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Customer acquisition is the primary focus for many businesses. It can be challenging to tweak a system that’s already acquiring customers. As the wisdom says: “if it ain’t broke, don’t fix it.” Yet if you have a customer acquisition funnel that draws customers primarily through ads and social media, you might be missing out on something better: ROI.
Whether you run an ecommerce business or B2B, you can boost ROI by adding a new focus to your funnel: word-of-mouth referrals. According to McKinsey, referrals can generate twice the sales of paid media and influence about 50% of purchase decisions.
But how do you integrate it into a customer acquisition funnel the right way? Let’s dive into what you need to improve a customer acquisition funnel, even if you already have one bringing new customers aboard.
The Customer Acquisition Funnel
Typically, a funnel might look something like this:
- Awareness: A customer discovers your social media presence or website and learns about what you do for the first time. They only convert when they go deeper into your sales materials.
- Interest: Interest, or consideration, is when a customer is doing legitimate research to see if they want to purchase. This may come when they download a lead magnet you created, or read through customer reviews on a product page.
- Decision: The moment of checking out, pulling out the credit card, and officially becoming your customer.
- Retention: Post-purchase flows can include follow-up emails, customer support, and the unboxing experience. And they all have an impact on who decides to stay your customer.
If you’ve built a successful customer acquisition process, then you may be wary of changing it by adding any step to the above, like a new medium for discovering new customers. But look at your bottom line. There may be ways to lower your CPA (cost per acquisition) and raise your ROI (return on investment) and CLV (customer lifetime value) if your acquisitions come through labor or cost-intensive efforts like social media and advertising.
Enter the customer referral. Statistics suggest 92% of customers trust recommendations and referrals over branded messaging. Adding it to your customer acquisition strategy should then be a slam-dunk, a way to attract highly-engaged customers who seem to zoom through the funnel.
And given how “warm” the leads you get from customer referrals are, it can also provide the ROI you’re looking for.
The only concern? Learning how to make customer acquisition via referral and word-of-mouth work at scale. Fortunately, there are ways to do it. You can incentivize new and existing customers to make referrals, reward existing customers for continuing to refer friends, and embed referrals into every step of your email and SMS workflows. Here’s how.
Top Customer Acquisition Channels
At the top of any customer acquisition funnel is the attention phase. This is when your brand meets potential customers for the first time. Though the deeper phases of the funnel (like the consideration and decision stages) come later, the way prospective customers discover your offerings can impact the likelihood of their conversion. Let’s look at some of the most powerful customer acquisition channels below:
There’s an inherent advantage here: if your referral program inspires word-of-mouth, then it’s likely going to result in stellar ROI. As McKinsey noted, word-of-mouth recommendations are often behind 20-50% of purchasing decisions. If you haven’t incorporated it into your customer acquisition funnel yet, then those may be the customers you can finally convert when you do add a referral program.
A referral program works according to a simple principle: incentivize people to become your unofficial word-of-mouth marketers. Brands typically do this through direct rewards: you refer a friend to buy something from us, and we’ll send you a reward. This incentive typically comes later in the customer acquisition funnel. (After all, it’s usually not a good idea to ask someone to promote your brand if they haven’t already had a good experience themselves).
Even better, word-of-mouth marketing as an acquisition channel means that you're already hitting your target audience since your existing customers can weed out which of their friends or family would be most interested in your brand.
Referral marketing is strong enough that it will often work, even when both parties are aware of the incentives. The customer won’t typically recommend a product or service unless they’re happy to get discounts on future purchases. And their friend or family member, knowing this, accepts the recommendation as genuine. It’s the easiest way to stir up a little word-of-mouth marketing while giving customers a “nudge” in the right direction.
There isn’t one good reason to use social media marketing to add to your customer acquisition funnel. There are nearly 4 billion reasons when you count up how many users have logged on to social media. Simply put, social media marketing is the place to be if you want to turn on the afterburners in your marketing efforts.
For B2B companies, social media marketing can help you add a larger audience to thought leadership and brand-building efforts. If you work primarily in ecommerce, social media can expose you to your audience in a way that feels much more organic than traditional advertising.
