How First-Party Data lowers CAC and increases Customer Retention
Published: February 1st, 2024
CAC? Retention? What are we even talking about here?
Well, if you’re not familiar with the terms you could probably use an agency (contact us to get connected with one of our agency partners, they’re great). Now, for the sake of understanding: Customer acquisition cost (CAC) and customer retention are super important in business, especially when it comes to marketing and keeping customers happy. CAC is basically how much money you spend to get a new customer, covering everything from ads to sales efforts. On the flip side, customer retention is all about making sure your current customers stick around by building good relationships and keeping them satisfied. While CAC focuses on bringing in new folks, customer retention is about making the most of the customers you already have. These two metrics are key for growing a business in a smart and sustainable way, making sure you’re not just getting new customers but also keeping them coming back for more.
Yes, OK, but why are you talking about this?
I’m glad you asked. With all the changes in privacy laws that have come down, CAC has skyrocketed over the past year. According to HubSpot, 45% of marketers predicted they would need to increase their budgets by up to 25% year over year just to hit the same targets. That’s not a winning recipe for any business and a pretty scary future. However, there is some good news in all of this. Enter Customer Retention.
How Customer Retention can offset CAC pains
In a recent study, it was shown that increasing customer retention by just 5% can increase profits by at least 25%. Understanding how just a small 5% increase in keeping customers around can lead to a big 25-95% jump in company cash flow really hammers home how important customer loyalty is for any business. It shows that holding onto the folks who already love what you do can make a way bigger impact on your profits than just trying to rope in new customers. When you build strong connections with your current customers, you’re not only saving money on trying to find new ones, but you’re also tapping into their potential to keep spending with you over time. Plus, loyal customers are more likely to keep coming back for more, buy extra stuff you offer, and even tell their friends how awesome you are, which all adds up to more money in the bank. So, focusing on keeping your current customers happy isn’t just good for your wallet now, it sets you up for long-term success and growth down the road.
Alright fine, customer retention is important. But how does First-Party data fit in?
Using first-party data is like having a secret weapon for keeping customers coming back. Instead of relying on info from third parties, first-party data comes straight from your own interactions with customers. This means you get a deep, real look into what they like, how they behave, and what they need. With this insider knowledge, you can tailor your marketing, messages, and products to fit your customers like a glove. It’s like giving them a personalized experience that makes them feel special and understood. Plus, having this direct line to your customers lets you stay one step ahead, anticipating their needs and staying flexible to keep them happy. By keeping your finger on the pulse of what your customers want and adapting in real-time, you’re building trust and loyalty that keeps them coming back for more.
A 360° view of your customers is a must in 2024
Still, it’s a shame about that rising CAC
It really is, but you didn’t think we’d be writing all this if we didn’t have something to say about CAC too. I mean, it was in the headline of the post. Customer Acquisition Cost is rising for 4 major reasons:
- Regulatory compliance cost – GDPR and CCPA and the cost of staying compliant
- Limitations on targeted advertising – Third-party data is no more
- Consumer trust – Being transparent about what you are doing with your customer’s data has a cost
- Expensive first-party data collection tools – Expensive in terms of both time and money
Luckily there is a solution to offset all this. In a recently published document, it was demonstrated that implementing a first-party data plan directly led to a 20% decrease in CAC and an 11% increase in Return on Ad Spend (RoAS) from social media ads. This goes a long way towards remedying the current problems plaguing marketers in 2024.
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