3 proven methods for improving your customer acquisition strategy
By Jessie Torrisi|5 min read|Updated Feb 9, 2024
You can drive more first purchases with referral programs, cashback offers, and positive online reviews. Each of these strategies can help to lower customer acquisition cost (CAC) and increase customer lifetime value (LTV).
It can be difficult to attract new customers and grow your consumer base, especially when inflation is making every consumer more cost-sensitive.
But referral programs, cashback offers, and online reviews are proven strategies for either closing the deal faster, or achieving a higher ROI when weighing CAC against LTV:
Referred customers spend 200% more than non-referred customers, delivering a much higher ROI.
Cashback promotions that feature cash-equivalent payout options, like Visa prepaid cards, Venmo payouts, PayPal transfers, or ACH transfers, can significantly boost sales for companies even if they have less brand recognition.
Below, we’ll detail how to build a successful referral program, create an enticing cashback promotion, and solicit a higher number of online reviews.
What is a customer acquisition strategy?
Customer acquisition describes the process of turning prospects into customers. A customer acquisition strategy persuades people who are considering your product to make their first purchase.
A successful customer acquisition strategy:
Attracts new leads.
Creates a relationship between potential customers and your company.
Moves people down the marketing funnel to convert them into paying customers.
Minimizes the cost of attracting new customers compared to the value they generate for the company
The customer acquisition funnel focuses on activities that drive action. It targets consumers who are considering making a purchase.
What is customer acquisition cost (CAC)?
Customer acquisition cost (CAC) is a formula for estimating the total cost of acquiring new customers. It takes advertising costs, the salaries of your marketers and salespeople, the cost of any tools you use to advertise or help your team do their jobs, and the cost of any marketing promotions, etc., and weighs this cost against the number of customers you’ve acquired.
It’s a simple equation: Money spent / New customers.
So, if you spent $50,000 on sales and marketing and acquired 500 new customers, your CAC would be $100.
A well-designed customer acquisition strategy that keeps your customer acquisition cost low.
Another helpful number to keep in mind is lifetime value (LTV). This is the estimated amount a customer will spend over their relationship with your company.
The typical formula used to calculate customer LTV is as follows:
Customer value x average customer lifespan.
Both CAC and LTV are approximations, but they’re helpful in assessing whether the way you’re attracting customers is profitable.
Reap real ROI with referrals
Referral programs boast an impressive ROI. They’re one of the simplest ways to increase customer LTV.
People trust people more than they trust ads. That’s why a lot of companies offer big discounts, freebies, or $50 or $100 incentives to customers when they get a friend or family member to sign up.
Dropbox, for example, gives premium customers 32 times more storage when they get someone new to subscribe.
Build a better referral program: offer incentives over discounts
One Friendbuy study found that sending customers digital incentives in exchange for referrals is significantly more effective than offering discounts.
In their A/B test, offering people a $75 Amazon gift card led to 160% more customer referrals than giving people a $150 discount.
Not only did a broadly useful incentive drive a significantly higher number of referrals, but they were healthier for profit margins than a sizable discount. It may sound counterintuitive, but it’s indeed often the case that spending money on rewards has a better ROI than discounting. This is especially the case if you sell something infrequently purchased: if you’ve sold someone a mattress recently, chances are a discount on another mattress won’t mean much to them.
Now, for a touch of psychology: there are three ways to frame your customer referral program. Your call to action can be selfish, prosocial, or a combo:
Selfish incentives benefit the sender. Ex: “Get $20 off your next order when you refer a friend.
Prosocial incentives benefit the receiver. Ex: “Gift your friend $20 when they sign up.”
Both selfish and prosocial benefits both parties. Ex: “Refer a friend and you’ll both get $20.
Research shows prosocial incentives perform as well as selfish incentives. So, dealer’s choice.
However, unsurprisingly, offering rewards to both the referrer and the new customer gets the best results.
Cash in with cashback offers
Cashback offers are a very popular method for motivating customers to sign up for a new credit card.
But they’ve also proven successful as methods to convince prospects to take the plunge and try a brand new product, or switch over from a competitor.