Although there’s no reason B2B brands can’t use social media, it works especially well in DTC commerce. The above social media post, from RipSkirt Hawaii, was an automated post encouraging customers to refer a friend with the incentive of a discount offer. The visuals, the quick-hit nature of social media messages, and the convenience of a single click to join a referral program all fit neatly into the bite-sized marketing trends of the Twitters and Facebooks of the world.
Outside of word-of-mouth conversions, email marketing boasts one of the best ROI averages in digital marketing. Averages suggest email marketing can earn you about $36 for every $1 spent on advertising.
There are a few reasons for that:
- Email marketing is affordable. All you need is an email marketing platform and a list. It may take time to build an engaged list of potential customers (using strategies like a lead magnet incentive), but once you have that list, you’ll own an exclusive way to reach out to those leads. And you can keep sending emails as many times as you can think of emails to send. There’s no cost downside here, other than the potential for churning away some customers if you end up in their inbox too often.
- Email marketing is highly engaging. People who sign up for your emails are beyond the “attention” stage in your customer acquisition funnel. Once they’re signed up, they’re firmly in the interest or even the decision stages. They know that they like you, they’re likely in your target market, and they’re open to buying. But what follows in your emails still needs to be convincing.
You can combine referral marketing with email marketing for an especially powerful customer acquisition funnel, too:
The advantage here? You can choose when you employ referral incentives in your email marketing customer journey. You can wait until after a successful purchase, for example, and insert a message like Smile Direct Club’s messaging above in the post-purchase flow. This captures customers when they’re feeling the best about having chosen you.
How To Create A Customer Acquisition Strategy
If it were as simple as downloading a customer acquisition funnel template off the Internet, plugging it into your company, and enjoying the new revenue, everyone would do it. But a thorough customer acquisition strategy must also incorporate the following:
- A map of your current strategies. Think of the funnel as something of a customer journey map. Include every touchpoint that brings a potential customer from someone who hasn’t heard of you to someone who has purchased from you before and is enthusiastic about doing it again. Identify those touchpoints and start considering the strategies you currently use to move the customer along. Look for weak points.
- Tailor your strategies to your company. If you’re a B2B company with high-ticket offers (think $1,000/month rather than $50/month), your customer acquisition strategy is going to look a lot different than D2C companies. Tailor your funnel accordingly, remembering to invest in assets like thought leadership blogs, webinars, and case studies to establish your value. These are often steps that D2C companies can go light on or even skip.
But that’s just an overview of how you should approach the customer acquisition strategy you want to incorporate. Let’s parse out the individual steps to get specific:
Fit your strategies to your funnel
No matter which strategies you’re using, or how many of them, you still have to know how they’ll fit in your funnel. For example, let’s say your funnel uses a traditional marketing structure, like AIDA (attention, interest, decision, action). Where would the various media you employ to acquire customers fit in that funnel? Let’s look at a few examples:
- Social media is best at the higher levels of the funnel, where it amplifies the messaging of your content marketing. Your goal here is simply to get eyes on your messaging, since customers can rarely make buying decisions on the social media platform itself.
- Email marketing works at multiple levels, typically after you’ve already engaged someone enough to get them to send you their email address and grant you permission to email them. You can incorporate it in pre-purchase emails (including discounts and seasonal incentives) and employ email marketing well after the purchase (sending along a referral code to incentivize word-of-mouth marketing).
- Referral programs start with a customer’s purchase, but they have cascading effects all over the funnel. For the customer doing the referring, they’ll likely take your referral code and recommend your product to a friend once they’ve already converted. But the friend they refer now enters your customer acquisition funnel at the very top.
Think about these touchpoints and where you can incorporate them into your customer acquisition funnel. Let’s take an example:
Metromile sends out a “monthly statement” to its customers, so it’s fair to say those customers are deep in the customer acquisition cycle. In fact, you might consider them finished with it. That’s an ideal time to add a CTA that reminds them to refer a friend. Simply weaving it into your monthly automated customer emails, for example, can serve as one of the touchpoints for your top-of-funnel customer acquisition strategies. And it may just end up being one of the best.
