Digital CAC rises: Strategies for D2C brands in challenging times

In the dynamic landscape of Direct-to-Consumer (D2C) brands, the escalating digital clutter and heightened digital advertising demand have contributed to a significant surge in Customer Acquisition Cost (CAC). Founders of D2C firms and digital experts agree that the increase in Cost Per Impression (CPM) on platforms like Meta and Google has led to a considerable rise in digital CAC over the past year.

Dhruv Toshniwal, CEO of The Pant Project, reveals that digital CPMs are witnessing a yearly increase of 20-25%. The surge in digital CPMs implies that brands now need to allocate higher budgets for their ads to garner visibility among potential customers. Toshniwal emphasizes the challenge for founders racing against rising CPMs on Meta and Google, making it a challenging battle to win at scale.

Experts attribute this trend to the influx of brands entering the D2C space, including smaller brands vying for the same keywords. Shradha Agarwal, Co-founder & CEO of grapes, notes that even smaller brands are entering the arena, intensifying competition for visibility.

While a typical response to rising CAC might be to cut down on performance marketing budgets, Agarwal reveals that D2C brands continue to invest generously in performance marketing despite escalating costs. Immediate attribution on digital platforms holds more sway for D2C brands, influencing budget allocations.

Choosing the right platform becomes crucial, as Agarwal explains that D2C brands are willing to invest until they discover a lower CAC on a different platform. Deep Bajaj, Co-founder of Sirona, highlights the challenge of targeting a younger online audience whose purchasing power may not align with the product, leading to a strain on the P&L of D2C brands.

Some founders emphasize the importance of focusing on customer retention amidst rising CAC. Toshniwal and Bajaj advocate for concentrating on repeats and customer lifetime value (LTV) as a strategic approach. Shankar Prasad, CEO & Co-Founder of Plum Goodness, notes that the rising cost of accessing digital eyeballs reflects the limited pace of consumer availability against escalating demand.

To overcome rising CAC, Toshniwal recommends investing a portion of the budget in brand marketing. For D2C brands heavily focused on performance marketing, allocating 10-20% of the budget to brand content that goes beyond conversion-focused strategies can create an emotional connection with customers, eventually leading to more sales in the long run.