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Customer Acquisition Costs: Paid Ads vs Referral Marketing
If you’ve worked in digital marketing or online businesses long enough, you will remember the time when emails became the biggest trend in lead generation. You could write a simple letter, without even a subject line, be as pushy and sales-ey as possible, and still win yourself a client. This was because every email was treated like something special. Your prospective customers were expecting to find those annoying ads in their physical mailboxes, not their electronic ones. Moreover, they treated the people they interacted with online as equals — as someone who spoke their new language and who knew how to really get their attention.
What has changed since then? First, email marketing got spoiled. Then we got introduced to paid advertising, and then we ruined it too. These two fields — email and paid ads — need soft selling, which avoiding sales wording and making meaningless offers.
The thing is, it’s become harder to get people’s attention since people have gotten used to normal media-consumption habits and in most cases avoid clicking on every ad and email they see. It makes marketers and business owners nervous: they fear the world will choose an ad-free way of living.
Not intentionally, of course! But just like any other tool in marketing that gets overused, paid ads couldn’t stand long enough. Just think of how the first online ad ever made, a banner that became a part of AT&T’s “You will” campaign, generated a 44% CTR!
And what is the average CTR for paid advertising in 2019? According to AdStage’s Q4 2018 Benchmark Report, the numbers are fifteen times lower:
The sad truth is that these numbers will probably continue to slowly descend while the cost of paid ads gradually goes up, making already high customer acquisition costs grow even bigger, leaving this door open only for industry giants with huge budgets.
But will there ever be another marketing channel with the double-digit conversion rates, minimized CAC and maximized ROI? The good news is that there is one already: referral marketing.
Every marketer knows by now that retaining and converting old customers is less expensive than getting new prospects. The trouble comes when your business model isn’t built upon the idea of frequent repurchases. That doesn’t mean, however you can’t take advantage of your existing customer base!