Acquiring new customers is the lifeblood of any startup. If you can’t get new customers to purchase your product or service, your startup simply won’t grow, and it will be much harder to convince investors and incubators to invest in your business.
This is where customer acquisition comes in, and how successful your customer acquisition strategy can literally make or break your startup’s growth in the long run.
In this guide, we will discuss all you need to know about customer acquisition for startups. Without further ado, let us begin by discussing the concept of customer acquisition itself.
What Is Customer Acquisition?
Customer acquisition, as the name suggests, is any effort or initiative made to acquire new customers (as opposed to retaining existing customers).
All businesses obviously need new customers to grow, and customer acquisition is certainly not a new concept, and in fact, it has been around for as long as the concept of business itself. However, it’s how we acquire customers that have changed over the years.
In the 1990s, for example, the main way to perform customer acquisition is via advertising in mass media (television, magazine, newspaper, etc.), but in today’s internet age, we have more options. The idea of a comprehensive customer acquisition strategy, however, is that we should not rely on an acquisition channel, but to effectively use various acquisition channels in a comprehensive approach.
A customer acquisition strategy, thus, is a systematic and sustainable strategy to acquire new customers that can evolve along with new trends and changes in the market ecosystem.
Customer Acquisition: How Do You Acquire Customers?
As discussed, we can acquire customers with various different acquisitions channels and we shouldn’t rely on just one or two channels. We can use both online and offline strategies and campaigns, including but not limited to:
- Various types of advertising (online and offline): display advertising, video ads (i.e. on YouTube), social media ads, print ads, TV ads, and so on.
- Social media marketing, including influencer marketing
- Search marketing (SEO and paid search ads)
- Content marketing
- Email marketing
- Affiliate marketing
The more diverse our customer acquisition initiatives are, the wider the range of customers we’ll be able to reach.
However, due to our finite resources, typically it’s not ideal to pursue all these channels at once, and this is why it’s important to first define our target audience.
Customer Acquisition, Buyer’s Journey, and Purchase Funnel
If you are familiar with the concept, or at least the term lead generation, you might be wondering what’s the actual difference between lead generation and customer acquisition.
To really understand the difference, we have to first discuss the concept of the customer’s, or buyer’s journey.
In modern marketing, we typically visualize the buyer’s journey in the form of a funnel that gradually becomes narrower from top to bottom. This is because, in a buyer’s journey, we’ll naturally have more people at the earlier stages of the journey, and gradually we’ll see fewer and fewer people until there is only a small percentage who actually make the purchase.
While it might vary depending on the organization, a typical purchase funnel is as follows:
Based on the funnel above, a consumer must move through the four different stages of the funnel to become an actual buyer:
- Gain awareness of their problem and/or the existence of your brand
- Take interest in your product/service as a potential solution for their problem
- Has the desire to purchase your product/service
- Finally takes action to become an actual customer
The first and second steps can be considered as lead generation, which happens at the top of the funnel. Lead nurturing happens in the “desire” stage, while conversion happens at the very bottom of the stage.
So, what about customer acquisition? Customer acquisition refers to the whole purchase funnel itself: from generating awareness until we’ve finally converted (or acquired) a prospect into a customer.
So, customer acquisition is a holistic effort of:
- Attracting strangers to visit our website/store/platform
- Acquiring the stranger’s contact information to convert them into leads/prospects
- Nurturing and convincing a lead to make a purchase (customer acquired)
Below, we will break down how to develop a customer acquisition strategy for startups based on this funnel and its principles.
How To Create a Customer Acquisition Strategy for Startups: Step-By-Step Guide
While the actual practice of customer acquisition may (and should) vary depending on your business model, target audience, and other factors. With the typical dynamics of a startup, we can expect even more variations.
However, all customer acquisition strategies should include the following steps:
Step 1: Knowing your ideal audience
We’ve discussed how the typical customer’s journey comes in the form of a funnel: wide on top and narrow on the bottom. So, it might make more sense to cast a wide net and target as many people as possible in our customer acquisition efforts.
While the idea might seem logical, we also need to consider that our resources and especially time are finite. So, it’s best to direct our focus on the right type of audience that is more likely to make the purchase.
