Cut Customer Acquisition Costs with Strategic Consumer Incentives

Are your customer acquisition costs rising every quarter? You’re not alone.  As competition intensifies and consumer behaviour becomes more unpredictable, businesses are being forced to spend more—on ads, content, and tools—just to keep up. The pressure to convert new customers is mounting, and every step of the customer journey has become more expensive.  

But there’s good news: consumer incentives can help you get more out of your existing acquisition efforts. Whether through ads, emails, or other channels, incentives enhance the effectiveness of your campaigns by encouraging faster purchase decisions, driving engagement, and building loyalty. This way, you can reduce overall acquisition costs without sacrificing visibility or reach. 

In this blog, we’ll explore how different types of consumer incentives influence behaviour and lay out practical strategies to lower acquisition costs. We’ll also go through the different kinds of tiered incentives and show you how to really increase the value you get from each customer.  

To get right to the point: offering incentives can encourage quicker purchase decisions, reducing the need for extended marketing efforts like follow-up emails and retargeting ads. Not only does this speed up conversions, but it also lowers the overall cost of acquiring each customer (CAC). 

Here are a few examples of how to use these perks to cut down on what you’re spending to get new customers: 

Boost Product Perceived Value: Incentives like cashback and free gifts make your products seem more valuable, which helps customers make up their minds faster about buying from you. This smooths out the whole process of getting new customers, making it less expensive. 

Create Urgency: Use limited-time deals to tap into people’s fear of missing out (FOMO). This will, once again, get them to buy on the spot and reduce CAC.  

Increase Brand Awareness and Reach Organically: Running contests and giveaways is a great way to draw in new customers without breaking the bank. They encourage participants to share and interact with your brand on social media, which means you boost engagement and reach at a fraction of the cost of traditional advertising. 

Turn Existing Customers into Promoters: Referral programs can seriously reduce your CAC. By nudging current customers to recommend your brand to friends and family, you attract new ones without spending money on costly advertising campaigns. When both the referrer and the new customer receive a reward, they both have a stake in your promotion’s success, which means they will go the extra mile to bring in new people and redeem their incentives. 

These are just a few ways consumer incentives can help cut acquisition costs and squeeze more out of your marketing budget. It all boils down to planning how shoppers can earn these incentives strategically. If you do it the right way, you can draw in new fans and increase your reach without spending a fortune. 

Surely, we’re not the first to tell you that word-of-mouth marketing works wonders in reducing CAC. And the reason is pretty simple: using your existing customers to bring in new ones is cheaper than any other type of advertising.  

But let’s dig a bit deeper. We want to give you the tools to figure out just how much you might save with a referral program. So, we’ve scoured the internet far and wide to find benchmarks and reference figures that can help you crunch those numbers.  

Let’s have a look, shall we? 

A study by the University of Pennsylvania found that getting a customer through a referral is, on average, €20 cheaper than using emails and ads. This covers everything, from the referral bonus to the admin work. Now, this specific study used a bank as an example, and the average CAC in the banking industry is between € 261 and € 532. That’s a saving of between 3.8% and 7.6%. 

But let’s assume that €20 is an average figure regardless of the industry and look at the average CAC for e-commerce and retail below. This will give you a better sense of how much referral programs could help you reduce customer acquisition costs. 

Now, let’s use the consumer electronics industry as an example to break down the numbers. If a referral program saves you about €20 on each customer you acquire, that turns out to be a 5% savings for retailers and a 29% for e-commerce. Pretty good, right? 

And if a simple referral program can save you that much, how much more could you save by giving customers a little push to bring in multiple referrals? Yes, we’re talking about a multi-tiered system where customers earn bigger rewards the more people they refer! 

But before we get there, let’s make sure we are on the same page and have a quick look at the connection between customer lifetime value and CAC. It’s a key step to understanding how to use tiered incentives strategically. 

Now that we’ve looked at how incentives can reduce customer acquisition costs, it’s important to consider the bigger picture: how do these incentives impact your Customer Lifetime Value (CLTV)? Before diving into tiered incentives, let’s quickly revisit the connection between CLTV and CAC—understanding this link is key to creating a truly effective incentive strategy. 

