Help reduce customer acquisition costs with PayPal

In the competitive world of ecommerce, every dollar counts. If you're pouring money into attracting, engaging, and converting new customers but not seeing the returns you need, it's time for a change – high customer acquisition costs can easily drain your resources and stifle growth.

Here’s where PayPal comes in. Read on to learn how PayPal can streamline your checkout process, attract a wider audience, and lower customer acquisition costs.

The state of customer acquisition in 2024

Acquiring new customers in 2024 is more complex and costly than ever before. Several factors have converged to create a challenging environment for businesses, including:

• Skyrocketing digital ad costs. As more businesses flock to online advertising, competition for ad space has intensified, driving up prices across platforms. This means your marketing budget might not stretch as far as it used to.
• Increased ad fatigue and skepticism. Consumers are bombarded with ads daily. Capturing their attention and trust requires more creative, personalized, and engaging approaches, which can be expensive to develop and execute.
• The rise of multi-channel customer journeys. Shoppers rarely convert after a single interaction. They research, compare, and interact with brands across various touchpoints (social media, email, website, etc.) before making a purchase. This means you need to invest in a cohesive, multi-channel strategy to nurture leads throughout their journey, increasing your overall customer acquisition cost.
• Data privacy concerns. Regulations like General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA) have made it harder for businesses to track and target potential customers. This limits the effectiveness of some marketing tactics and requires businesses to adopt more privacy-conscious approaches, which can be costly to implement.
• Changing consumer expectations. Today's consumers demand personalized experiences, seamless interactions, and fast, convenient service. Meeting these expectations requires investments in technology, customer support, and data analytics – all of which have an impact on a business’s customer acquisition cost formula.

How is customer acquisition cost calculated?

The customer acquisition cost formula is:

Customer acquisition cost = total cost of customer acquisition / number of new customers acquired

Here, the total cost of customer acquisition includes all of the costs associated with how a business attracted, engaged, and converted its new customers, such as marketing, sales, and customer service. The number of new customers acquired is the number acquired during a specific time period.

What industries have the lowest customer acquisition costs?

Industries with recurring revenue models, such as SaaS companies or businesses with high customer lifetime value, often have lower customer acquisition costs.⁴ This is because the recurring revenue stream or high Customer Lifetime Value (CLTV) offsets the initial acquisition expense over time.⁵

What is a good customer acquisition cost?

There’s no one-size-fits-all answer, as a “good” customer acquisition cost depends on various factors like your business model, industry, and target audience.

However, a general benchmark is that your customer acquisition costs should be lower than your customer acquisition cost value. This ensures that the revenue generated from a customer over their lifetime exceeds the cost of acquiring them.

How PayPal can help you lower customer acquisition costs

Reach the right customers

While there are more online shoppers to attract to your business than ever before, casting a wide net isn't enough. You need to reach the right customers – those who are genuinely interested in your products or services and likely to convert.

PayPal is designed to help businesses pinpoint and connect with these shoppers more effectively. By leveraging data from over 22 billion transactions and 435+ million active PayPal and Venmo accounts, PayPal offers deep customer insights for merchants to better understand shopper preferences and drive sales across physical, online, mobile, and third-party channels.¹

Remove friction from the buying journey

A clunky, confusing checkout process is a surefire way to lose potential customers. Every extra click, form field, or unexpected fee can create friction that leads to abandoned carts and missed sales.

Streamlining the buying journey is crucial, but it can be tricky to balance security with convenience. PayPal's suite of checkout solutions aims to solve this problem, making it easier for customers to complete their purchases without extra hurdles.

For example, PayPal can help:

• Simplify the user experience. By minimizing the number of steps required to check out, PayPal helps ensure a smoother, quicker buying process that encourages completion rather than abandonment.
• Support faster checkouts. Shoppers value speed and convenience – every second of delay can impact conversion rates. PayPal’s buy button facilitates 43% faster checkout flows compared to those that do not use the feature.²
• Fight fraud without friction. False declines can alienate customers and result in lost sales. PayPal’s powerful machine learning and unique fraud-fighting tools can better distinguish between legitimate buyers and fraudulent attempts, helping ensure a secure, seamless purchase process for genuine customers.

Hold on to happy customers

You spend a lot of time, energy, and effort to win new customers. Don't leave hard-won revenue on the table by losing them at the finish line.

With PayPal, you can offer your customers a range of flexible payment options, including credit/debit cards, buy now, pay later (BNPL), and digital wallets. When customers have a positive checkout experience, they are more likely to return for future purchases.

Meanwhile, PayPal's familiar interface helps create a sense of trust and convenience, making it the preferred choice for repeat transactions. Indeed, PayPal customers make purchases 60% more often than non-PayPal users, and businesses see a 20% increase in repeat buyers among those who use PayPal.³

In other words, not only do you enjoy higher customer lifetime values with PayPal, but lower churn means you spend less time and money on costly reacquisition efforts.

Continued innovation

In the quest for customer retention, don't rely on costly trial and error. Keep the systems and partners that work well, and let PayPal optimize those that don’t. This continuous innovation ensures that your offerings remain competitive and appealing to both new and returning customers.