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December 21, 2020
The Impact of Your Digital Evolution on Your Customer Acquisition Cost
By: Justin Saunders
In an age where cost is at the forefront of every CEO’s mind, they often look towards major sales line items such as salaries, bonuses, and overhead as primary cost levers. A good CEO will have gross/net margins, COGS as a percent of revenue, and operating ratios at the ready, but a great CEO can discuss in-depth their organization's Customer Acquisition Cost (CAC). More specifically, how the Customer Lifetime Value (LTV):CAC ratio is at the heart of scalable growth, and digital evolution is critical in driving down CAC to increase enterprise value.
The global pandemic has brought about the greatest virtual sales experience ever to occur. Organizations that were staving off digital evolution were forced into adoption, while those that had embraced digital were positioned for success. In a multi-quarter stretch where customers in all industries were paralyzed on buying decisions, sales organizations that employed a digitally enabled, frictionless buying journey could gain customers at a lower acquisition cost than their peers.
There are 3 steps that will support lowering CAC through digital:
- Map Detailed Customer Journey
- Assess Digital Capabilities Across Journey
- Reduce Customer Acquisition Cost
The foundation that overlays this 3-step process, along with additional CEO-level insights on digital evolution, is detailed in SBI’s most recent annual report, “Revitalizing Growth: Accelerate While Others Stand Still.” This report aggregates the input of over 1,300 CEOs since the start of the global recession in March 2020 and summarizes the strategy of market leaders.
The SBI Revenue Growth Maturity Model is a rapid diagnostic that helps CEOs evaluate their organizations on eight “buckets” to better understand their Maturity Level and revenue strategy. This exercise will define the starting point of the organization as the digital-first journey begins.
Get Deep Into the Customer Journey
A documented sales process is a great start on mapping out the full customer journey, but likely does not get to the level of detail needed to completely understand every friction point in that process. Between each stage of the sales process (and qualifying process if applicable), every external action, internal action, and second of mindshare must be documented. These actions can include emails, phone calls, travel time, planning sessions, CRM documentation, etc. Often what a CEO thinks is a seamless 5-stage “Qualification” to “Closed-Won” process between field seller and customer consists of significantly more actions and involves several individuals outside of the primary seller.
The cumulative time spent on each of those actions multiplied by the relative salary of each person involved gets you the acquisition cost for that particular customer, but the overall CAC will take into account all of the deals that are not won as well. When the process is mapped out over each discreet action, with the time allocations for each action, the cost for each unit of time, and the amount of opportunities that flow through that process year over year, the value in digital enablement to save time and reduce friction at each step becomes apparent.
Incremental Improvement Over Wholesale Transformation[ p]
For every action along the customer journey, ask, “is there a digital solution that can remove friction and save time?” A common example is a pre-populated template email or call script based on customer needs instead of spending the time to draft a new message each time. Something as simple as a saved draft can save hours each year. Digital evolution does not have to mean a multi-million-dollar platform and implementation investments. Accumulating the smaller, incremental wins will drive the savings that transformation CEO’s strive for.
For the actions that do not have quick wins to reduce friction, assess current capabilities and potential investments that can drive savings. There are often pockets of best practice that live disparately across the organization as well as external experience from previous roles that can be leveraged during this assessment.
Design, Deploy, Enhance
With a lengthy list of digitally enabled solutions that will lower CAC, but likely limited resources, prioritization becomes critical. The Initiative Impact Tool here helps to rank initiatives based on impact and effort in order to identify the highest-value, lowest-effort solutions to focus on. A clear owner, progress tracking, and documented feedback loop will ensure a digital evolution that drives down CAC and positions organizations to become market leaders.
The same process should be followed yearly at a minimum, though quarterly or bi-annually will accelerate the transformation. As the organization gets better at assessing gaps and adopting new technologies to become more productive, a force multiplier occurs. Once the ball gets rolling on the “quick wins” of the new digital-first approach, the “big bets” of change become attainable and achievable.
Where to Start?
High-level digital maturity is increasingly a leading indicator that separates accelerating organizations from stagnant ones. A CEO that rides the waves of digital evolution can do more with less and increase the likelihood of making their number. SBI helps clients navigate the framing and execution of their digital strategy every day. The Revenue Growth Maturity Model is a great starting point to guide thinking around the foundation that needs to exist in order to realize the potential of a lower CAC. Assess your company using the RGMM and contact us for more details about lowering Customer Acquisition Cost through a digital-first approach.
