5 min
We all know the money that we spend on Facebook and Google to drive performance and branding marketing activities. During the first few months of launch, we need to aggressively bring in traffic that will help in driving acquisitions. This is also very important for the first 18-24 months when we actively seek out in the digital space to build our customer base. Post which we might transfer this spend to the existing base in driving loyalty and repeatability.
The Customer Acquisition Cost (CAC) is really high during this 0-24 months window and in fact very expensive during the first 0-12 months. Reason being we have no clue as to whom should we acquire, what are the characteristics that best fit our Target Group, uncertainty on the quality of such acquisitions. All this, in turn, bring up a high Cost to Income Ratio (CIR). The goal is primarily having a closer to 0% CIR. In reality, it stays around >100% in the initial months and later hovers around 80-100%. The closer you bring it down to 0% the better your Target groups are responding to your digital marketing efforts and spend.
So the question is how you optimize your costs if you have High CIR’s.
Problem 1: Whom should we acquire?
To start off, from an analytics point of view, you need to take your Transactional data, Logistics data and website data. Transactional data:- Identify the cities from where most of your orders are placed and the cities from where most of your orders are delivered.
- Identify the cities from where most of the cancellations, returns and Return to Origins happen.
- Identify the pin codes that are serviceable as well as not serviceable.
- Identify the delivery partners who have high delivery ratio and very low returns/cancellations or return to origin ratio.
- Identify the cities from where most of your traffic comes from. Also include the page views, transactions and conversion ratios as well.
Problem 2: What are the characteristics that best fit our Target Group?
Considering we have data for the last 8-12 months, it will be good to start in understanding the characteristics of those who have transacted. This will help us in narrowing the Target Group with a greater affinity towards conversion. Greater the affinity, lesser the spends. Lesser the spends, better the CIR’s.- Website data
- Transactional data
Problem 3: Uncertainty on the quality of such acquisitions
The chosen Target Group can be optimized further to a larger extent. Most of the acquisitions are discount driven, even the repeat ones are to an extent are discount driven. With very little margins in hand, driving revenue numbers is a hectic task. However, to be in the game, you need to continue your acquisitions as well as drive repeat rates. Quality of customers is dependent on the Customer Lifetime Value (CLV). Customers with higher CLV are the ones that are going to help your business grow. Identifying these customers based on the CLV is the final step. Higher the CLV, better the Quality of Customers. Calculate the CLV of customers that meet your business goals and superimpose on the Target Group identified in Problem 2. Now, this is your best Target Group. The one that is going to give you the best CIR. Keep tuning your algorithms as customer patterns change with time. Rethink your strategy and validate your hypothesis once in every 3 months. What are you waiting for, ask your data science team to bring down your existing CIR’s. It is time to optimize your spends and acquire better customers who will help you grow your business. Happy Spending, Happy Saving. Better Acquisition, Higher Retention.- Tech Mahindra’s Q2 Revenue Modest, But AI-led Deflation Remains Higher
- Wipro’s Deal Slump Puts Its AI Growth Story to the Test
- The Unintended Winner of US Green Card Pause: India’s Offshore AI Hubs
- HCLTech Shows Indian IT Can Win AI Deals—But at the Cost of Core Business
- Indian IT's Q2 Will Test the Economics of AI
- Can Mid-Market Deals Save HCLTech From the Great AI Tech Squeeze?