CLTV is all about how much money you can expect to make from a customer over the time they stick with your brand. This includes how often they buy, how much they spend, and how loyal they are. 

To make sure that your acquisition costs are sustainable and profitable, each customer should bring at least three times what you spent to get them through the door— that’s a 3:1 CLTV to CAC ratio. 

Here we are, eventually. This is where you can really take your incentive strategy to the next level by cutting down on CAC and gently enticing your existing customers to spend more.

Let’s break down the different types of tiered incentives and see how they can help you influence buyer decisions: 

1. Fixed Incentives: These are straightforward, no-surprise incentives. Customers get the same reward each time they meet specific conditions—think fixed-amount cashback or a set discount. The downside is that customers don’t feel the urge to spend more than they normally would because they get the same rewards regardless. 
2. Threshold Incentives: Here’s where things get interesting. With threshold tiers, incentives get bigger as customers spend more or above a certain amount. For instance, if someone spends over 100 euros, they might get a free gift or more cashback. This setup encourages customers to spend a bit more than usual to hit those rewarding milestones.
3. Multi-Tiered Incentives: These incentives ramp up as consumers do more, and they are often used in referral programs to nudge customers to make multiple referrals. It’s a great way to keep people engaged continuously.
4. Action-Incentivised Rewards: Encourage your customers to fill out surveys, leave reviews, or share your products on social media. By offering incentives for specific actions, you can foster interactions and gather valuable customer data and user-generated content. 

Now that we’ve checked out the different types of tiered incentives, let’s see how they can help you increase customer lifetime value. First of all, let’s keep in mind that CLTV goes up when customers buy more, choose pricier items, and keep coming back to shop again. So, let’s look at some practical examples of how to use tiered incentives to get buyers to spend more: 

Incentivise Customers to Increase Cart Size: Nudge your customers to buy more to hit a spending target and unlock a reward. This boosts the size of their orders, meaning you earn more from the same number of customers. Plus, when customers feel like they’re getting a good deal, they’re more likely to come back, which means you don’t have to work as hard to keep finding new shoppers.

Reward First-Time Buyers for Spending More: Give a special reward to new customers, like a €20 gift card if they spend over €100. This strategy boosts your initial sales and helps turn those just-looking shoppers into buyers, making your marketing efforts more effective. Plus, once they’ve had a great first buy, they’re more likely to come back, setting the stage for them to stick around and maybe even become regulars. 

Entice Customers to Spend More for Bigger Rewards: We mentioned before multi-tiered referral programs, but you can set up multi-tiered systems for cashback promos, freebies, and discounts, too. Here’s

 how it works: the more your customers buy, the more they get back or save. For example, you could offer 5% cashback to customers who spend €50, but bump that up to 10% if they spend over €100. These kinds of incentives can boost brand loyalty and repeat purchases because customers feel they are getting more for their money, and this means their lifetime value increases. 

Encourage the Purchase of Multiple Products: Offer customers a freebie if they buy more items or cashback on bundled products. This simple tactic can entice them to buy more, strengthen their loyalty, and make them come back, increasing their long-term value to your brand. 

Free Shipping Thresholds: Free shipping is a classic motivator. Set a spending threshold for free shipping to encourage buyers to add more to their carts. 

These tactics maximise your marketing spend by helping you get more out of each customer 😉. And they also keep them happy and engaged, improving your retention rates and reducing your dependency on expensive customer acquisition campaigns. 

To sum up, consumer incentives are a powerful way to reduce customer acquisition costs and boost the value you get from each customer. By strategically using tools like cashback, referral programs, and tiered rewards, you can maximise the return on your marketing spend and drive lasting loyalty, all while cutting down on acquisition efforts.

The best part? These strategies don’t just save you money—they build stronger relationships with your customers. Now, you’re all set to take these tips back to your team and put them into action. And if you need a hand implementing those strategies, get in touch and we’ll find the best way to make them work for you.