UK Marketing App Growth Strategy: How To Calculate Customer Acquisition Cost And Reduce It?

It is always a challenge for companies to acquire new prospects and customers. Companies are using their resources to reach new customers every day. To understand how successful marketing strategies and campaigns are, we need to look at the cost of customer acquisition.

Acquiring new application users and expanding the customer base is an important part of what the entire company team needs to know, including the developers. Understanding the value of each customer improves the product roadmap - developers are better able to build the right products and services that resonate with customers and bring value to them. From a business perspective, it also helps make better investment decisions. The golden rule is to keep CAC below LTV so that you can profit from user acquisition spend.

How to calculate mobile app customer acquisition cost?

Customer Acquisition Cost (CAC) is the amount you spend for each newly acquired app user in a given time period.

This is an important metric for your app marketing efforts because it helps you evaluate not only the effectiveness of your marketing spend, but also other hidden costs, such as development and administrative expenses. To calculate CAC, in the simplest terms, you need to add up all the costs associated with acquiring new users and divide them by the number of users acquired in that time period.

CAC vs. CPA

The marketing acronym CPA is often interpreted as "Cost Per Acquisition", but it is most often used as an abbreviation for "Cost Per Action". With so many seemingly identical terms, it's easy to assume that they all mean the same thing. However, this is not the case.

The difference between cost of customer acquisition and cost per acquisition comes down to granularity. Cost per acquisition is an advertising reporting metric that typically represents ad spend on a given channel divided by the number of users who installed the app. Customer acquisition cost, on the other hand, takes into account the broader total spend across all channels, teams and programs.

In terms of cost per operation, this is an advertising pricing model that charges once the required operation is completed. In general, the acronym CPA is usually associated with Cost Per Action.

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Practice calculating your mobile app customer acquisition cost

To calculate the cost of customer acquisition, simply add up the sales and marketing expenses for a given time period and divide by the number of installations for the same period.

The problem is that you need to decide which costs to include. The exact list will vary for each application and category, but some typical costs associated with application sales and marketing include:

• Advertising expenses
• Sales and marketing salaries
• Third-party agency fees
• ASO and app store analytics tools
• Once this total is available, the CAC can be calculated.

So, for example, let's say that in your first month, you get 10,000 new installs and spend:

• 10,000 in ad spend
• 5,000 in fees to third parties
• 8,000 in sales and marketing team salaries
• 2,000 spent with social media influencers
• Total: $25,000

In this case, your CAC would be $2.50 ($25,000 / 10,000).

How the cost per user acquisition affect your mobile app marketing strategy?

Here are some of the main reasons why you should focus on Customer Acquisition Cost (CAC).

Calculating CAC allows you to budget for sustainable app growth

Understandably, you may expect to spend more on acquisition than you see in revenue returns in the first few months after launch. But this is not something that can last forever.

By paying close attention to your CAC and other metrics such as average revenue per user (ARPU) or user lifecycle value (LTV), you can assess the sustainability of your marketing strategy and adjust accordingly.

It allows you to fully understand how your marketing is converting into installs

Building on the previous point, calculating your customer acquisition costs gives you a full picture of how much you are actually spending to engage each customer. While some of your channels may show excellent performance per dollar spent in your reports, the overall picture may tell a different story.

It can help you identify risks and correct them before they take effect

By calculating customer acquisition costs, you can predict what it will cost to achieve your goals if you want to continue with your current strategy.

In doing so, you can identify problems in your plan and optimize your approach.

How to interpret customer acquisition costs

Imagine that you spend $10,000 on sales and marketing and therefore get 1,000 new installs. On the surface, your $10 CAC may seem expensive, but if you're an apparel e-commerce app and your average sale is $50, then this quickly becomes very affordable.

Or, if you're a mobile game where the only in-app purchase is a one-time $2 payment for an ad-free version of the app, then your spend is unsustainable.

That's why it's so important to consider customer acquisition costs in the context of user lifecycle value (LTV).

To learn more about user lifetime value, you can check "App Growth Strategy: Why and How Your App Need to Increase User Lifetime Value" of our previous articles.

Typical mobile apps' user acquisition cost

The cost of user acquisition for mobile apps continues to rise, and it's becoming more expensive for app marketers to get a return on their investment. Costs depend on several factors, including pricing models, operating systems, countries, and advertising sources. According to Statista, the average cost of acquiring an app user who signs up for an app or creates an account is $3.52 as of August 2019. Mobile app user acquisition costs can vary significantly between user operations and the operating systems used. The user action with the highest average acquisition cost for Android and iOS operating systems was making an in-app purchase compared to the relatively low user registration acquisition cost. the cost for Android was $77.45 and the cost for iOS was $86.72.


As of August 2020, the user action with the highest average acquisition cost in North America was making a built-in app purchase. The cost to acquire in-app buyers was $74.68 during the period measured. The cost to get users to subscribe was slightly lower at $64.27.

According to Liftoff's 2020 Mobile Gaming App Report, the average cost of acquiring users is now $1.47 per user, down 66% from $4.37 last year 
The cost of getting users to sign up for games has also dropped, from $9.17 last year to an average of $5.72 per user.

However, the cost to convert to paying users rose to an average of $43.88 per user, up from $35.42 last year and $28.05 the year before.

