When opening a business or opening a restaurant, you will have to deal with all kinds of costs. One of them is customer acquisition cost, and it’s one of the costs that you’ll want to keep as low as possible.
Lowering your customer acquisition cost (CAC) will allow you to acquire new customers at a cheaper price. It will also give you the opportunity to evaluate your current restaurant marketing strategies to determine how effective they are.
Acquisition Cost and How to Find CAC
A company’s customer or client acquisition cost (CAC) measures the approximate cost of gaining a customer, and there are different ways to calculate it. In the restaurant industry, it’s difficult to calculate the CAC compared to businesses in other industries.
This is because it’s challenging to differentiate between new and existing customers as well as where the customers came from. However, modern POS systems and POS software can help. For instance, a modern restaurant POS system will likely have an option for customers to enter their loyalty program information indicating that they’re an existing customer.
To calculate your customer acquisition cost, you have to pick a specific time period that you want to evaluate. This will allow you to narrow down your data.
Add your total marketing and sales expenses together, then divide the total by the number of new customers you gained during that specific period. The result value is your approximate cost for acquiring a new customer.
For example, say your restaurant has $400,000 in sales and $200,000 in marketing expenses. During the last 4 months, your restaurant generated 600 new customers. The CAC for your restaurant during the past 4 months would be $1,000 or ((400,000+200,000)/600=1,000).
Key Takeaway: If you have a high customer acquisition cost, you have to figure out a way to lower it. This way, you can get more bang for your buck and grow your business.
5 Ways to Lower Customer Acquisition Costs
When it comes to lowering the customer acquisition cost of your restaurant, the idea is to find a balance between your total sales and marketing costs. This is because if your marketing costs are equal to or exceed your sales, you’re paying to run your restaurant. You should establish this process within your customer acquisition strategy.
Here are five effective ways to lower your customer acquisition cost:
1. Ask Your Customers Where They Learned About Your Business
It’s important to know how your customers learned about your business and where they’re coming from. This can be social media, word of mouth, a promotion, or a paid advertisement.
If you’re spending money on marketing, it’s possible that you are running different campaigns, and you may not know which one is successful. By not knowing where your customers are coming from, it will be difficult to determine the cost of acquiring them from certain channels.
It’s possible to learn where your customers are coming from by offering specific discount codes with certain media that link to a campaign. This way, if a guest uses the code, they’re likely to have learned about your restaurant from that campaign.
Another option is to be straightforward and ask your customers. You don’t have to ask every single customer, but with a sample size of 40% of your customers, you should be able to get the information you need.
Knowing where your customers are coming from will allow you to lower your customer acquisition cost. This is because you can avoid spending money on marketing efforts that have little impact on your business’s bottom line.
2. Improve Your Sales Funnel
The sales funnel is the customer’s journey starting with awareness, moving into interest, decision, and finally, action. It helps businesses understand their customer’s approach and direct them toward guaranteed sales.
Restaurants using the sales funnel have the opportunity to understand the customer’s motivation behind a purpose. They can also understand why a customer may have chosen not to order food or visit the restaurant.
The sales funnel provides insights into the customer’s thought process. Using it, restaurants can fix potential problems or loopholes that push customers away. To do this, restaurants must analyze which stages of the sales funnel are failing using data analytics tools.
3. Perform Tests
There are many different channels for restaurant advertising and each business owner should try any method they feel is appealing to their customers. This way, business owners can test different methods to determine the most effective one.
To ensure clarity when calculating acquisition cost, it’s best to test out one marketing channel at a time. For example, if you send out a direct mail campaign, Facebook ad, and Instagram ad at the same time, it will be hard to determine which one brought in the new customer.
Testing one marketing channel at a time will allow you to clearly identify how you brought in the new customer. This will also help keep your CAC at a reasonable level.
4. Utilize Free Marketing and Exposure Tactics
Paid marketing is good, but you don’t have to always pay for marketing in order for it to be good. There are ways for you to bring in new customers without spending a dime.
Free marketing tactics include:
- Word-of-mouth marketing. Encourage your customers to spread the word about your restaurant. This is possible through a referral program. Keep in mind that negative word of mouth is also effective. This is because it inclines people to see for themselves and talk about your restaurant to others.
- Google My Business. Claiming your business page on Google is free of charge. All you have to do is fill out all the necessary information about your restaurant’s location, hours, phone number, and menu. Many customers will search for a restaurant before they go to it, so this is an effective way to bring in new customers.
- Social media marketing. Paid ads on social media are effective, but organic posts can suffice. You should never underestimate the power of social media marketing for restaurants, especially when organically posting on Facebook and Instagram.
5. Share Customer Reviews
It’s possible to convert potential customers to permanent customers and win their trust by sharing reviews. Adding reviews to your website, ads, and different marketing materials builds trust between your business and the potential customer..
Customers tend to trust testimonials and reviews from other customers just as much as personal recommendations from friends and family. Video reviews are also ideal for generating quick conversions.
Frequently Asked Questions About Lowering Acquisition Costs
Lowering your customer acquisition cost for your restaurant business will allow you to increase your bottom line. It's also beneficial for customer retention and CRM strategies. However, the process includes more than just gathering data. Understanding how each marketing channel is performing is key.
Read the following commonly asked questions to better understand the process of lowering your acquisition cost.
What Factors Affect Customer Acquisition Cost?
The factors that affect customer acquisition cost include:
- Advertising costs
- Salespeople costs
- Marketers salary
These costs should be divided by the number of costs acquired during a certain period of time to get an accurate estimate of the CAC.
Why Is Customer Acquisition Cost Important?
Customer acquisition cost is important because it measures the effectiveness of a business’s marketing efforts over a given period of time. CAC is also used when communicating with potential investors as it allows them to gauge the scalability of a restaurant or business.
How Does CAC Affect a Business?
A low CAC allows a business to increase its profitability and cash flow. At the same time, it makes it possible to streamline sales processes and sell more. This results in a positive return on your customer acquisition cost investment and accumulates more income for future growth.