Create powerful incentives for moving through the funnel
It’s tempting to think that once you establish a funnel that moves the customer from A to B, the customer should somehow pick up on this without any nudging on your part. But that’s not how these funnels work. Think about each touchpoint in terms of incentives.
What are the powerful reasons that move a customer from the attention phase to the interest phase, for example? What elements can you add to your funnel that make them want to purchase?
This offer from MeUndies is a good example of a company who understands these incentives. Rather than simply offer customers a chance to earn store credit by referring a friend, they also recognize that the friend being referred enters the equation at the top of the funnel.
That’s why they offer $20 in store credit to the customer doing the referring, and an additional 20% off the new customer’s order. MeUndies understands the customer acquisition funnel requires “gravity,” or a reason the customer should keep moving down the funnel.
You can incorporate similar thinking into your customer acquisition funnel at every step:
- In the attention phase, consider giving out items for free in exchange for the first goal: the customer’s time. For example, many brands create free content and product usage guides on social media to attract attention to what they’re offering.
- If you want to spur interest, consider asking for a little bit more. This is when many companies will move customers into an email marketing campaign by creating a free resource or series of discount codes for people who sign up. Those email marketing campaigns can then offer incentives for customers to make their first purchase.
- In the moment of decision, make sure your social proof elements are in place. For example, if you’re a D2C company, you’ll want as many customer reviews on your website as possible. Additional photos or videos that demonstrate the product add to the credibility of the quality you have to offer.
- The post-purchase phase is a great time to engage in follow-ups, including your offer for the referral program. However, you can always advertise your referral program on your website so even new customers can see how much they stand to gain if they like your product and start recommending it to friends.
How To Measure Customer Acquisition
The reason for getting so detailed with your customer acquisition funnel and defining your incentives? Once you have them in place, they’re easier to measure. And you can use those measurements to inform future campaigns, identify weak points in the funnel, and boost your overall conversion costs.
The key to making this work is to get specific about which variables deserve your focus. And that all centers around the all-important customer acquisition cost.
Customer Acquisition Costs (CAC)
The goal of the CAC, for customer acquisition costs or customer acquisition cost, is to get your marketing campaigns down to one number. Ideally, you should know how much you have to spend to acquire one new customer on average.
Knowing this number helps the whole business plan its budgeting, understand its growth limitations, and identify potential areas for improvement.
How to calculate customer acquisition cost (CAC Formula)
It’s a simple division formula. You need two variables here:
- How many new customers did you acquire during a specific campaign? Or a specific time period?
- What was your all-in marketing cost to acquire those customers?
Divide your total costs by your total customers, and you have an average CAC: the dollar amount you can expect to spend on each new sale if you were to launch a new campaign. Think of it as CAC = TC (total cost) / CA (customers acquired).
The resulting number is an overall look at your marketing efficacy. You may have to get more specific by identifying which customers came from which campaigns. But when you do, you can get the same CAC for each campaign, provided you know what you spent on each. Ideally, you should be able to compare CAC between specific strategies (i.e., social media CAC vs. referral CAC).
What is the average customer acquisition cost?
The answer varies by industry. In higher education, for example, CAC might be over $800, while it’s down to $200 in SaaS, or software-as-a-service. Other statistics show that consumer goods customers tend to be about $22 in CAC, while marketing agencies can expect about $141.
What is a good customer acquisition cost ratio?
The key word there is ratio. For example, a CAC of $800 in higher education might sound high, but if your institution of higher learning is earning $30,000 per year from each “customer” you acquire, it sounds like a spectacular marketing campaign. ChargeBee states that a good customer value: CAC ratio is about three to one, which would put an average customer acquisition cost about one-third of what you expect to get from the customer when they purchase.
