Determining your cost to acquire a customer via the marketing funnel

Yesterday’s post focused on the math that occurs from the big huge top of the funnel down to your goal of orders and revenue. From that math, we can then compute how much it cost us to acquire each customer in that campaign.

It’s important to note that one campaign does not a customer acquisition cost make. In other words, just like you can’t predict a year of marketing costs and outcomes based on one successful (or failed) campaign, you cannot have a concrete customer acquisition cost from one campaign.

Using yesterday’s numbers of a $5,000 budget for the Facebook ad campaign and the end result of 953 customers from the campaign, the CAC math is simple: you got 953 customers at a raw cost of $5,000. Each customer cost you $5.24 in marketing dollars. Now it’s important to note that $5.24 does not include all the costs of earning one customer.

The actual, fully loaded cost of acquiring one customer includes all the costs that went into that campaign, including the creative elements and human costs of planning and executing the campaign as well as the support costs for any customers who wanted to ask questions prior to purchasing. You should also add in the marginal costs from the website from which the purchases were made. I say “marginal” because you were running the website anyway, prior to the campaign, so only include costs for this campaign, like a new landing page.

Understanding the math that goes down through the funnel helps you plan for future campaigns while understanding your cost of acquiring one customer can help you plan and understand how much you can pay and are willing to pay to get new customers. Customer acquisition is not free, so you need to know your costs as you enter into new marketing campaigns. Once you know your own historical math, you can plan future campaigns and manage by exception when one of the metrics of the funnel is out of whack from your expectations.

What do you think about that?

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