For startups, however, defining a target audience can be challenging because they haven’t acquired enough amount of customer data compared to established businesses. The best way to tackle this is to develop a buyer persona based on competitive analysis: analyze your closest competitors’ audience and attempt to gain as much data as you can about this ideal customer:
- Demographics data (age, gender, occupation, etc. )
- What are their pain points?
- What will this audience accomplish with your solution?
- What benefits does this customer look for in buying your product/service?
- Potential obstacles to buying your product/service?
- When does this ideal audience buy your product/service?
And other relevant questions/considerations.
This is not a one-off process. As your business grows, compare your buyer persona and actual customer data, and make adjustments as needed. Of course, we can also expand the customer base by targeting more types of audiences in the future.
Continuously monitor your customer profile to identify your highest-value customer’s demographics, purchase behaviors, traits, and so on, so you can refine your customer acquisition strategy by using more efficient channels.
Step 2: Define your customer acquisition goals
Yes, your main customer acquisition goal should be fairly obvious: acquiring new customers. However, in this step, we should be more specific in defining our goals and objectives.
To have a holistic customer acquisition plan, it’s important to have a customer acquisition strategy that accounts for new customer acquisition, customer growth, and turnover/churn.
First, we should consider the overall growth goals for the organization.
For example, if the last year’s revenue is $5 million and this year’s revenue goal is $6 million, then we’ll need a $1 million net new business (20% of growth) to meet next year’s goal for the startup. Or, if it’s a brand new startup, we can simply decide that we’d want a $1 million growth in a year.
However, to achieve this 20% growth via customer acquisition, we have to consider another thing: growing the revenue by acquiring new customers, but also replacing customers attrition (those who stopped purchasing from you). Different industries have different rates for customer attrition (known as “churn”), and this is a basic chart from Statista showing different churn rates in different industries.
So, if say, the average churn in your industry is 25%, then using the above’s example:
- Your startup’s last year’s revenue: 5 million
- Revenue goal for this year: $6 million
- Expected recurring revenue for this year (-15% churn)=$4.25 million
- Net new revenue needed to meet goal=$1.75 million
So, after considering churn, we have to acquire $1.75 in net new business instead of $1 million. As you can see, after more thorough research we can make a more comprehensive customer acquisition goal.
Step 3: Deciding on Customer Acquisition Channels
Now that we’ve defined our target audience and our customer acquisition goals, we can decide on the best channels and strategies to achieve these goals and what types of content do best on these channels.
We can define a “customer acquisition channel” as any platform your customers meet your brand for the first time. For example:
- Social media channels like Instagram, Facebook, Twitter, LinkedIn, and so on
- Search engines, mainly Google but also Bing and others
- YouTube videos
- Online and offline advertising
- Referrals (being recommended by others)
Based on your research in the first two steps, list which customer acquisition channels you are going to focus on in your strategy, and estimate the budget for each channel if you can.
While at the first glance it might make sense to cast a wide net and get on every possible channel, especially as a startup, this is actually a counterproductive approach.
Why? Not only do we have to consider that we have limited resources and time and focusing on all channels will be expensive, but if you are available everywhere, it might also confuse your target audience.
For example, if your startup sells a product that is mainly targeted towards teenagers, then it would make sense to focus your efforts on Instagram, TikTok, and probably YouTube, and it might not be worth it to invest too much in Facebook ads.
Research the best strategies for each channel so you can make the most of your customer acquisition campaigns. You should especially consider three main factors:
- How your closest competitors use the channel and what types of content they post
- The types of content your target interacts/engages with on the platform
- If you already have past experience in the channel, check the KPIs and use them to create a data-driven strategy.
We will further discuss these different customer acquisition channels and the specific in-depth strategies later in this guide.
Step 4: Establish Two-Way Communication With Your Customer Base
Once you’ve planned and executed your customer acquisition campaigns in each channel, we shouldn’t stop there.
Our customer acquisition campaigns will not be perfect, and it’s crucial to measure their performance by collecting performance feedback from acquired customers. Allow existing customers to easily communicate and leave feedback (including and especially negative ones) to your business.
