You know someone’s a good friend if they notice you have a problem and talk to you about it. That’s because they want to help you overcome what you’re struggling with.
As your friend, I can see that a pretty alarming problem exists with your customer acquisition costs. It’s creeping higher and higher, which means you need to do something about it before it turns from bad to worse.
It’s true, your acquisition spending is a real problem
The first step to realizing you have an acquisition spending problem is asking yourself a simple question: how much have you spent on advertising so far this year compared to the same period last year?
The cost of digital ads is rising at 5 times the rate of inflation.
- Adobe Digital Insights
Regardless of which industry you’re in, you probably answered “a lot more.” The cost of digital advertising keeps climbing higher, growing at a rate of 12% per year. No matter how optimized your ads are, you’re going to keep spending more the longer you advertise.
You might think that’s just the cost of doing business in the digital age. Unfortunately, the truth is that clicks on paid advertising are only growing at half the rate they were 2 years ago. Meanwhile, the cost to acquire those clicks is outpacing that growth by nearly double. This means that the more you advertise, the more you’ll spend to get less in return.
Ads attract guest checkouts, who have a negative long-term impact on your potential growth
Guest checkouts are another indication that you have an acquisition spending problem. Guests checkouts might seem like a good idea because they drive initial sale numbers, but they’re actually a huge red flag. Unlike repeat purchases, guest checkouts have a long term negative impact on your business, stunting your ability to grow sustainably.
How to deal with a runaway acquisition budget
Whether you want to accept it or not, the truth is out: you have a problem with your acquisition spending. Now that you know the reality of your problem, you have two possible paths forward.
1. Do nothing and keep spending how you’re spending
The first option you have is to ignore the signs of the problem and not make any changes at all. After all, what you’re doing now seems to be working, right?
The problem with that plan is that your spending is never going to plateau — it’s only going to go up.
Rising acquisition costs from ads will eventually eclipse the revenue you make from each sale.
The amount businesses are going to spend on digital ads is expected to grow by 19% in 2019 which means you’re just going to keep spending more. Those rising ad costs are fueled by tools like Shopify and BigCommerce who continue to lower the barrier to entry into the world of ecommerce.
Better ecommerce tools means competing with more brands for the same limited advertising space.
With each new competitor trying to maximize their brand awareness, they’ll keep increasing their advertising budgets to get as many impressions as possible. As their budgets balloon, you will be forced to match or beat them, paying more money for the same low number of clicks.
By relying on ads as your primary acquisition channel, your cost to acquire new customers is going to keep getting worse. Before you know it, you’ll be paying more to acquire a customer than you’ll earn from their purchase, and since they’ll only make one purchase, you will never get a chance to recover the costs.
2. Admit that ads and acquisition are not the answer
Since the future of acquisition spending isn’t looking so bright, your second option is to accept paid ads are not the answer you’re looking for. Don’t get me wrong — acquisition is an important part of every business. You will always need new customers to sell to in order for your revenue to keep growing. However if the goal is long-term success, it cannot be your primary focus.
The more successful an ecommerce business becomes, the more they should focus on retention rather than acquisition.
- Shopify Blog
By transitioning your focus from acquisition to retention, you’re acknowledging that your most valuable customer is not a new one, but the ones that keep coming back. Your repeat customers spend up to 7 times more than the first time buyers that make a purchase, meaning that every returning shopper directly drives more revenue to your bottom line.
The longer a customer’s relationship with a brand, the more the customer will spend with each transaction
- Bain & Company
Not only that, but research has shown that as the number of times a customer shops more with your brand increases, the amount they spend increases as well. In other words, the longer you retain a customer the more dedicated they become, making them infinitely more valuable to your brand.
The long and the short of it is that repeat customers are more valuable than first time shoppers, plain and simple.
Solve your acquisition problem by building a brand community
With all of the evidence in front of you, you might be willing to change your ways and focus on retention but don’t know where to start. Customers don’t want to be sold to anymore, so the secret to building retention is to focus on creating emotional relationships with your customers that make them excited to come back. A brand community is the best way to form and strengthen those emotional connections.
When you can get customers to join, engage with, and share your brand with others, you create a community building loop that grows your business for you. Members initially join because they like what your brand stands for and want the value you offer for being part of your community. After joining, they feel motivated to continuously engage with your community and can’t help but advocate for the benefits of belonging to your incredible brand community.
Rewards are the backbone of building a successful brand community.
Each of the stages in the community building cycle are driven by the different parts of a complete rewards program. With a properly structured and maintained program, every part of your community gives your customers value while continuing to grow the community and drive your business goals forward:
Customers can earn points towards valuable rewards, showing them the merits of belonging to your community and becoming a long-term customers instead of a one-time shopper
The desire to belong to your most prestigious VIP tiers will motivate engagement, prompting actions like the repeat purchases that grows your revenue
The mutual benefit of referrals inspires members to bring others into the community, acquiring you new customers and restarting the community building cycle
With a thriving brand community powered by rewards, you can reduce or even completely stop running the expensive ads that perpetuate your spending problem.
As your friend, I’m hoping you make the right decision. If you’re ready to curb your spending habits and build a retention focused community, I’m here.