Cost of Acquisition of a New Lead or a New Customer
Cost of Acquisition of a New Lead or Customer is one of the key numbers you need to know when evaluating your marketing.
Don’t get caught up on impressions, click through rates (ctr) and cost per click (cpc) – Until you know your costs to acquire leads and customers! These metrics are for evaluating the effectiveness of your message (impact quotient – click here to watch Business Growth Formula Video)
Yes we believe all business websites should be producing leads (prospects) that you nurture until they become customers.
For arguments sake let’s say you had a Google Adwords Ad with a cost per click (cpc) of $0.10 (ten cents).
If takes you ten clicks to get one email address from your landing page — one new prospect (aka lead), then your cost to acquire is a dollar.
$0.10 x 10 = $1.00 per lead (cost of acquisition of a lead)
Cost of a click (times) the number of Clicks to get an email address (equals) your cost to acquire a lead.
BTW, in this example your landing page would have a 10% conversion factor. (1 email address/10 Clicks = 10% conversion)
Cost of Acquisition of a New Customer
If you need ten leads before you develop one into a customer then you have your cost to acquire a customer is ten dollars.
$1.00 per lead x 10 leads:1 customer (ratio) = $10.00 per customer as your cost to acquire.
Cost per lead (times) number of leads to produce one customer (equals) your cost to acquire a customer.
The question then becomes am I acquiring a lead and customer at the right price?
To understand if your cost is good or bad we will have to get into the lifetime value of a customer; which we will explain in another article.
The lower the cost of acquire for both a lead and a customer the better as a general rule of thumb.
So figure out your costs to acquire both a lead and a customer. You need to do this for each marketing media if possible. Some media will produce a significantly lower cost and others a higher cost.
Again the cost per media should be judged against the life time value of a customer, because we want to know how much profit we generate off each customer over the life of that customer.