Establishing two-way communication is also important to keep customers happy, which will significantly help in minimizing churn (which as we have discussed, is also an important aspect of customer acquisition strategy). If you can maintain long-term, fruitful conversations with your customers, you’ll also be able to maximize their customer lifetime value (CLV).
We can do this via many different methods: in-depth interviews (in-person or via video conference), email forms, online surveys, the comment section of your blog posts, and asking them on social media.
Establish a clear communication plan to describe how you are going to maintain engagement and two-way conversations with your customers in the long run, and stick to it.
Step 5: Monitor and Adjust Your Strategy
Customer acquisition is not a one-off effort, but a continuous one. As discussed, even if you’ve successfully acquired new customers according to your target, there’s the possibility of attrition and they might not still be with you next year. So, you’ll need to keep getting and getting new customers every year and refine your strategy.
It’s important to learn from the past: analyze and measure the results of your past customer acquisition campaigns across the different channels. If you don’t know what’s working and what should be improved, then you won’t be able to improve upon your current strategy.
The goal of monitoring your customer acquisition campaign includes:
- Knowing how and via which channel customers learn about your product/service
- Knowing where and how they purchase the product/service
- The demographics data of your newly acquired customers
- Their behaviors before, during, and after the purchase so you can use the data for future campaigns
You should decide on which customer acquisition metrics you will monitor and establish an analytics/monitoring system to measure these metrics.
While there are numerous metrics you can measure according to your objectives, you should especially focus on three metrics:
- Customer Acquisition Cost
Or CAC, is the total costs of your whole efforts to acquire a single new customer. How you’ll calculate CAC would depend on your campaigns and channels, but in its most basic form, you can divide the total cost of your marketing and sales activities by the number of customers you acquire during any given time.
Keep in mind that you should also include not-so-obvious costs like travel expenses, market research costs, incentives and discounts, and so on.
For example, if you’ve spent $10,000 in sales and marketing activities in these past three months, and at the same period you’ve acquired 100 new customers, then the CAC for this period is $100.
Measuring Customer Acquisition Cost is important so you can compare the CAC to the revenue that the new customers bring to your company. If your CAC is too high, then you should lower it, or else you won’t make money. If the CAC is still reasonably low, then you can be more aggressive in your next campaigns.
- Churn Rate
We have briefly discussed churn rate above. Measuring churn rate is important since, as CAC suggests, replacing lost customers by acquiring new ones is costly, so your goal is to retain as many customers as possible.
We should calculate the churn rate for a specific period of time, every month, every quarter, or annually. For startups, it’s best to monitor your churn rate monthly so you can spot issues faster and fix them as soon as possible.
Calculating churn rate is fairly simple: let’s say you start the month with 100 customers and by the end of the month you only have 95, then the churn rate is 5%. Not to be confused, the retention rate (1-customer churn rate) of this example is 95%.
If your startup use a recurring revenue model like subscription-based products, then you should also calculate your revenue churn rate by dividing the amount of recurring revenue lost that month by the original amount of revenue at the start of the month.
For example, if your startup starts with $1,000 in recurring revenue at the start of March, then you lose customers representing $50/month, then the revenue churn rate for March is 5%.
- Customer Lifetime Value
Customer Lifetime Value, or CLV, refers to how much revenue you’ll get from new customers throughout their relationships with your company. Calculating CLV would depend on your business/revenue model, but basically, you can measure CLV by multiplying average sales by the number of repeat sales by the average length of relationship with customers.
For example, if the average sale per month is $10, the average customer purchases 10 products per year, and the average customer lasts three years with your business, your CLV is $10 x 10 x 3= $300.
You should compare your CLV with CAC, which we have discussed above. The healthy CLV:CAC ratio is at least 3:1, or else you should lower your CAC or increase your CLV somehow (i.e. by increasing your price or by selling more products/services at any given period).
Different Customer Acquisition Channels and Strategies
Above, we have discussed the key steps required to develop a comprehensive customer acquisition plan.
However, as promised, here we will discuss different customer acquisition channels and the specific tactics/techniques we can use in each.
Although there are a plethora of options available, and you can always try to be creative in using various different channels and techniques, here are some of the most effective ones:
- Inbound Marketing
You might have heard of the term “inbound marketing” when discussing customer acquisition and digital marketing with how inbound marketing has been somewhat of a buzzword for the past decade or so.
