In any business, customer acquisition cost (CAC) is the amount the business invests in acquiring a new client. To attract new customers, banks and credit unions need to be able to share information about the products and services they provide as well as how they're superior to other financial institutions. Financial services providers are under a significant burden to offer competitive financial products and a convenient customer experience. Customer acquisition costs include the resources and time spent acquiring a customer. These costs generally include marketing campaign costs, direct customer interaction, and point-of-purchase promotions.
Retail banking customers might be interested in multiple products as well as the ability to access account information and complete banking tasks digitally. Successful customer acquisition uses a variety of marketing channels to supply information about all the benefits of banking with a specific organization. Some examples of customer acquisition costs for banks and credit unions include:
It's essential to acquire new customers that represent your future earnings. Still, without understanding the cost of these efforts, you can't determine whether your CAC methods are a good or bad investment. Consider how your business invests in tools and other resources that improve how your organization works. You wouldn't purchase a tool or system that would rarely be used because it wouldn't provide a reasonable return on investment (ROI). The same goes for customer acquisition costs—understanding how they work can help your organization attract customers more effectively and improve your profit margin. Just as important as ensuring you're making a profit is making sure that you're not overspending in order to do so. If acquisition costs start to outweigh the revenue brought in by new customers, it would be detrimental to the long-term success of your business. Therefore, keeping tabs on customer acquisition costs is an essential part of ensuring the overall health of your organization.
In the banking sector, all organizations face considerable competition. To successfully win new customers, banks and credit unions must develop strategies that compete with organizations that have fewer operating expenses and a fresh appeal to consumers new to the banking industry. While it's critical to prioritize customer acquisition, financial institutions must be capable of attracting and onboarding new customers without overspending. If the cost of customer acquisition exceeds the lifetime value the customer provides, the company will quickly go bankrupt. By getting a firm understanding of your customer acquisition cost model and monitoring your costs, you can create campaigns that effectively bring in new customers without exceeding your marketing budget.
There's no doubt that customer acquisition is a worthy investment. However, inflating customer acquisition costs without calculating your return on investment could be an even bigger mistake. Powerful acquisition drivers target customers that are most likely to need your services. This improves the value of your investment because the customer is more likely to remain loyal to your organization.
Your CAC is a metric that evaluates the cost of acquiring a single customer. To understand how that cost relates to your overall financial business strategy, it's essential to determine how the cost compares to the value provided by the customer. Your customer acquisition cost ROI is determined by subtracting the CAC and operating costs for serving the customer from the customer's lifetime value. If you make little or no profit, it's a good idea to consider changing your CAC strategies.
The formula used to calculate CAC is fairly simple. You divide the total cost of sales and marketing over a given period by the number of customers acquired during the same time period.
CAC = Sales and Marketing Costs / # of customers acquired
Your customer acquisition cost is most likely to be affected by the length of time a customer is typically retained and the complexity of the onboarding process. Learning your CAC is the first step to developing a customer acquisition model that helps lower costs.
Customer acquisition costs vary widely from industry to industry, and some CAC costs are hard to quantify. For instance, the payroll for the marketing team is often not included in the CAC equation even though the team works to acquire customers.
One way to determine how your CAC works for your organization is to compare it to the customer lifetime value (LTV) mentioned above. After determining the customer lifetime value, divide that figure by your CAC to determine your LTV/CAC ratio. Any ratio greater than 3.0 is considered good.
To determine how your CAC measures up to other financial institutions. According to Hubspot, the average CAC in banking is $303. However, this average can frequently change due to inflation and other economic factors.
For most financial institutions, a banking customer acquisition strategy will include different methods to attract a variety of customers to assorted products and services. Emerging digital financial tools are making a big impression on many financial consumers and are likely to play a big part in future bank customer acquisition strategies. By offering digital onboarding processes, banks can allow customers to complete applications and onboarding processes online from their preferred channel. This offers a cheaper CAC for financial institutions and provides customers with a convenient process. By adding pre-fill options for forms and live chats, you can further simplify the process to avoid losing a potential customer during the process.
To improve the digital banking experience for customers, it's crucial to understand every aspect of digital banking and how it's used to attract and retain new customers. These tips can help you master digital marketing to effectively reduce CAC.
It's no secret that retaining customers is less expensive than acquiring new customers. Yet, loyal customers can also offer a powerful opportunity to reach new customers. Customer referrals are more powerful than almost any advertising campaign because they come from trusted relationships. Garnering customer referrals begins with outstanding customer service. When you design a customer referral program that rewards existing customers for referring new customers to your organization, you're likely to have an ongoing, low-cost acquisition strategy that offers a big ROI.
Banking customers often choose to check account details and manage financial tasks through a variety of digital options. Banks and credit unions often depend on a digital engagement platform to provide consistency and a high level of customer service across digital channels. When you deploy multichannel efforts and enhance the modern banking customer's experience, new customers are likely to offer a higher lifetime value which increases the ROI of your CAC.
Behind referrals, customer reviews help create brand trust for potential customers. Consider these important statistics about customer reviews in 2022.
Banking customers expect financial institutions to offer a high level of trustworthy service that works to protect financial investments. An institution that can accomplish this while offering a convenient modern experience is likely to attract new customers and retain existing customers. Consider reviews as an opportunity to interact with customers and improve areas that leave customers unsatisfied.
Social media should be where you engage with customers and offer valuable information. Posting thought leadership content allows banks and credit unions to share educational and meaningful content that can help potential customers manage their finances. By sharing evolving details about digital tools, financial trends, investment opportunities, and finance options, you can provide consumers with essential information that leads them to your services.
Digital banking solutions are designed to increase convenience for customers. A complex process interrupts the customer journey and could send potential customers running to your competitors. Onboarding processes that are overly long or complex can cause customers to abandon applications and search for services elsewhere. By investigating crucial touchpoints, you can eliminate sources of friction that slow down the onboarding process.
The digital banking transformation works to improve the customer experience and lower customer acquisitions. When applied correctly, it's a win/win for banks and credit unions. Cotribute helps businesses acquire new customers and grow. We accomplish this by ensuring each organization has access to the technology and expertise they need to thrive in today's digital world. To find out how we can help you accelerate your growth, schedule a demo.