required to onboard new customers by implementing online application forms, e-signatures, and automated verification processes.
Automated verification processes further streamline the onboarding process by quickly and accurately verifying customer information. This can include automated identity verification, credit checks, and other necessary checks to ensure compliance and mitigate risk. By automating these processes, financial service providers can significantly reduce the time, resources and costs typically required to manually verify customer information.
Digital transformation in the onboarding process reduces manual labour and its associated costs for financial service providers. This not only benefits the company's bottom line but also contributes to increased customer satisfaction and loyalty.
10) Customer segmentation & personalisation
Segment your target audience based on various factors such as demographics, behaviour, needs, or preferences. This allows you to tailor your marketing messages and channel selection to specific customer segments. By targeting the right audience with the right message through the most effective channels, you can outweigh your acquisition costs with the lifetime value of a customer.
Driving Financial Success through Cost-Effective Customer Acquisition Strategies
Maximising ROI by minimising customer acquisition costs is a crucial objective for financial services organisations. Reduced customer acquisition costs and maximising ROI, enhances profitability and sustainable long term growth, in a highly regulated, competitive and tough industry.
Through this blog, we have explored the best methods of analysing and optimising marketing channels. Marketing efforts should give your brand more bang for its buck. Attribution modelling helps marketers sensibly budget acquisition efforts by calculating ROI. Similarly, datasets provide insights for more accurate testing and tracking for future endeavours. Making acquisition more efficient, optimised to yield more from investments, and lead to enhanced digital marketing strategies.
Using these strategies, financial services companies can optimise their objectives to focus on retention, thus reducing the financial pressures of acquisition-oriented marketing efforts. In turn, this allows businesses to allocate resources in a cost-effective manner, strengthen customer loyalty and generate repeat business and referrals.
Want to streamline your acquisition process into a cost-effective solution? Give us a call today or drop a line. We’re always on hand to help.