In a perfect world, customers would naturally flock to your online store, find exactly what they are looking for, and leave you a nice review. But any seasoned drop shipper knows that’s not always how it happens, especially if your online store is new. While customers are supposed to be paying you, sometimes you have to pay for customers, too.
This is what we refer to as customer acquisition costs — any fees or expenses you pay to drive traffic to your store. This might include PPC ads, social media ads, email marketing, and any salaries you pay to marketers or content creators, for example.
Customer acquisition costs (CAC) can quickly eat up your dropshipping profits. How do you strike the right balance so that you can remain profitable but also have enough customers to sustain your business?
Here’s a closer look at customer acquisition for dropshipping businesses and how you can minimize your costs the smart way.
Before we dive into the nuts and bolts of lowering customer acquisition costs, you first need to know how to calculate it. CAC is defined as the total amount of money invested in customer acquisition divided by the number of customers you gained during that spending period. It looks like this:
CAC = $ Spent on Customer Acquisition / # New Customers
For example, let’s say you spend $100 on a Google PPC ad campaign for the month of October. Based on your ads alone, you get 50 new paying customers. Your CAC would be $2 per customer.
Understanding CAC from a business perspective is essential to running a profitable dropshipping business. For many drop shippers, margins are slim in order to remain competitive. Spending money to make a sale is sometimes necessary to grow your business. But if you’re not actively keeping an eye on the costs of acquiring customers, you could end up spending more than you’re making.
Bottom line: the lower your CAC, the more profit you keep in your pocket. While there are a lot of factors in CAC that are out of your control, there are also many things that you can influence to keep costs low.
Let’s look at a few:
You can’t target an audience if you don’t know who you’re selling to. Even if you’re selling something that is widely used by everyone, such as clothing, you still need to figure out the type of person who is most likely to buy from you.
When it comes to customer segments, it’s better to cast a deep net than a wide one. Trying to target everyone is like targeting no one. This can be an expensive road to take, and more often than not you’ll come up empty.
Spend some time defining your target market. If you have an established store, look at the types of customers who are already buying from you and try to develop ads and content that connect with those people. If you have a relatively new store, think of the type of customer you want to attract. Who is most likely to care about your products?
When you know your audience, you can create content and ads that address their unique needs and speak their language. Your ads automatically become more effective, which can increase conversions and lower your acquisition costs per customer.
How do you define a target audience? Here’s some food for thought:
● Who is most likely to use your product?
● What demographic information does your audience share (e.g. income, gender, age range, etc.)?
● What is their level of purchase intention (e.g. ready to buy or just looking for information)?
● What are their biggest pain points or problems they want to solve?
Make it a point to get to know your customers as much as possible. Find out what they might have in common so you can build lookalike audiences to use in your paid ad campaigns.
Paid ads are a common go-to for dropshipping businesses because they generate fast results. But they aren’t the only way to acquire customers. Other methods of marketing can take a little more time to start working, but the tradeoff is a lower customer acquisition cost and greater long-term value.
Content marketing is a prime example of this. A blog on your website can help you start improving your SEO, give you content to share on social media, and earn backlinks from other websites.
Using your blog to acquire new customers can help reduce CAC because the investment is small and your blogs don’t disappear when you stop paying for them, unlike ads. Your only “investment” is your time, not money (unless you hire a professional blog writer).
Blogs build value over time. The more consistent you are in writing blog posts, the more you have to share with your audience. When you continue to provide valuable and relevant content to your audience, they’re more likely to keep coming back to you for more.
Social media is a favorite tool for drop shippers because it’s completely free to use. Sure, you can pay for ads on social media platforms to grow your audience and expand your reach. But you can also post content for free that drives traffic back to your website.
Focus on building up your audience on social media. The more people who like your profile or page, the more people who will see your content (and potentially share it!).
Making an ad campaign is the easy part. Knowing if your ad is the most effective it can be is a different story.
That’s why marketers swear by A/B testing. This allows you to create two versions of an ad and test them to see which one gets the best results. With this data, you can scrap the underperforming ad and use the best one to increase conversions. The higher your conversion rate, the lower your customer acquisition costs.
When A/B testing, make sure you’re limiting your testing to small differences between the ads. Keep changes to a minimum, such as an image or a headline. This way, you have an apples-to-apples comparison and know exactly what about your ad made the most difference. Use this knowledge to develop better ads moving forward.
No one wants to attach their name to a shady business or products that are of poor quality. Influencer marketing gives your credibility a boost because it shows other people trust your business.
If you want to grow your reach, tap into the expertise of an influencer in your industry. They can promote your products to their own audiences and direct them to your website.
This is a highly effective way to boost sales while keeping customer acquisition costs low because influencers can connect you to an engaged, relevant audience.
Free marketing isn’t as unrealistic as it sounds. One way to expand your audience is to ask your customers to create their own content for your website or brand. User-generated content can take many forms: an unboxing video when their shipment arrives, a video or image of them using their purchase, or a video testimonial, for example.
You can share user-generated content on your social media channels and ask your audience to share it on theirs, too. This helps you expand your reach to your customers’ friends and family, which can add instant credibility to your brand and encourage others to check out your store.
Search engine optimization, or SEO, is the dream of any dropship store owner. It’s essentially free website traffic to your store if you can rank on the first page of Google for the products you sell.
Studies show that the number one spot on any Google search gets the most click-throughs. It’s more than 10 times likely to receive a click than any other listing on the first page of results. Clicks significantly drop off after the 10th position (Page 2 and beyond), which is why store owners are eager to climb as high in the rankings as possible.
It’s important to remember that SEO is a marathon, not a sprint. Increasing your rankings on Google can take time, especially if your store is relatively new. You can give yourself the best chance of ranking high by optimizing your product descriptions, writing meta descriptions, using the right keywords for your products, and focusing on your website’s technical SEO criteria.
Customer acquisition costs become harder to calculate when you consider the lifetime value of each customer. The reality is that even though it might have cost you $10 to gain a customer, for example, that cost lowers each time they buy from you.
That’s why you should focus on not only gaining new customers, but also keeping them coming back. Continue providing value with coupons, new product announcements, content, and updates so you can stay top of mind and create great experiences.
For more tips for dropshipping success, head back to the Doba blog
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