Customer acquisition cost is the cost associated in convincing a prospect to buy your product/service. This cost is inclusive of the product/service cost as well as the cost involved in research, marketing, and accessibility costs. Customer acquisition cost is also referred to the abbreviation CAC for short.
This customer acquisition cost definition is per Wikipedia.
So, now you know what the definition of customer acquisition cost is we will discuss what your customer acquisition cost is online.
This begs the question as to why you should read this blog post from beginning to end?
- We’ll break down what it costs your business to acquire customers online.
- I guarantee you that you will uncover at least one nugget of information you did not know that will help your new customer acquisition plan.
Sound good to you?
New customer acquisition cost online – pay-per-click
In this example we’ll run through how to calculate your customer acquisition cost online if you were using pay-per-click as part of your customer acquisition process.
These numbers come directly from HubSpot.
- If you spend $1,000 on a pay-per-click (i.e. Google Adwords, Bing PPC, Facebook PPC, or YouTube PPC) campaign in which you sent those who clicked on an Ad to your website. And 500 people visited your site, how much would that cost you?
$1,000/500 = $2 per visitor
To sum it up you paid $2 for each of 500 people just to visit your website.
That does not guarantee that all 500 of those people who visited your site actually become a qualified lead for you.
As a matter of fact only a small percentage of those 500 people will be a lead for you.
What kind of percentage are we talking about?
To be consistent with these numbers utilized by HubSpot, let’s work with 5% and 10% respectively.
- If 5% of those 500 visitors turn into a lead. How much would that cost you per lead?
We already determined previously that each visitor to your site is $2.
Divide $2 by 5%.
$2 per visitor/5% = $40
It costs you $40 per lead if 5% of the 500 website visitors convert to a lead.
Are you following me so far?
Alright. Good stuff.
So, how many leads is 5% of 500 website visitors?
500 x 0.05 = 25
25 leads out of 500 website visitors.
Let’s play this out to determine the final new customer acquisition cost using pay-per-click.
If 10% of the 25 leads actually buy from you, then what is the total customer acquisition cost utilizing pay-per-click advertising?
First, that means 2.5 of those leads bought from you.
And you paid the following to acquire those 2.5 customers.
$40/10% = $400
So, you now know that you paid $400 dollars to acquire those 2.5 customers.
What are your thoughts?
Depending on what a new customer is worth to you, then $400 may make sense or not.
I don’t know your numbers, but you should!
Let’s dissect this a little further.
If a new customer is worth $1,000 and you spend $400 to acquire them, which works out to 40%
of that customers worth, then the decision is ultimately up to you whether it makes sense to continue utilizing pay-per-click as a customer acquisition source.
Those numbers are not ideal if you’re looking at a small sample size, but if the volume is much higher, then it would make sense.
It is all predicated on what your customer acquisition marketing budget is and your goals for new customer acquisition in a given calendar year.
Let’s talk about the cost of an online
Customer acquisition plan using a blog for your customer acquisition process.
According to HubSpot’s 2012 state of inbound marketing, they found that in organizations where you’re focused on inbound marketing – i.e blogging, SEO, and social media you experience a 61% lower cost per lead than those organizations who focus on outbound marketing techniques – i.e. direct mail, tradeshows, and telemarketing.
I put together a blog post discussing whether direct marketing (i.e. outbound marketing) is effective for customer acquisition. Take some time to check it out. It’ll be worth your while for sure.
Recommended Reading: Is Direct Marketing Effective In Customer Acquisition
Per this research by HubSpot the average cost per lead for:
- outbound marketing was $346
- inbound marketing was $135
[tweet_box design=”default” float=”none”]Which leads to inbound marketing costing 61% less per lead than outbound marketing.[/tweet_box]
What do you think about that?
That tells you if you have not incorporated inbound marketing into your customer acquisition process as a small business owner you better do so. Like right now!
[tweet_box design=”default” float=”none”]All 3 of the inbound marketing techniques that I mentioned – blogging, SEO, and social media go together.[/tweet_box]
What do you mean by that?
You need to do SEO so prospective customers can find your blog and learn about your business, the products/services you offer, and how to contact you.
Also, you can use your social media channels to promote your business – get the word out if you will.
Make sense to you?
Awesome. I am glad it does.
In addition to what I’ve already stated about how much less per lead inbound marketing costs it is important to point out that 52% of companies who blog indicated leads from this customer acquisition channel were below average cost.
Interesting isn’t it my friend?
If you’re not blogging as part of your customer acquisition process, you’re missing the boat.
No really. You’re missing the boat.
Get with the program and start blogging.
based on the two types of marketing options and the costs associated with those options which one would pick?
Blogging?(inbound marketing to be consistent with the wording used throughout this blog post).
My money is on the latter – blogging.
Do you agree?
Whether you agree or disagree the most important thing for you is a small business owner is know your
customer acquisition cost and have a customer acquisition process in place for your business!
If you do those two things, your revenue and profit will go to heights you never thought were possible!
So, do not waste another second and put a customer acquisition process in place for your business.
Do you have a customer acquisition process in place for your business?
Is that process working?
If you could improve that process would you?
If you’re answering “Yes” to all of these questions then my hats off to you. Business must be awesome!
Otherwise you and I should talk. Let’s see how I can get you to where you want to be.