In today’s business landscape, sustainability and profitability are crucial for enterprises in every industry. The EdTech sector, in particular, has experienced rapid growth, especially after the COVID-19 pandemic. In 2020 alone, global EdTech startups raised over $11 billion, indicating the sector’s potential for profitability. However, one key factor that affects profitability is the Customer Acquisition Cost (CAC). EdTech companies often face high CAC due to intense competition and the need to acquire a diverse customer base.
In this blog post by Meritto (formerly NoPaperForms), we will address the growing concern of increasing CAC in the EdTech industry and present effective strategies to reduce it. By implementing these strategies, EdTech companies can not only lower their acquisition costs but also enhance revenue generation. Join us as we explore practical ways to reduce CAC and unlock the path to increased profitability in the EdTech sector.
What is CAC in EdTech?
Customer acquisition cost (CAC) in the EdTech industry refers to the cost of acquiring new customers through various marketing and sales efforts. This can include costs associated with advertising, marketing, and other expenses incurred in the process of attracting and converting new customers to a company’s products or services. The CAC in EdTech companies is typically higher than other industries because of the unique challenges and complexities of selling to educational institutions and individual learners.
How to Check if you have the Right CAC or Not?
Be it any industry or a sub-industry, the most common way to check whether you are acquiring customers at the right cost or not is to compare the CAC with your Customer Lifetime Value (CLTV: Customer Lifetime Value is the total revenue cost that the customer is expected to generate throughout the lifetime of their account).
Ideally, your CAC: CLTV ratio must be 1:3. Thus, by analyzing the cost that you are paying for the CAC versus how much cost can be incurred from the lifetime value of your potential customers, you can get a clear picture of whether you are paying the right amount or not.
Thus, one must strategically decide the CAC for EdTech students as they tend to have a longer CLTV, provided your team can upsell and cross-sell at the right time!
Effective Ways to Reduce CAC
Cost optimisation is a crucial aspect for all the businesses including the EdTech industry. And businesses moreover aim to do the same without a fundamental approach. Thus, here are ways adopting which you can reduce CAC in EdTech.
- Improve Targeting: By identifying and targeting the most promising leads, ed-tech companies can reduce the number of leads that they need to acquire in order to reach their sales goals, and thus reduce CAC.
- Optimise lead generation: By optimizing their lead generation efforts, ed-tech companies can generate more high-quality leads at a lower cost, which can help to reduce CAC. This could include using cost-effective marketing channels such as social media, or implementing lead scoring to prioritize the most promising leads.
- Streamline the sales process: By streamlining the sales process, companies can reduce the time and resources required to close deals, which can help to lower CAC in EdTech. This could include implementing a CRM or sales automation software to automate repetitive tasks, or using lead nurturing techniques to improve conversion rates.
- Increase customer retention: CAC can be reduced by avoiding the need to acquire new customers to replace them. This can be achieved by providing excellent customer service, and offering features and services that keep customers engaged and satisfied.
- Reach out to customers on preferred channels: Dive deep into your customer database and analyze which channels are bringing the most engagement to you. Optimize your investment on such channels and enhance engagement with potential students. Switching to preferred channels will help you end the spray-and-pray approach.
- Shorten sales cycles: EdTech industry shall operate with shorter sales and conversion cycles. This helps in saving costs and reducing CAC. Instead of investing more amount in longer sales conversion cycles, one must strategically convert more students with shorter cycles. Also, longer sales cycles have higher chances of drop-offs.
Reasons to Reduce their CAC in EdTech
It is important for EdTech companies to reduce their CAC for several reasons like:
- Cost-effectiveness: Lowering CAC means that ed-tech companies can acquire new customers at a lower cost, which in turn increases the profitability of their business.
- Increased ROI: It also means that ed-tech companies can generate a higher return on investment (ROI) from their marketing and sales efforts.
- Scalability: By reducing CAC, businesses can acquire new customers more cost-effectively, allowing them to scale their business more easily.
- Financial Stability: Reducing CAC helps EdTech companies to maintain financial stability and reduce their risk of losing money, as they are able to acquire customers at a lower cost, and maintain a balance between the cost of acquiring a customer and the revenue they generate.
- Competitive Advantage: By reducing CAC in EdTech companies can gain a competitive advantage over their contemporaries by being able to acquire customers more cost-effectively, which allows them to outspend their rivals on marketing and promotion, or to offer lower prices, which can attract more customers.
- Long-term Success: Lowering CAC is a key driver for long-term success for companies, as it enables them to acquire and retain candidates.
How a CRM Helps in Reducing CAC in EdTech?
That being said, it is a CRM (customer relationship management) system that surely helps EdTech companies to reduce their CAC (customer acquisition cost) in several ways like:
- Improved Lead Management: A CRM can help ed-tech companies to manage leads more effectively by providing a centralised database of leads and customer information. This can help EdTech companies to identify and prioritise the most promising leads, which can help to reduce CAC. Know more about Lead Management
- Streamlined sales process: It can streamline its sales process by automating repetitive tasks such as data entry, lead tracking, and communication with leads. This can help ed-tech companies to reduce the time and resources required to close deals, which can help to lower CAC.
- Lead nurturing: A CRM can help EdTech companies to manage and nurture leads, by tracking their engagement with the company, and providing personalised communication based on their interests and needs. This can help to improve conversion rates and reduce CAC. Know more about Lead Nurturing
- Increased customer retention: It can help increase customer retention by providing a centralised database of customer information, which can help EdTech companies to provide excellent customer service and offer features and services that keep customers engaged and satisfied.
- Improved analytics: It can empower ed-tech companies to track and analyse customer data, which can help them to identify trends and patterns, and make data-driven decisions. This, in turn, can help EdTech companies to optimise their lead generation and sales efforts, which can help to lower CAC.
- Integration: A CRM can be integrated with other tools such as marketing automation, email marketing, and analytics software, to provide a more holistic view of the customer journey, which can help ed-tech companies to optimise their efforts and reduce CAC.
Overall, a CRM can help EdTech companies to manage leads more effectively, streamline their sales process, and increase customer retention, which can help to reduce CAC and increase profitability.
With the help of the Meritto’s (formerly NoPaperForms) B2C EdTech CRM, you can automate the entire process and ultimately reduce CAC in EdTech and prioritize your businesses’ finances efficiently. The implementation of a unified online system for student information management, admissions tracking, and payment processing has had a positive effect.