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Dec 16, 2022

eCommerce customer retention over costly acquisition

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According to Shopify's research, for eCommerce brands with fewer than 4 employees, the average customer acquisition cost by industry is: 

  • Arts and entertainment: $21
  • Business and industrial: $533
  • Clothing, shoes, and/or accessories: $129
  • Electronics and/or electronics accessories: $377
  • Food, beverages, and tobacco products: $462
  • Health and beauty: $127
  • Home and garden: $129

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Customer acquisition cost by industry

CAC refers to the cost of acquiring a single customer. It includes product costs, labor costs, advertising, and any other outlay essential to getting your product to consumers.

Customer Acquisition Cost (CAC) vs. Customer Lifetime Value (CLV), source: https://www.wordstream.com/blog/ws/2019/01/10/cac-vs-clv

Why are customer acquisition costs rising?

With so many brands rushing to start an eCommerce business during the Covid-19 pandemic, there is now an oversaturation of companies bidding for consumers' attention. Acquiring new customers is becoming more expensive as a result, with advertising costs skyrocketing across platforms due to high demand. 

To make matters worse, changes to privacy laws are causing reachable ad audiences to shrink, resulting in many marketers failing to see a positive return on their investment.

A rise in DTC competition

Technology has made it possible to buy and sell online with ease like never before. And fewer barriers to entry mean more online retailers. By 2026, eCommerce sales are expected to reach 8.1 trillion dollars worldwide, a 56% increase from the 5.2 trillion dollars in 2021. Who wouldn't want a piece of such a huge pie? It is estimated that there are already 12–24 million eCommerce sites worldwide, with new ones popping up every day! And this is what you are competing against!

Skyrocketing Advertising costs

Merchants are spending more and gaining less. In recent years, digital advertising costs have been overtaking marketing budgets at an alarming rate, leaving those who rely heavily on performance-based customer acquisition models struggling to keep up.

Meta (Facebook & Instagram)

Revealbot data shows that Facebook’s average cost per lead (CPL) has more than doubled from January 2020 to June 2022, climbing from $6.24 to $13.40. Instagram has shown a similar CPL jump over the same timeframe.

Google

The cost per click for paid search ads increased by a shocking 15% between just the second and third quarters of last year. And the predictions for this year estimate an even higher raise of 20%-40%.

Amazon

According to Marketplace Pulse research, the cost of advertising on Amazon went up from the average cost-per-click (CPC) was $0.85 in 2020 to over $1.2 in mid-2021, an over 50% year-over-year increase. Demand for advertising on Amazon is increasing at a faster pace than the amount of ad space available, thus driving up advertising prices.

Source: https://www.marketplacepulse.com/articles/amazon-ads-are-getting-more-expensive

Privacy laws complicate personalization efforts

People are increasingly aware of their online privacy rights, and lawmakers are catching up. It's no longer only The European Union’s GDPR that makes the website owners' lives difficult. Similar measures were introduced by China (Personal Information Protection Law), Brazil (General Data Protection Law), and the state of California (California’s Consumer Privacy Act)

At the same time, third-party cookies are already being blocked by Apple, Firefox, and Brave. Google might have delayed the final doom of the cookieless future till mid-2024, but that doesn’t mean brands should rely on Google’s cookies in 2022. In an eCommerce world where customers use multiple channels to make a purchase, the fragmented customer experience offered by third-party cookies is no longer sufficient. In addition, as consumers have become more privacy-conscious, earning their trust has gotten difficult.

"As more businesses are online, it’s harder and harder to be found by new customers. Because it’s so easy to start online now, there are definitely rising costs of customer acquisition. Paid ads are getting really expensive, not to mention the Apple iOS 14 release, which has made it more difficult to track results in ad spend." - Mel Ho, Senior Product Marketing Lead, Shopify

One the very few business models resilient to the economic downturn, the painful privacy changes, or the cutthroat competition, turns out to be a multi-vendor marketplace model.

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Key advantages of turning your eCommerce store into a multi-vendor marketplace:

  1. Increase customer loyalty and retention by offering the convenience of one-stop shopping across many brands and product categories with a single order and payment
  2. Increase average order value by offering customers products complementary to your own inventory
  3. Boost sales and scale your business with thousands of new products in a dropshipping model without any extra costs of inventory procurement or management
  4. Onboard tens of new Shopify brands to your marketplace in minutes
  5. Achieve a long-tail audience expansion to multiply organic search traffic with a blue-ocean SEO strategy
  6. Gain a new superpower to quickly experiment with new product categories and expand your current audience with new customer segments interested in these new categories
  7. Turn eCommerce competitors into partners by adding brands as your marketplace sellers

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