Acquisition vs Retention Channels to Hit Your Target Forecast
Ecommerce forecasting isn’t just about numbers—it’s about understanding how you’ll reach your customers. In our last blog post, we broke revenue down by new vs. returning customers and highlighted their distinct behaviors. Now, let’s take it a step further by analyzing the channels you’ll use to engage each group, with a critical focus on the cost of acquisition for new customers.
The cost of acquiring new customers is a major driver of your marketing budget. It directly impacts how much you’ll need to spend to fill the revenue gap between what your returning customers will generate and your overall revenue goal. By aligning your digital channel strategy with both customer types, you can plan more effectively, advocate for resources, and allocate budget strategically.
Acquisition Channels: Finding New Customers Where They Are
New customers are essential for growth, but acquiring them comes at a significant cost. These customers are unfamiliar with your brand, meaning you’ll need to invest in higher-cost channels to capture their attention and convert them. This is why understanding your customer acquisition cost (CAC) is critical.
Key Strategies for New Customers
This is not a comprehensive list of all of the platforms, tools, and tactics to acquire new customers–just some fundamental ones worth highlighting.
Upper-Funnel Advertising
Common Channels for New Brand Discovery: TikTok, Facebook, Instagram, YouTube, Google Search (non-branded terms). Of course these platforms vary based on your target audience – your users may congregate on Reddit or LinkedIn, and it’s important to understand your customers to be more strategic in channel/platform selection.
Why It Works: These platforms are designed to build awareness, making them ideal for introducing your brand to new audiences. TikTok, for example, excels in reaching younger demographics, while Google Search captures intent-driven shoppers.
Challenges: Upper-funnel advertising typically has a lower return on ad spend (ROAS) because these customers require more touchpoints to convert. You’re targeting people who may not be ready to purchase, and lack familiarity with your brand which increases cost. We’ve also seen nuances based on price point – if you are selling a more expensive item, more touchpoints are often involved to convert new customers.
Budget Implications:
Estimating your budget starts with understanding your CAC. For instance, if your CAC is $50 and you need 10,000 new customers to meet your revenue gap, your acquisition budget will be: 10,000 x $50 = $500,000.
This makes it clear why acquisition costs often consume the lion’s share of a marketing budget.
SEO and LLMs for Discovery
Focus: In addition to standard SEO, brands and products are increasingly being discovered through AI products/LLMs (large language models) such as ChatGPT, Perplexity, Claude, etc as they continue to grow in influence. By optimizing for non-branded search terms, you can attract potential customers actively searching for solutions your product offers.
Why It Works: SEO reduces long-term acquisition costs by driving organic traffic. Unlike paid channels that have a direct cost per click, an effective SEO strategy drives organic traffic that can compound over time, making it a cost-effective way to attract new customers.
Example: A hiking gear brand could rank for terms like “lightweight hiking boots,” attracting new shoppers researching options or seeking AI recommendations that fit their criteria.
Budget Implications: SEO/AI require consistent, long-term effort. It’s not an overnight success so plan on more time before you see a return, however when done well, it’s well worth the investment.
Influencer & Affiliate Marketing
Why It Works: Influencers and Affiliates introduce your brand to their loyal audiences, creating a sense of trust and authenticity.
Challenges: Costs can vary widely depending on the influencer, and ROI isn’t always immediate or easy to track.
Retention Channels: Bringing Back Your Best Customers
Returning customers are your most profitable segment, and the channels you use to engage them reflect that. Since they already know your brand, you can rely on low-cost channels to drive repeat purchases.
Key Strategies for Returning Customers
Email Marketing
Why It Works: Email is a high-ROI channel, especially for customer retention, because it’s a relatively low cost way to communicate directly with your existing customers and subscribers. The channel provides a unique opportunity for brand messaging, personalization, and automated flows. Plus, emails with product recommendations, new product launches, discounts, or reminders can drive significant revenue.
SMS Marketing
Why It Works: SMS offers immediacy and high open rates, making it perfect for flash sales or restocks.
Cost Comparison: Compared to paid channels, SMS is a fraction of the cost while delivering high engagement rates.
Retargeting Ads
Channels: Facebook, Google Display Network, and Google Shopping.
Why It Works: Retargeting focuses on customers who have already visited your site, increasing the likelihood of conversion.
Budget Implications: Retargeting campaigns typically deliver higher ROAS, making them a cost-effective way to re-engage lapsed customers.
SEO for Returning Customers
Focus: Optimize for branded search terms so customers searching for your brand name can easily find you without clicking on a paid ad.
The Cost of Acquisition: Why It Drives Your Budget
Understanding your CAC isn’t just a nice-to-have—it’s a cornerstone of your revenue forecast and marketing strategy. Here’s why:
CAC and Channel Mix Determines Your Acquisition Budget
Let’s revisit the example from above. If your goal is to acquire 10,000 new customers and your average CAC is $50, you’ll need a $500,000 budget for acquisition. This budget must be realistic to hit your revenue targets.
If your CAC is higher than expected, you’ll either need to adjust your revenue goals or explore lower-cost channels (like SEO) to close the gap.
Lowering CAC is Critical for Profitability
-
- To make acquisition more affordable, focus on optimizing your campaigns for better targeting and higher ROAS.
- Invest in strategies like testing creatives, refining audience segmentation, and improving landing pages to drive down costs.
New vs. Returning Customers Impact CAC Differently
-
- For new customers, CAC will be higher because you’re targeting cold audiences who need more convincing.
- For returning customers, CAC is significantly lower since you’re leveraging owned channels like email or SMS.
Balancing Acquisition and Retention Channels
To forecast effectively, you must balance your efforts across acquisition and retention:
For New Customers
-
- Invest in upper-funnel channels that prioritize awareness and discovery.
- Be prepared for higher CPAs but ensure you’re forecasting your budget accurately based on your customer acquisition needs.
For Returning Customers
-
- Focus on high-ROI, low-cost channels like email, SMS, and retargeting to drive repeat purchases.
- Allocate a smaller portion of your budget here but maximize the impact by increasing order frequency and AOV.
Bringing It All Together
Your acquisition costs are the key to aligning your marketing budget with your revenue goals. By forecasting your CAC and segmenting your channels effectively, you can plan smarter, spend strategically, and achieve your goals with confidence.
In the next post, we’ll discuss how to measure and refine the ROI of these channels to optimize your marketing mix over time.
Want to simplify this process? Our software, Pond, makes it easy to understand channel performance, CAC, and customer segments—giving you the tools to allocate your budget with precision.
Ready to take the guesswork out of forecasting? Let’s talk.