What’s your cost per acquisition?
Do you know what your cost-per-acquisition is? As a marketer, you should. It’s really important stuff.
What does cost per acquisition mean?
It’s the quintessential metric for determining true return on investment.
Ultimately, it doesn’t matter how many clicks or eyeballs a campaign receives, if it’s not generating revenue, it’s not successful. In other words, how much do I have to spend in marketing dollars to get a paying customer?
Because, if your marketing spend is not effectively and efficiently converting eyeballs into paying customers, that’s a huge problem.
For example, consider the scenario of an agency that was charged with managing a company’s PPC (pay per click) account. The team’s ads were performing well above average (on paper). Through aggressive split-testing, they were able to attain a CTR (click through rate) greater than 4% and had the CPC (cost per click) down below a dollar; which is fantastic. Yet, when they went to share our good news with the client, they were surprised to hear that they had only received one sale; just a single sale from all the efforts made.
Their CPA (cost per acquisition) was the entire spend on the marketing campaign to date, which was not good news!
So instead of focusing on CTRs and click costs, they started focusing on Cost per Acquisition. The result was that they began creating campaigns that drove sales and thrilled the client. The impression counts and click rates weren’t always high, but they worked where it mattered, driving revenue.
So how do you figure out what your cost per acquisition is?
To understand the cost to acquire a customer, it’s pretty easy. What you do is take your entire cost of sales and marketing over a given period, including salaries and other headcount related expenses, and divide it by the number of customers that you acquired in that period. That will give you your effective Cost per Acquisition.
Once you know that, you want to make sure your CPA is 3 times less than the LTV (life time value) of that customer, or the gross margin revenue of an average customer, and you’ll be in good shape!
Now that you understand your CPA and it’s important, you’re probably asking, how can I maximize my marketing investment to convert more prospects into customers, while lowering my CPA costs? What channels of marketing are most effective to do this?
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