CMO's: Generative AI’s BIG Impact on Customer Acquisition Cost (CAC)

Here is a big lesson about customer acquisition cost (CAC) I’ve learned along my career journey…and how CAC is now entering the “Generative AI” era.

If you are a colleague in “the CX/CRM footprint,” at any level of experience, this article intends to help you on your AI journey ahead. As I say on my new podcast , “The journey will be fast, but it won’t be easy.”

First and foremost, I came to realize CAC is the king of all revenue-related metrics. I’ve been reminded of this lesson many, many times—from so many perspectives.

It amazes me how many people still cannot effectively articulate their job’s impact on the metric. In fact, I once had a CEO boss with a “Top 5” MBA, and they failed to really break it down in the context of sales and marketing. Of course, people have an answer—it just isn’t a deep answer. I’ll explain more in this article—why it is critical to understand how your work ties to this topline metric. If you are a business leader, and your team (and sub-team, and sub-sub team) doesn’t understand how their work ties to CAC in detail—are you really leading them?

While CAC represents “Cash is King, and Flow is Queen” in the language of finance, CAC truly separates the winners and losers in the market. Generative AI re-invents all aspects of CAC. This is part of the journey ahead.

“Digital Transformation is dead. Generative Transformation is alive. Long live Transformation.”

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If you currently work in sales, marketing, or product led growth (PLG), this article adds a perspective to my book, The Generative Sales and Marketing Organization? —through the lens of CAC. For your career to advance (whether you are a C-level or first year on the job), you need generative AI skills. This is why I wrote the book, which is available for free at AdamBloom.me .

Why Generative AI + Customer Acquisition Cost (CAC) Matters

In the 2000s, I once asked the Chief Sales Officer for a $2 billion unicorn, “What is your #1 metric for sales?” Without hesitation, his answer was, “revenue per rep.” Now, I greatly valued this answer because the company hit $1B in revenue within 8 years, which was the fastest in history at the time. He knew his shit(ake) mushrooms. Big time.

His answer is the same thing as CAC, except that his words are revenue (customer acquisition) per headcount (a cost in the form of a sales rep). The CMO prioritized similar metrics—how much am I spending to get pipeline that turns into revenue? It was a very clear rationale to me, as I was responsible for measuring the results of every penny for this CMO, a multi-unicorn leader. Same with product leaders—how well are my products doing in the market in terms of revenue and growth versus how much we invested?

At the end of the day, CAC underpins the financial health of any organization.

NOTE: Chapter 01 of the book is an Executive Summary:

1. Describes value migration (as defined by the famous management consultant, Adrian Slywotzky) in the context of generative AI.
2. Uses an analogy between car manufacturing and “customer experience or communications manufacturing” to share with executives who need a strong analogy to make the point.
3. Explains the bottom line—when CEOs and CFOs ask you to get right to the main point, this is what you say about generative AI.
4. Unpacks the white-collar evolution—this section covers where the cost of humans is going to go down drastically and will impact the business model for many companies.

At the end of the day, generative AI impacts all three departments—sales, marketing, and product—in a big way. In fact, it will drive the entire customer experience and customer journey. Gen AI will drive conversion rates up. Resource costs will go down. Offers, value, and margin should improve considerably from personalization. As well, both speed and quality of output turn into a competitive advantage.

Customer Acquisition Cost (CAC) in Sales: Closing More with Less

In the realm of sales, generative AI radically boosts efficiency by enabling teams to close more deals with fewer resources. I recently had a pretty accomplished CRO disagree with me. He seemed quite threatened. If you are too, please go check out Sierra.ai , which was co-founded by an ex-CEO of Salesforce.com . Note their valuation. It is very hard to argue that the writing is on the wall.

Here is a key example of how generative AI impacts B2B sales. Sales engineers are almost always in demand and are very expensive. Salespeople often say they could close more business if they had more sales engineers. Generative AI will help make sales engineers 10X productive or more. I’ve seen it with my own eyes. It is jaw-dropping. This happened with AI 10 years ago, but now it is at another level.

To expand, generative AI tools streamline the entire sales process, from research to lead generation to ongoing communications to closing deals. The impact can be felt across BDRs, inside reps, account execs, sales engineers, and sales operations. By automating routine tasks, AI frees up sales professionals to focus on nurturing relationships and closing sales—at a much higher outcome regarding “revenue per rep.”