There are multiple ways to approach cashback offers, also known as rebates. Companies can send recipients gift cards, coupons, and discount codes for money off future purchases, or cash-equivalent incentives like prepaid Visa cards, Venmo payouts, ACH transfers, and PayPal transfers.
When deciding which incentive to go with, consider this: in our 2023 experimental study on cashback offers, we found customers made a clear distinction between which rewards they considered to be most valuable
Cash was considered the most valuable
Next was Visa prepaid cards
Gift cards of the recipients’ choice were ranked third-most valuable
In-store credit was ranked least valuable, by a wide margin
So, when designing your cashback offer, it’s wise to get as close to cash as possible.
Case study: How Evolus took on Botox
When Evolus launched Jeuveau, a competitor to Botox, the medical aesthetics company offered first-time customers a $75 Visa prepaid card through Tremendous to try their new product.
The cashback offer performed staggeringly well: it helped catapult Evolus to the #3 market share position in just 6 months.
Despite the product being new to the market and lacking the brand power of Botox, Evolus acquired 40,000 new customers in the first month after launch. Within 8 months, over 180,000 new customers tried Jeuveau.
As an added bonus, Evolus’ CAC to LTV ratio was low. Rather than contracting a pharmaceutical marketing agency to run their cashback program, they ran it in-house with Tremendous.
Pharmaceutical marketing agencies had quoted Evolus at $1 million to run the campaign on Evolus’s behalf. Because they did it with Tremendous, it was free — just about the only expense was the cost of the Visas.
People trust people: the power of online reviews
Keeping your current customers happy helps you acquire new ones. Since 84% of people trust recommendations over marketing campaigns, it's worthwhile to invest time in increasing online reviews.
An important note: people are more likely to write reviews when they’re either delighted or disgruntled. People are simply less likely to review a product or service they’re not particularly passionate about.
Fortunately, there are a couple of ways you can solicit more reviews from people who are happy with your product, but closer to the middle of the spectrum rather than the extreme ends.
Persistence is key: simplify the review process
There are no surefire ways to increase online reviews, given customers ultimately need to elect to write them themselves. At present, little data exists about which method is best for soliciting online reviews.
However, there are a few things you can do to make customers more likely to give you a star rating of some kind.
Prompt & remind customers to leave reviews at the right time: A recent study suggests that there’s a sweet spot for when to ask for reviews, typically at least ten days. It depends on what you’re selling, though: consumers are willing to review common household goods sooner than they are an experience.
Simplify the process: Use an email drip campaign that sends customers directly to a review funnel landing page. Include direct links to different review sites that plop customers right into a text box where they can write their thoughts.
Incentivize customers for leaving reviews: Offer a small incentive to customers to leave reviews, good or bad. Whether it’s a discount on a future purchase or a $15 digital incentive, it’ll encourage them to leave reviews for other products in your portfolio and create a positive association with your brand.
While it ’s important to attract new customers and keep your CAC low, it’s a mistake to neglect the customers you already have. They’re a key part of your customer acquisition strategy.
Referral programs, cashback offers, and online reviews are three low-cost avenues for driving a higher volume of first purchases and improving your overall customer acquisition strategy.
When building a referral program: Send digital incentives, like a gift card or a Visa prepaid card, instead of offering a discount.
For cashback offers: Avoid in-store credit, discount codes, and coupons, if possible. Try to offer something that’s closer to cash.
For online reviews: Be intentional about your timing, make the process as simple as possible, and send a little something to customers who share their thoughts.
The best way to reward customers for referring a friend, signing on, or leaving a review is with a Tremendous incentive. We offer recipients a choice of over 2,000 redemption options in over 200 countries, including Visa prepaid cards, Venmo payouts, PayPal transfers, and direct deposit, in over 200 countries.
With Tremendous, you don’t have to agonize over which incentives your prospects and customers want most. You can just let them choose. Less stressful for you, more rewarding for them. There’s no platform or subscription fees, which keeps your CAC low.
Whether you’re thanking a dozen customers for referring a friend or setting up a global cashback program, we’ve got you covered.
Published February 9, 2024
Updated February 15, 2024