Why Acquisition Costs Are So Important to Ecommerce Businesses

Traditional cost acquisition metrics tend to focus on direct expenses like advertising and marketing. But other forward-looking factors play a crucial role in shaping the long-term profitability and sustainability of your business.

Calculate your acquisition costs correctly and you’ll sail through phases of rapid growth. Get them wrong and you could go under faster than a paper boat in a thunderstorm. 

Dramatic? Yes. But acquisition costs really are that important for ecommerce businesses. It’s a real tightrope walk to make sure you don’t lose sales opportunities through underspending or lose profit through overspending. Here’s everything you need to know about ecommerce acquisition costs in 2024.

Understanding acquisition costs

Acquisition costs are calculated by dividing the total spent by the number of new customers gained. On the surface, that’s simple—but you usually need to include sales team costs, ad spend, marketing costs, and a host of other expenses that contribute to getting your product into a customer’s hands. If those costs are complicated to nail down, your research will be too. That said, it’s all worth the effort. Not only will knowing your numbers give you confidence in your profitability, but in your strategic planning too.

Broadly speaking, acquisition costs fall into two categories: direct and indirect costs.

We’ll be paying particular attention to indirect costs here. That’s where the hidden costs that may get you into trouble typically lurk.

Acquisition costs vs invoice value

Acquisition costs extend far beyond the price listed on a bill. They include all the expenses that support each acquisition. For example, discounts are a typical incentive used in acquisition campaigns. While the invoice may reflect the discounted price paid by the customer, the business still incurs the full cost of the product or service before the discount. This impacts the overall acquisition cost.

Here's a snapshot of typical acquisition overheads:

• Marketing expenses
• Website development and design
• Customer acquisition incentives
• Technology and software
• Logistics and fulfillment
• Customer service and support
• Data analysis and optimization

While broader operational costs are not usually included, you should include any operational overheads specifically attributable to acquisition campaigns. By considering all these factors, you can more accurately assess the cost of customer acquisition and optimize your marketing strategies accordingly.

Acquisition cost data boosts business performance

Analyzing acquisition costs is really useful for optimizing budget allocation. By understanding the costs associated with each marketing channel and campaign, you can allocate your budgets more effectively.

Collating data on acquisition costs also supports better segmentation and targeting. Insights into the behaviors of your most profitable customer segments can help you focus more effort on attracting more high-value customers.

By factoring in acquisition costs alongside revenue generated from repeat purchases and customer retention, you can also improve customer lifetime value (CLV) calculations. With this data at the ready, you can confidently invest in strategies that maximize CLV, such as customer retention programs, loyalty initiatives, and personalized marketing campaigns aimed at increasing repeat purchases.

Effective tips for acquisition cost efficiency

Efficient acquisition strategies allow you to reach your target audience more effectively, maximizing their marketing budget and outperforming competitors. The most important acquisition activities in this regard are:

1. Distinctive brand campaigns
2. Targeted performance advertising
3. Optimized conversion

1. Distinctive brand campaigns

Brand is the starting point for building demand. When potential customers are familiar with and trust your brand, they are more likely to consider making a purchase from your ecommerce store. This increased brand awareness can lead to higher click-through rates, improved conversion rates, and ultimately lower acquisition costs as customers are more likely to engage with your brand organically.

2. Targeted advertising

Performance advertising allows businesses to target their ads to specific audiences based on demographics, interests, behaviors, and other relevant criteria. By reaching the right people with the right message at the right time, precise targeting tools like Shopify Audiences help you minimize wasteful ad spend and cut customer acquisition costs by up to 50%. 

3. Optimized conversion

Creating demand is only half the job. Capturing that demand is just as important. A big part of conversion rate optimization comes down to your checkout, so make sure you optimize your checkout page design. You also need to be sure you choose the right enterprise ecommerce platform to help scale your store. 

Of course, there are numerous other strategies for making your acquisition costs more efficient. Depending on your business category, these may include retargeting, affiliate partner programs, and high-quality content marketing strategies. That said, these three tips are true for every business, and they’re a great place to start.

High-converting checkouts lower acquisition costs

The average checkout abandonment rate is 68.8%. That’s according to a study from Baymard Institute aggregated data from 48 different studies on ecommerce cart abandonment. It’s an expensive issue for ecommerce businesses. The best way to lower acquisition costs here is actually very simple: just use the world’s highest-converting checkout.

We commissioned research from a Big Three management consultancy, which found that Shopify converts up to 36% better than the competition, and by an average of 15%. The findings also indicate a conversion lift by as much as 50% when using Shop Pay, outpacing other accelerated checkouts by at least 10%. Conversion uplift is a hidden revenue generator because your cost of acquisition goes up if you use a checkout with a lower conversion rate.

Take control of acquisition costs

In the competitive, ever-evolving landscape of ecommerce, sustainable growth requires more than a stunning storefront or an impressive product. Success hinges on your ability to translate raw data into actionable intelligence.

We’ve seen how traditional cost acquisition metrics tend to focus on direct expenses like advertising and marketing. But other forward-looking factors play a crucial role in shaping the long-term profitability and sustainability of your business.

The impact of a platform on conversion rates can have a profound effect on acquisition costs. That’s why we continue to invest in checkouts that convert like no other.

Acquisition costs FAQ

How do I calculate the acquisition cost for my business?

Your customer acquisition cost is calculated by dividing all direct and indirect sales and marketing costs by the number of new customers you gain within a specific period.

Can acquisition costs affect my business's profit margins?

The more you spend on acquisition through direct marketing costs and indirect overheads, the more you profit margin you lose. But if you underspend, you may end up losing out on sales opportunities.

What are the best strategies to lower acquisition costs?

The three best strategies for acquisition are:

• Distinctive brand campaigns
• Targeted performance advertising
• Optimized conversion

How does improving checkout processes reduce acquisition costs?

Conversion uplift is a hidden revenue generator because your cost of acquisition goes up if you use a checkout with a lower conversion rate. Shopify Pay supports your business by improving conversion rates by up to 36% compared to other checkouts.