However, what actually is inbound marketing?
To put it in the simplest term, inbound marketing is content marketing+SEO.
The idea of the name “inbound” comes from the fact that by publishing content and optimizing it for SEO, we can pull our target audience inward (inbound) rather than outward. The target audience searches from something on Google, stumbled upon our content, and they are now aware of your existence as a brand.
Compare it with traditional (outbound) marketing efforts like advertising that is designed to push its message outwards to as many people as possible. The thing about outbound marketing activities is that they push a message when the audience is looking to do another thing (i.e. we want to watch our favorite TV show, not watch an ad), so they are essentially disruptive.
This is why most people nowadays are getting more resistant to traditional outbound advertising. Ad blockers are everywhere, and even without using an ad blocker, people have learned how to naturally ignore advertising, a thing we call banner blindness.
As you can see, this is why inbound marketing is the most effective customer acquisition tactic we can use, and although it might seem complicated, we can actually perform inbound marketing for customer acquisition in just a few simple steps:
- Keyword research: based on your target customer profile that you’ve defined in your market research, perform keyword research to find search queries with high monthly search volume that are relevant to your target audience.
- Topic development: now that you’ve got a list of target keywords, decide on topics to cover these keywords. A basic approach is to perform a Google search for each keyword and look at the top-ranking pages. Our goal is to develop content that is better than these pages.
- Content development: develop the content, it’s best to stick to a 6-month or a year’s worth of content calendar.
- SEO content optimization: optimize the content with SEO best practices for software companies. Optmize the title tag, META description, and the body of the content to naturally include the target keywords. However, focus on providing readable, informative content to human audience.
- Technical optimization: you can check this technical SEO checklist on how to optimize your website for SEO and work with a startup SEO agency on getting everything right.
- Link building and content promotion: promoting the content via various channels while getting backlinks in the process.
Although inbound marketing is definitely effective with very high ROI, it has a major drawback: time. It can take months or even a full year before your content can climb the search engine ranking, so it’s not a tactic to use if you are looking for quick results. This is why we should also invest in other channels, essentially to “buy time”.
- Social media marketing
While inbound marketing is strictly a long-term game, social media marketing can be both short-term and long-term.
Social media marketing isn’t as simple as regularly posting on the social media channels your customers frequent, but we can generally divide it into three different categories:
- Organic: building your own followers by regularly posting content so you can organically attract new customers. The most cost-effective (or free), but as with inbound marketing, it will take some time to build your own social presence
- Paid: paid options offered by social media networks like Facebook Ads, Instagram Ads, and more. Can produce fast and even instant results, but can be very expensive.
- Influencer marketing: partnering with the right influencers so they can promote your product/service and also your content to their audience.
The key in using social media for customer acquisition is to find the right balance between the tree according to your target audience, your objective(s), and your budget.
- Paid advertising
Yes, we have discussed that paid advertising as an outbound marketing tactic is no longer as effective as it was. However, we can still use advertising (both online and offline) to balance out our inbound marketing efforts, essentially balancing time vs cost.
Paid social media advertising, as discussed above, is definitely our best bet in this age of social media, but we can also use other options like Google Ads. Also, try remarketing (or retargeting) to improve your advertising cost-effectiveness and ROI.
- Email marketing
Email marketing remains one of the most effective marketing channels with one of the highest ROIs. It’s also easy to start and easy to measure its performance by using various email marketing platforms available.
The idea is to use inbound marketing to capture prospects’ email addresses and then use email marketing to nurture them until they are ready to buy.
The secret of email marketing? Personalization and automation. Use platforms like Mailchimp to easily personalize your email and automate its schedule so you can send the right message to the right people at the right time.
Above, we have shared the concept of customer acquisition for startups, the step-by-step guide to developing a customer acquisition strategy, and some effective tactics you can try on the best customer acquisition channels. It’s time to take what you’ve learned and start building a comprehensive customer acquisition strategy for your startup business.
For startups, it’s crucial to be creative in acquiring new customers: don’t be afraid to try different tactics and channels, learn from your past experiences, and keep refining your strategy to grow your business.