Bank customer acquisition cost is one of the most significant expenses in the industry, as most banks and lenders spend around $200 per acquired customer. Finding ways to reduce these expenses is the key to making banks more profitable long-term, as it directly relates to profit margins on each customer. Lower customer acquisition costs (CAC) can also reduce financial risk overall by creating new business relationships that take less up-front investment.
There are several ways to acquire customers, but most of them involve costly marketing campaigns that actually risk increasing CAC in exchange for driving conversion. Today, we will break down the best ways to reduce CAC by focusing on lead magnets that don’t cost as much to maintain and can even drive profits.
To help banks get started, we are going to cover:
So, let's discuss each to find the best way to lower bank customer acquisition costs.
In order to understand the impact of cost-reducing strategies, business leaders first must calculate their current CAC to identify their baseline. This allows banks and lenders to understand exactly where they are in terms of acquisition spending and how they compare to their industry at large.
The basic formula for calculating CAC is:
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Customer Acquisition Cost (CAC) = Total Amount Spent (TS) / Total New Customers Acquired (TNC) |
Basically, banks will divide the amount they spend on CAC by the number of customers they acquire. This much is obvious, but how does one calculate what each of these numbers actually are?
For total amount spent, spending categories that should be added into the sum include:
These three categories should make up the “TS” variable in the formula.
To ensure that the TNC variable lines up correctly, lenders should make sure that they only include customers acquired during the same period as the spending that they were able to calculate. So, if they are only utilizing records of marketing and sales spending from a specific campaign that took place over the course of a year, they should only be dividing it by the number of customers they acquired in that year.
There are many ways to reduce CAC, but executives will always be looking for ways to reduce costs while maintaining or even improving their revenue. Luckily, an easy way to accomplish this is to shift investment from customer acquisition to customer retention.
On average, acquiring new customers is 5-25x more expensive than retaining existing ones. This results from the massive expense involved in creating marketing campaigns and other revenue operations that go into the above calculation. By improving operations, customer service, and the overall customer experience, businesses stand to keep customers longer and reduce CAC while still improving their revenue.
The strategies we recommend to improve customer retention are:
Each of these will give customers reasons to come back and borrow or bank with the same institution for years, increasing customer lifetime value (CLV) and providing better ROI on each customer.
There is one strategy on this list that improves both customer retention and customer acquisition, and that is working with a fintech lending partner. These firms improve customer retention through quality self-service portals, simple online lending applications, bill pay services, and one-click payment. They also improve customer acquisition by expanding the reach of services that banks and lenders already offer to retail customers at the point of sale.
This, we believe, makes this solution the first that banks should try when looking to reduce bank customer acquisition costs and increase customer lifetime value.
Skeps offers a comprehensive, end-to-end consumer financing platform that helps lenders and merchants connect with convenient and modern financing options. Working with an entire network of established lenders and a wide variety of merchant partners, we go above and beyond instant installment loans. We help lenders offer a few different types of consumer financing through third-party merchants, including:
If you’re looking to partner with a forward-thinking fintech company that will get your financial products in front of as many consumers as possible, Skeps is the perfect fit.
Do you have more questions about bank customer acquisition costs? Request a demo today or email us at support@skeps.com.