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.
Typically, a funnel might look something like this:
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.
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:
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.
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:
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:
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:
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.
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:
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.
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.
It’s a simple division formula. You need two variables here:
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).
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.
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.
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:
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?
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:
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.
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.
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.