How To Reduce Customer Acquisition Costs
Maybe you’ve measured your CAC using the formula above, compared it to the average costs in your industry, and found yours were startlingly high. What do you do to bring them down? One obvious solution is to incentivize direct word-of-mouth marketing via referral programs. But let’s look at this from a strategic perspective:
- Shift to higher-ROI marketing campaigns. Referral marketing works with a high ROI, yes. But so does email marketing. Consider shifting more priority to higher-ROI styles of marketing, like paid ads in search engines and social media marketing, even if you haven’t tried these before.
- Create distinct offers for customers at unique points in your funnel. One reason customer acquisition costs can potentially be too high: you’re too focused on one channel. For example, if your email marketing is all tailored to capturing attention rather than nurturing interest, your marketing is a mismatch between what customers need and what they’re seeing from you.
- Rethink your customer psychology. Customers aren’t making a decision when they land on your purchase page? Maybe you don’t have enough social proof, such as raving customer reviews, on those pages. Or maybe you simply haven’t offered customers enough incentives to move through your funnel. Rethink your approach to customer psychology and you may find that you naturally lower your CAC over time.
Tips For Quickly Boosting Customer Acquisition
You might not need a complete marketing overhaul to rethink your customer acquisition funnel. What are some shots in the arm you can do to give your brand a better chance at landing customers without throwing more money at the problem?
- Get more vocal. For example, Imperfect Foods is a brand that utilizes “persistent banners,” or consistent banners in its emails, to promote its referral program. If no one can see your referral program, it may not matter how great it is. Customers first need to know it exists.
- Reach out. Consider adding an element like SMS or push notifications to your referral campaigns. This isn’t just getting more vocal; it’s actively getting in front of your customers’ eyes with an offer. Typically, if you’re offering savings, they won’t mind the occasional nudge.
- Meet customers on their terms. Let’s say you run a store that has a lot of customers on its mobile app. Are you really going to encourage customers to join a referral program if you send out printed flyers? No. Meet customers on their terms and create a mobile app promotional campaign.
- Add some enthusiasm. Every offer for your referral program will come accompanied by promotional copy in some shape or form. So make sure that copy communicates the same sense of enthusiasm that you want your customers to share with their friends. It’s infectious.
Customer Acquisition Strategy Examples
The question of customer acquisition is probably the oldest one in business. How do you get new customers, after all? We once asked ecommerce experts to share their insights into customer acquisition. And one answer that kept coming up over and over again can be summed up in three words: know thy customer.
Strong brands like PetFlow understand this intuitively, reaching out after purchases to send out customer surveys. They even pair their post-purchase flows with reminders that you can share your experience with friends via a referral program:
Using these surveys can help reveal insights into what your customers want. And when you have those answers, you can cater your promotions and services to fit that need. Let’s look at some brands who did it this way:
MuteSix and Spongellé
At Spongellé, a luxurious product experience can sometimes be the key to making a sale. This is the point of the customer acquisition funnel where the customer is ready to make a decision. They decided to invest in that stage of the funnel by creating high-quality, high-definition videos that highlighted Spongellé’s bodywash-infused body buffers.
- Acquisition Channel: Video content / Google shopping
- Key Takeaway: The heavy investment paid off, delivering a return on ad spend (ROAS) increase of 3.21x compared to the previous year. And it all happened because they were willing to match their product to their strategy: highlighting the luxurious nature of their offering with a similarly-luxurious video experience.
Remember that tip about getting vocal? Daasity incorporates a 2-for-1 pop-up that captures both email and phone numbers. Ideally, this means that as soon as you have the customer’s attention, you’ll convert many more of them into people who have moved down the funnel into the interest phase.
- Acquisition Channel: Pop-up banners, social media
- Key Takeaway: Personalization. Pop-up banners can be a bit of a drag if they’re written for everyone. But Daasity reports it would create different offers depending on its channels, such as Facebook ads, to create a segmented experience and drive high conversion rates.
Make customer acquisition your new priority
If you want more customer acquisition, it’s not always about throwing money at the problem. It’s about taking a smart, targeted approach to what customers like. And they like word-of-mouth marketing above just about every other form there is. Consider adding it to your customer acquisition funnel and gauge the results on every step of your customer’s journey. It may provide your highest-performing ROI to date.