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What’s Your Cost Per New Customer? AKA; CPA

CPA, Google, PPC, SEM, SEO, Social Media

November 17, 2015 by Christian Thomson

A digital marketing strategy can be simple. Create a Facebook account and post once a month. However in 2015 this is not acceptable. Digital marketing should be getting a lot of your attention (and budget) if you want to leverage it successfully. With such a large portion of a budget dedicated towards digital, knowing your numbers is crucial with Cost Per New Customer or better know as; cost per acquisition (CPA) the easiest one to calculate.

How Do I Know My CPA Of A Lead?

You’re able to gain leads from a variety of digital marketing sources; your e-newsletter, social media promotion, contact forms and various other calls to action.

CPA requires you to:

  • measure and track where all leads are coming from
  • measure cost and time  to implement each lead capture campaign
  • measure the most profitable lead via tracking conversions and cost

Tracking CPA is a necessity to learn about what leads are & are not working on a large scale, but customer acquisition cost.

Tracking your leads can be done through an advertising dashboard, or more simply through Google Analytics which uses a cookie place on the lead completion page to give you raw data. If Google Analytics is too confusing, you can create an excel spreadsheet on your own with formulas so you can simply plug in the numbers from your analytics as necessary,

CPA Calculation Example

Each qualified lead clicking on your Facebook Promoted post (or Google Adwords) costs $3, and you have a conversion rate of 4%.

Therefore, it costs $300 to bring in 100 qualified leads of which 4 would convert into leads.

Therefore each lead costs $75.

Need 10 leads? You will need a budget of $750.

If we get 100 leads a day but no leads convert into sales, we are wasting every cent spent on sales and leads.

This is why we need to dig deeper and calculate our customer acquisition cost (CAC).

Calculating Customer Acquisition Cost

We know that each lead costs us $75. Now we need to work with the sales team who tell us they convert 10% of all leads into sales. This means you need to spend $750 to get one customer. Want to get 10 customers? That will be $7500 invested into your digital marketing budget.

Note: This is purely looking at online costs, there can be other influences outside the realm of keeping this simple enough for you to understand.

It gets more complicated when you consider all the variables. Remarketing is highly successful for many online businesses, which involves investing more money in advertising to existing leads. Branding is also a part of your budget as are website development, maintenance and of course you need to pay employees.

Have You Calculated The Lifetime Value (LTV) Of Your Customers?

Everything we have looked into above is in a vacuum, we know all the statistics and can guarantee the result we have calculated. You also need to start thinking long term and how often the customer will purchase from you in a lifetime as acquiring a new customer costs more than keeping your current ones happy.

Will they be coming in for service once a year? Will they tell all their friends about you increasing their value? Does a customer generated via Facebook have a higher LTV than a customer purchasing via a free opt in on your website?

Once you have calculated the value of a lifetime customer, getting down to the next level goes that slightly little bit deeper to ensure you have your marketing budget allocated in the most efficient fashion.

Working out the value of a customer takes a lot of preparation. Once you have your systems set up however many of the numbers will be obvious to you as more and more data comes in allowing you to adjust your lead generation and sales strategies as required.