How Much Was That New Customer?

How Much Was That New Customer?
SHARE
THIS



As the business adage goes, ‘You can’t manage what you don’t measure.’ Yet, Cade Witnish from independent digital agency, Loud&Clear, is surprised with the number of managers he talks to who are willing to ‘wing it’ with their marketing spend.

This is perfectly illustrated by a recent conversation I had with a client over how they were going to split their marketing budget for the next quarter. They said they would go with what had worked last year: 50% on radio, 30% on people handing out brochures and 20% on digital activations.

When I enquired how the client knew it worked, they couldn’t attribute sales directly to a particular marketing channel. They’d met their sales target and had simply assumed the marketing mix they’d landed on had done the trick.

My agency works with a lot of startup companies and one of the most important factors a brand new business needs to establish is their customer acquisition cost (CAC). This is often the first thing investors want to know and is critical to keeping the lights on. If it’s going to cost $100 to acquire a customer for a $50 product, this is unlikely to be viable. Early identification of this CAC mismatch enables us to review, alter the solution, value proposition or target customer.

Mature businesses are often more entrenched, have already found product-market fit and have an established customer base, which can make knowing the true customer acquisition cost feel less urgent and more opaque. Make no mistake; this complacency will be costing your business. When CEOs ask how to assess the value their marketing team is adding, I tell them to ask about their organisation’s customer acquisition cost. If the team can’t provide the figure immediately, and outline a strategy to lower this, it’s almost certain that the organisation is throwing money away. It’s like driving with your eyes closed.

There is no point in acquiring customers without knowing what it costs you to acquire them and what their lifetime value is going to be. These costs can be hidden, easily forgotten, or glossed over.

Make it easy to compare the effectiveness of each marketing channel. The best place to start is by figuring out your CAC with a back of an envelope calculation. Start by calculating your marketing expenses for every channel you used to create leads and customers for the past six months. Then work out how many customers you acquired for the same period for each marketing channel. Finally, divide your expenses by the number of customers you acquired for each channel. This is your basic customer acquisition cost.

The wonderful thing about digital marketing is that it is measurable, trackable and keeps you accountable. Digital tracking measures can be woven into all marketing executions enabling your organisation to effectively track its CAC through-the-line.

The final piece of the puzzle is to work out what the average lifespan and spend of a client is. For example, you may be happy to spend $100 to acquire a client who’s first sale is $50 on the premise that over their lifetime they will spend $1000.

You might be surprised to see that some channels have a CAC that is higher than the average sale.  Some of our clients have a CAC that is up to seven times higher than the initial sale. This is why the bulk of their marketing efforts are spent on retaining existing customers, cultivating their loyalty and encouraging advocacy.

Loud&Clear began as a start-up and MVP lean start-up principles continue to guide our business. Our agency uses customer acquisition cost to inform digital marketing services, website development, assets used and social media spend.

While cost-per-acquisition isn’t the only marketing metric that matters, it’s the essential measurement marketers need to know to determine true return on investment.

Latest News

Women In Media Profile: Danni Wright
  • Media

Women In Media Profile: Danni Wright

We'd be headlining Danni Wright's Women in Media profile the "Wright stuff" if it wasn't utterly predictable and naff.

by B&T Magazine

B&T Magazine
Industry Generates A Record $10.5m For Social Impact
  • Media

Industry Generates A Record $10.5m For Social Impact

UnLtd, the media, marketing and creative industry’s social purpose organisation has announced a total industry contribution of $10.5m to social impact in FY18. The total value of funds, services, inventory and time donated by the media, marketing and creative industry increased by 21per cent compared to the previous financial year due to a growth in […]

Posterscope Promotes Two
  • Media

Posterscope Promotes Two

Posterscope, Dentsu Aegis Network’s specialist out-of-home agency, has promoted Ryan Hedditch to the newly created position of national head of strategy and Samantha Summers to Sydney Group Business Director. In his new role, Hedditch is charged with driving the continual improvement and transformation of the Posterscope offering to clients and partners. Summers’ promotion will see her lead […]