Additionally, AI-enhanced CRM systems provide sales teams with actionable insights based on data-driven analysis of customer behavior and preferences, allowing for more targeted and effective sales strategies. We see CRM platforms already pushing new products in the market that deliver on this value creation. Many new software products, particularly with product led growth (PLG), are building generative AI into their stack.

Customer Acquisition Cost (CAC) in Marketing: Automating for Cost Effectiveness and Content Manufacturing

Marketing is traditionally looked at as a cost center.

Marketing stands to gain immensely from generative AI. Your staff should be able to easily get 3X output with a well-trained team and strong leadership. But…and it is a BIG BUT…your constraints will be human in the loop (HITL) as you automate more and more…along with improving quality. For example, how do you approve 10X the content in a given time period?

Not convinced of this outcome?

Generative AI technologies manufacture content just like a Tesla manufacturing plant—except the manufacturing plant is making media, not cars. I’ve personally done this at scale by developing a small (or micro) language model—i.e. not an LLM like ChatGPT, Anthropic, CoPilot, and Google Gemini. The SLM radically improves quality. This small language model area—it has very pointed interest and related research in current innovation circles. This is because it can create much more specific and high-quality answers.

Generative AI automation extends to optimization of ads, emails, campaigns, messaging, and more. Sophisticated companies are using it for real-time user engagement. The conversational data is a treasure trove. In the end, the needed marketing manpower is much lower. Marketing departments will achieve better results with a substantially lower expenditure, thereby decreasing the CAC dramatically. On the other hand, they should produce 10X the output over time.

Investing in generative AI “as a cost center within marketing” is going to cause companies to massively under-invest in the technology. Their CAC will not be streamlined, and their old processes won’t be able to keep up with competitors. CFOs and CMOs should really get on the same page here—it will require the CFO to see the world of marketing through a new lens.

Customer Acquisition Cost (CAC) in Product-Led Growth: Transforming CX and CJ

Generative AI transforms product-led growth strategies by enhancing how customers interact with products. Most importantly, it can answer any question, guide users, perform interactive training, take feedback, and on and on. It is like having an army of product managers available to answer questions.

In fact, if you integrate all content—training, community, documentation, etc.—into an SML, your product will be driving the customer experience through a singular chat/bot interface. No more need for prospects or customers to click around (to different areas of your website) or reach out to sales—for them to improve the use of your product.

As well, AI can personalize product experiences in real-time, adapting features based on user interactions and feedback. You can see this at Wix, TurboTax, and Kayak. This ability to dynamically tailor the user experience not only attracts more users but also encourages deeper product use in their work or life.

With CAC—Generative AI reduces the friction typically associated with new customer onboarding and conversion…actually with all customer interactions. For PLG, the result is a smoother path from trial to purchase to repeat purchases, decreasing the overall CAC associated with new customer acquisition. In addition, it will drive customer lifetime value (CLTV) up at the same time.

Customer Acquisition Cost (CAC) for the CFO: Boosting the Bottom Line

For CFOs, the application of generative AI in managing CAC is particularly transformative. Those in search of Wall Street examples should check out IBM and Klarna’s recent reports about slashing costs with Generative AI in marketing and customer service. In fact, a friend recently told me Klarna’s CSAT score went up with the bots!

AI's capacity to automate and optimize business processes translates into a productivity boost ranging from 3X to 10X with the same budget. Personally, I call this the “safe zone” of automation. But, 100X or 1000X is real. It sounds like bull caca, right? Nope. This significant enhancement in productivity does not just optimize existing expenditures but also frees up resources that can be reallocated to other strategic initiatives.

For CFOs tasked with ensuring financial efficiency while fostering growth, AI’s impact on reducing CAC means a healthier bottom line and a stronger competitive position in the market. In computer industry geek-speak, the human always shifts to the area where it can create the most value and lets the computer do the other stuff.

Generative Led Growth (Not PLG but GLG)

Generative AI represents a critical lever for business revenue, cost, and profit streams. Impact to CAC is at the top of the charts—because Generative AI is just outstanding at language-based use cases. We’ve never seen anything like it before in history. Sales, marketing, product, and other teams are going to change in a big way. People are going to stop writing and start “programming AI” (well, they may write 5% at the end).

As ?The Generative Sales and Marketing Organization? outlines, integrating AI into core business functions is not an option. It is a necessity for companies to survive and thrive in today's digital landscape…it isn’t “The Digital Transformation” any more…it is “The Generative Transformation.”

?Like this? Check out my podcast: https://www.youtube.com/@AdamBloom-me