CAC is Out of Control — Here’s What Your Brand Can Do
News flash: customer acquisition costs are skyrocketing. From iOS privacy changes to increased CPMs across platforms, it has never been more expensive to acquire customers.
So if you can’t lower your CAC, what can you do? Let’s take a look at the core metric that drives every consumer-facing business: LTV:CAC.
LTV = Average Value per Customer / Churn Rate
CAC = Cost of Sales & Marketing / Total New Customers Acquired
In the past year, the cost of acquiring new customers has grown out of control. As consumer privacy has become increasingly relevant, it has become harder for social media platforms to target users, and advertising has become less efficient. Just look at Facebook’s (Meta’s) stock price over the past year, and you can see how impactful these changes have been to their business.
So if you’re unable to acquire customers at the same level of efficiency as you once were, you can improve your LTV:CAC ratio by either acquiring less customers (if you ask a marketer, they’d probably like to avoid this option), or increasing the value of your customer base (LTV).
Increasing LTV can be done through higher customer retention (reduced churn), greater frequency of purchase, or greater order value per purchase.
The best way to retain your customers and get them to spend more often (and more each time they do) is to give them a reason to be loyal to your brand — shared incentives that align you with your customers’ best interests by offering them something in return.
Imagine if you could stop giving your cash to Facebook and other social media platforms and start using it to give value back to your customers, all while achieving better business outcomes.
This is where NFT membership & loyalty programs come into play. With this new technology, you can offer rewards to your most loyal customers for taking the actions you want them to take (those that help your brand). Think special discounts, access to gated experiences and events, gifts, voting rights — this is where you can get creative!
I don’t know about you, but as a customer I’d much rather get cool stuff I actually want than to be served 100 more of the same Instagram ads.
These programs align incentives, and now customers who perform certain actions own an asset, something of value that can appreciate over time and which they can theoretically sell on the open market.
For example, let’s imagine a local coffee chain called “LA Grind” that offers a program where after a customer orders 50 coffees (or reaches some arbitrary point value), they reach “Gold Status” — which they can use to redeem free tickets to local jazz concerts all summer, half-price appetizers at the bar down the street, and special LA Grind merch that is only given to “Gold Status” customers.
Customer Group A, who just wants to buy coffee (and happens to get rewarded) can sell their Gold Status NFTs for cash. Customer Group B, who doesn’t necessarily drink enough coffee, (but wants the exclusive experiences that the Gold Status NFTs unlock) can now buy them from the first group of superfans.
In this simplified example, the desired action is “order coffee”; however, if the brand wants to get more creative, the desired actions could be engagement-based. For example, maybe customers get a special status for visiting all 5 of LA Grind’s locations. LA Grind wants to expand its social media presence without buying ads? Now they can just reward customers points for snapping pics of their favorite coffee and sharing on social channels.
Because of the interoperability of NFTs, it’s now possible for any brand to create their own loyalty program and seamlessly integrate with endpoints across all of their channels (including POS systems, CRM tools, email, social, and more), and even with other brands. By creating an open system (rather than the closed systems of traditional loyalty programs) NFT loyalty programs unlock seamless brand collabs & partnerships that were not previously possible (we’ll touch on this more in a future article).
Let’s return to the Total LTV formula:
Total LTV = Number of Customers x Average Value per Customer / Churn Rate
In our example above, LA Grind has simultaneously increased the average value per customer (as customers are rewarded for purchasing more coffee and are incentivized to do so more often); they’ve increased the number of customers — they are now accessing more customers who, although not yet superfans, now associate a favorable experience with the brand and are more likely to return to LA Grind in the future; and lastly, they’ve reduced their churn rate. Whether you’re a super fan or not, you are less likely to stop shopping at LA Grind because your incentives are now aligned with LA Grind — you have more positive associations with the brand, the brand is giving back greater value to you, and you have an asset that appreciates in value the more you shop.
In this new paradigm, customers now become stakeholders, and the relationship between the brand and its most loyal customers is strengthened. In some ways, as “direct to consumer” has become a commonplace business model, this new form of commerce might more accurately be called “direct with consumer,” where brands and consumers work together to do exciting things, generate novel experiences, and create value.
At Hang, we’re building a tool that enables marketers to seamlessly build membership and loyalty programs. We believe the future of loyalty will be powered by NFTs, and the brands best positioned to succeed long-term will be those that recognize the power of increasing the value of their customer base by using technology.
Learn more and launch your own program with Hang here.