Outbrain Accelerates Growth With APAC Promotions
  • Media

Outbrain Accelerates Growth With APAC Promotions

Native discovery platformOutbrain has announced several movements in its regional leadership team, with plans to make more new hires. This comes on the heels of two senior appointments it made in February, after closing a record year in the region with expansion into new markets. Yoav Tourel has been promoted to head of sales for […]

Clems Syd & Extra GUM Unveil YouTube Digital Stage
  • Media

Clems Syd & Extra GUM Unveil YouTube Digital Stage

YouTube EXTRA Gum has launched EXTRA Support Acts, a program created to support Australia’s up and coming musicians by transforming pre-roll ads on YouTube into a digital support stage. It has been created in partnership with Clemenger BBDO Sydney as creative lead, Universal Music Australia and BRING for talent and music strategy and content, MediaCom and YouTube. The […]

OMD Australia Tops 2018 RECMA Rankings
  • Media

OMD Australia Tops 2018 RECMA Rankings

OMD Australia has taken the top spot for Australia’s Number 1 media agency in size, according to RECMA’s 2018 ‘Overall Activity Volume Rankings’ report released last week. Additionally, the company was named first in profile classification with a dominant profile for the 3rd consecutive year, along with vitality ranking and structure ranking. Furthermore, OMD Australia was also named […]

Red Agency Bolsters Sydney Team
  • Media

Red Agency Bolsters Sydney Team

Judging by the image, it seems Red Agency may have had no staff whatsoever prior to this hiring spree.

Nine Appoints Editor For 9Honey
  • Media

Nine Appoints Editor For 9Honey

B&T's editor coincidentally spilled honey on his shirt while typing this. And by typing, we mean copy and pasting.

Y&R Sydney Scores Best&Less   
  • Advertising
  • Media

Y&R Sydney Scores Best&Less  

Y&R wins Best&Less amid rumours the clothing shop its changing name to 'Somewhat OK&Reasonably cheap'.

Women In Media Profile: Judy Sahay
  • Media

Women In Media Profile: Judy Sahay

B&T's Women in Media profiles are like a wave washing over you. Even more so if an actual wave washes over you.

by B&T Magazine

B&T Magazine
How B2B Companies Can Use Their Customer Data More Effectively (And Why They Need To)
  • Marketing
  • Opinion

How B2B Companies Can Use Their Customer Data More Effectively (And Why They Need To)

In this opinion piece, SalesPreso co-founder and CMO Joel Thomson (pictured below) explains how B2B companies can use their data more effectively and deliver a personalised customer experience that matches their B2C counterparts. From the Cambridge Analytica scandal to the EU’s recent GDPR legislation, this year has prompted individuals all over the world to consider […]

Opinion

by B&T Magazine

B&T Magazine
M&C Saatchi Launches THIS Film Studio
  • Advertising
  • Marketing
  • Media

M&C Saatchi Launches THIS Film Studio

Not one to rest on its laurels, M&C Saatchi unveils new production studio it hasn't called 'Not One To Rest On Laurels'.

Creative Agency Launches Project Management Tool ‘Hassl’
  • Advertising
  • Technology

Creative Agency Launches Project Management Tool ‘Hassl’

Yesterday at TedX Melbourne the team behind award-winning, Melbourne-based agency Your Creative launched their new tech venture Hassl, the project management platform taking on Trello and the likes. With the belief there was a better design solution to project management, the platform has been developed over the last two years in collaboration with their clients. […]

ABC Axes Tom Ballard’s Tonightly
  • Media

ABC Axes Tom Ballard’s Tonightly

It's one of the ABC's edgier, controversial shows, but Tom Ballard's proven too edgy and controversial for ABC chiefs.

Taboola Strengthens APAC Programmatic Offering With New Partnership
  • Advertising
  • Media

Taboola Strengthens APAC Programmatic Offering With New Partnership

Global discovery platform Taboola has announced a strategic partnership with Wider Planet, Korea’s largest demand-side and data management platform. The partnership builds on Taboola’s programmatic efforts in Asia-Pacific, and will bring together Korea’s largest demand platform for agencies and brands to provide access to Taboola’s global audience through premium publisher placements. The partnership means advertisers […]

The Haus Picks Up Two New Clients
  • Marketing

The Haus Picks Up Two New Clients

The Haus announces two new client wins. Admittedly, not as good as winning three, but far better than losing four.