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EricBBigham's blog: Customer Acquisition Cost - Views ( 164767 ) -article by: EricBBigham

EricBBighams' BLOG ( 172 articles!)

Customer Acquisition Cost - Views ( 18 )
Customer Acquisition Cost  

Customer Acquisition Cost

Author: EricBBigham , Last Modified, 2021-03-06 16:54:40

Category: business Keywords: Customer_Acquisition_Cost

18 views 45


Customer Acquisition Cost

This article will address the CAC metric, Customer Acquisition Costs. Acquiring customers profitably is the goal of all businesses. However the profit attributed to a customer is not easy to define, especially in a start-up. Often start-ups have little revenue and must estimate the customer lifetime value. The lifetime value estimates the earnings from a given customer less the cost of acquisition over the life of the customer. Industries with defined subscription revenues and lifetimes typically those which are readily benchmarkable such as telecoms, are easiest to estimate. However irrespective of the difficulty in measuring the customer acquisition cost, as a new business you will want to try at least to help you keep overall costs to a minimum and focus your investment spend. So if we can estimate the customer lifetime value we can extrapolate this number to estimate the firms value. This is a useful measure when it comes to raising capital. (#Customers * Customer Value = Firm Value). To get customers we will likely invest in a variety of Marketing strategies. This entails spend in a number of key areas that we find works. This is often likely to be a trial and error process to start off with so I will go through a few of the more common areas that consume costs. 1. Email marketing. assuaming you have an email list you can send regular emails to the list. The cost of doing so will depend on the quantity and quality of the content. Typically a newsletter or special offer, but a budget for email content marketing will be established, and apportioned across the list. The larger the list the lower the unit cost. The cost of producing campaigns and measuring email campaign performance will determine the cost to go into your customer acquisition cost overall metric. 2.Word of mouth via social media. Getting your users to encourage their friends and network to join your platform will be a function of the value they receive as users. This value will typically increase for each user as they increase their friend list. This is called the network effect. The cost of nurturing network growth will be based on the events and activities employed to that end. 3. Affiliate marketing, Onboarding affiliates that is to say sellers of your product, to who, you are likely to reward on some commission basis. again commission rates will likely be tied to the value of the product or service sold and should be added to any sipping or distribution costs. Display advertising and any marketing that promotes your brand. Typically this cost could be either digital branding, or more traditional print TV, Radio, or other marketing cost that drives customer to your site and or store so push marketing. 4. Search or content marketing. Customers who find you after searching in one of the major search engines. The cost will correlate to the quality of the content. Detailed product specific content that helps the user make informed choices are likely to rank well in Google or Bing. The better the content, the higher the cost. That said, high performing content will drive more conversions so it is like a virtuous circle. 5. Paid search, Google or other search related spend will for many form the backbone of their customer acquisition costs. This is because such spend can be targeted by search term or keywords and a whole range or customer demographics. Large social media platforms have developed customer targeting applications that make segmenting and defining customer targets easier than ever before. With this ease comes competition with high value niche customer segments driving up advertising bid costs. Keeping a monthly track of costs and customer numbers, however you define this, will let you track the acquisition costs per customer. (Total Customer Acquisition Spend / Total New Customers). To do this well you will likely need to build a churn and attrition model which measures net new and overall customers, as you gain and inevitably lose a percentage or customers over time. So to sum up, decide what to measure and try to consistently track the numbers. If you are likely to be raising capital you will probably want verifiable audited numbers, so you might want to involve your accountants in this process. They can help you build a set of metrics and data to capture and track and this will be helpful when you are onboarding new investors.

EricBBigham

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Customer Acquisition Cost

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