Broken down, getting an Android user is much cheaper - $0.89 - while the price for an iOS user is higher at $3.09. However, the report shows that the return on investment is roughly the same for both platforms, with a 30-day ROA of 36% for Android and 37% for iOS.

Effective solutions: how to reduce app customer acquisition costs

If you are familiar with Customer Acquisition Costs (CAC), then you should be scared ...... very scared of high CAC! The ultimate cost of acquiring each user for your application will have a significant impact on your marketing success and overall growth of your business.

CAC is a metric that needs to be carefully weighed against the average lifecycle value (LTV) per user on your platform, and it must always be lower than your LTV. ultimately, there is no right or wrong CAC - it is always entirely dependent on the costs unique to your team. That is, the wrong CAC is higher than your LTV, while the right CAC is as low as possible without sacrificing business integrity.

1. Grow your mobile apps with App Store Optimization(ASO)

Keywords research and optimization for ASO

While search engines continue to get smarter and more semantic, keywords are still the first choice for ASO or any type of search.

The first priority should be to choose the relevant keywords that are most likely to rank highly. Remember, a keyword may get thousands of searches per month, but it doesn't help you to try to rank for a keyword (or phrase) if your app ranks deep in the results.

Remember:

• Google Play reports that 60 to 75 percent of the keywords driving installs target long-tail keywords (three or more words)
• Use the keyword suggestions provided by the store - they know what they're doing
• It's best to target at least 120 keywords per country/region
• Your ASO strategy depends on getting to know your customers or clients well and tapping into the natural language they use to describe the applications they seek.

Once you have obtained a list of keywords to target, here's how to use them.

Most important app title keywords

• Don't use special characters in the application title
• Don't use category words (free, games, puzzles, etc.)
• Google Play allows 30 characters
• The App Store will only show the first 25 characters in the title
• The App Store also allows a total of 100 characters to list your keywords - use them wisely
• Skip deactivated words
• Separate keywords with commas
• Use numbers - don't write out numbers
• Don't repeat the app name

To learn more about app name optimization, you can check "ASO Creation Strategy: How to Create a Perfect Name?" of our previous articles.

App description

• In this space, provide engaging copy about the features and benefits users can expect from your application
• Don't keyword stuff, but repeat your keywords up to five times
• Use keywords to pre-load descriptions so they appear in the truncated description
• Don't use testimonials, but consider mentioning social proof, such as rewards and reviews

To learn more about app description optimization, you can check "ASO Tech: How To Write a Great App Description to Attract More Users" of our previous articles.

Localization

Think of localization as a key optimization process. If your audience extends beyond the English-speaking world, tailor your communications to the needs of each geographically-based audience segment.

• Your product pages should be localized for multiple countries/regions
• Depending on your application and target audience, it may be helpful to localize your keywords. Essentially, this means translating your headline, the first or second sentence of your description, and your screenshots.
• Localize graphic elements.

2. Retarget mobile app customers

Retargeting is a useful strategy for companies that want to maintain a presence in front of potential customers. Customers often leave incomplete actions on websites and applications. Customers choose not to buy from a company for a variety of reasons. Sometimes, a gentle nudge in the right direction can encourage customers to complete the purchase they may have left behind.

Retargeting is a way for companies to convince customers to reconsider the value they offer. Customers who visit a company's website and stay are interested in what is being offered. Retargeting can generate up to 1,046% lift in trademarked searches within four weeks of exposure. Strategies such as retargeting can be effective in increasing customer conversion rates.

Retargeting is a beneficial strategy because it can help companies generate highly targeted campaigns for potential customers. To successfully retarget your prospects, collect as much data as possible about your customers. You need to understand their behavior, preferences, motivations, etc. With this information, it will be easier to retarget prospects and convince them to buy from you.
 

3. Increase app customer retention

Customers who are happy to invest in your products tend to spend more on them than new customers. On average, repeat customers spend 67% more in the third year of their relationship with your company than they did in the previous period. It's easier to convince existing customers of the value your company offers than it is to convince new customers who have not yet interacted with your company.

Companies can reduce customer acquisition costs by increasing repeat business rates, purchase frequency and average order value. Use strategies such as customer feedback loops, add loyalty programs and add customer education programs. Most importantly, keep a close eye on your customer churn rate. 

Forbes notes that it costs five times more to acquire new customers than to retain existing ones. What's more, a small increase in customer retention can lead to a 25-95% increase in profits. Increasing customer retention and reducing customer churn can significantly improve a company's revenue and acquisition costs. Add value, keep your customers happy and keep giving back more.

4. Try an affiliate program

Affiliate partner programs are an effective way to reduce customer acquisition costs. Affiliate partners use their influence to interact with possible customers. As a company, this strategy lowers CAC because you only pay affiliates a percentage based commission after the customer has made a purchase. The company can leverage the affiliate's capabilities to drive sales without any upfront costs.

Similar to affiliate marketing, influencer marketing programs are becoming increasingly popular. Some social media influencers have built up a broad audience that may be interested in your company's products and how to use them. For example, technology influencers can use their social media platforms to solve technical challenges, such as VoIP troubleshooting or how to improve Internet speed.

To learn more about affiliate marketing, you can check "App User Acquisition Strategy: How Does Affiliate Marketing Help Your Win More User?" of our previous articles.