How to remain competitive with rising CAC

Imagine you could only acquire one hundred customers over the span of your business. These one hundred customers were responsible for driving your bottom line. Would you treat them differently from how you are treating your customers today? You probably would. You would get to know them personally, create products and services tailored to their needs, and constantly iterate on new ways to win back their business.

With ever-rising customer acquisition costs (CAC), if you are not a large business with thousands of SKUs in your inventory, increasing your average order value (AOV) and customer lifetime value (CLV) is critical in order to stay competitive. Large retailers, such as Amazon and Walmart, can expect a significant percentage of customers to return to them simply because of their competitive prices and large selection of products. If you are a small business retailer, you must do everything to win back your customers' business. It is not uncommon that the profit you make from the first-time purchase is only enough to cover your CAC.

“Even though only 12% of purchases are made by repeat customers, they amount to almost 44% of total revenue made.”

The high cost of acquiring customers is a common problem that small business retailers have. It is also a common cause of failure for many new businesses. More often than not, CAC turns out to be higher than expected and exceeds the organization's ability to monetize those customers. It may be counterintuitive, but those businesses that are only interested in acquiring net new customers, without understanding their true CAC, can be doomed to fail. But those who believe that every new transaction is the start of a long and fruitful relationship (maximizing their CLV) are on the path to succeeding in this highly competitive space.

By building a personal relationship with customers, you would build a solid business foundation. Not only will you instantly boost your sales by making your sales funnel more efficient, you will maximize your CLV and will be able to afford higher CAC, which will make you more competitive.