Posted on 14 Sep 2022
There are many different levers that can be pulled to accomplish the same goal around CAC.
There are different components that are included in understanding how to properly leverage the basic ones for most customer journeys are Cost of the good, Price of the good, Discount offered, and the Cost to Acquire that Customer.
From the above chart we can see that if the item costs $5 and we sell at $30 with a cost to acquire a customer at $10 then we can provide a discount of up to 50% before bringing our profit to $0.
(We're going to assume that this is an all in cost including customer paid shipping etc. for simplicity.)
Some of these variables are fixed with little play, some are more malleable with a bit more play.
Cost of the good will be fairly fixed, price of the good is entirely variable within a range to stay competitive or could be whatever you're brand can get for it, discount is variable, and lastly CAC can be variable if you can pull the right levers to cause a conversion.
They all work together though.
At the end of the day it's all dollars in and dollars out.
The gut reaction that everyone says when it comes to maximizing profit is all around protecting margin.
There's tribes of people that are massively anti-discount. I am too actually, but I do believe that one thing trumps any discount...
PRODUCT IN HANDS
If your product doesn't get into people's hands they can't experience and you can't get growth going.
Until you build up a faithful group of customers and followers that absolutely love everything you make the goal is to get your product into as many hands as possible at some degree of a profit. That's it.
To just be anti-discount is a model that only works for people with already very large followings or lots of funding runway. The vast majority of stores don't have very large followings or runway.
We use data, logic, and math to tell us what to do.
It's not as sexy as just winging it, but over time it reduces the amount of errors and rapidly increases the chances of success.
The best way to maximize profit is to create a product that is well received by customers that they will come back and buy more of where the perceived value and benefit is more than what they paid for the product.
There's two things people say about products -
"I got a great deal on this" or "It was expensive but totally worth the price"
You're looking for one of these two reactions. You usually start with the first and work your way in as you gain a reputation to the second.
The cheapest way to acquire new customers is through branded co-marketing initiatives.
Over the last few years though, less and less brands have been pursuing these initiatives, instead, choosing to largely market alone.
