Posts Tagged ‘cost per acquisition’
Earlier this month we posted our first blog expressing a newer way to think about our marketing in terms of 4 buckets: Paid, Owned, Earned and Shared media. Now, we want to bring you a useful tool that will help you get your Internet marketing on track this year. Instead of guessing, we’re going to walk you through the 5 steps you’ll need to take in order to do cost-effective lead generation with our Marketing Tools for 2014: Online Marketing Planner. When I ask people what kind of budget they have for Internet marketing, or any kind of marketing, sometimes I hear responses like “we don’t really have one, but if this Internet stuff works and we make more revenue than we’re spending on the marketing, then we have an unlimited budget”. While there is good intention here, the statement is usually derived from poor planning, and the mis-guided hopes that this “silver bullet” called Internet marketing is going to somehow magically produce this windfall of new sales.
The way it really works is that a plan will need to be developed, and some tough questions will need to be answered. Things like average sale per customer or product line, lifetime value of the customer, or even customer by product line, and profit margin per product. You’ll also need to know what kind of conversion rates you have from visit to qualified lead, and from qualified lead to sale. That’s what our 2014 Online Marketing Budget Planner is designed to do.
In this guide (based in Excel so it easily does all of the calculations for you), you will learn:
How to determine marketing goals and what makes an ideal customer
How to calculate your customer lifetime value
Understanding and determining your conversion rates
Understanding Cost Per Acquisition (CPA) and Cost Per Lead (CPL)
How to plan your budget for effective lead generation
The first step in planning your budget is to set some goals for the organization. If you’ve done Internet marketing before, talk about what worked, and what didn’t. What are your competitors doing online? What kind of market share do you think you could gain from this kind of marketing? Or, are you looking to expand your brand presence?
Next, you want to do some thinking about what makes an ideal customer for your business. Look at 5 of your best customers and begin to jot down the attributes that make them your best customers. Do an informal poll and ask them a little bit about what brought them to your company, and what helped them decide you were the best fit. Believe it or not, this kind of stuff is gold for your external marketing folks, like your SEO or PPC companies.
Next comes the hard part for many companies, which is determining their customer lifetime value. Our worksheet walks you through a B2B scenario, and the modeling was borrowed from this fantastic infographic on LTV provided by KISS Metrics, which is more of a consumer/retail model based off of Starbucks. The difficult part about this is getting to some of the variables such as average profit margin, discounted cashflow percentages, and really knowing how long a customer stays with you. For now, just make some educated guesses and you can refine later.
Next, we’ll walk you through how to calculate conversion rates from your website. In other words, we’re looking to measure how many web visitors became qualified leads. That means taking your inbound leads from all channels and applying a percentage to them because not every phone call or form submission is going to be your “ideal” customer.
Now that we’ve got your LTV and conversion rates figured out, let’s walk through what you would actually be willing to spend to acquire a new customer. If your customer spends $500 per month and on average stays with you for 5 years, how much would you spend to get $30,000 in revenue? If I said “give me $1,000 and I’ll give you $30,000 back”, would you do it? Well, depending on your costs, you’d probably say “heck yeah!” But before you do, let’s really dig in and find out what some reasonable thresholds might be. In the example built into your free online marketing budget planner, this customer is willing to spend about $445 to acquire a customer that will generate just under $15,000 in revenue.
Now, most of the hard work has been done. At this point you have:
- Made some actionable and measurable goals for your online marketing this year;
- Identified some attributes of what makes an “ideal customer”;
- Calculated your customer lifetime value;
- Determined what your lead conversion funnel looks like from visit to lead to qualified lead;
- Calculated your cost per acquisition (CPA) and cost per lead (CPL) thresholds;
You’re finally ready to start applying a budget and determining what an ideal marketing mix might be. In our workbook we give you 3 examples of online spend including pay-per-click (PPC), search engine optimization (SEO) and online banner ads (CPM-based). The purpose is to take all of your prior calculations and see where the CPL’s and CPA’s lie for each of the channels. This is a great way to determine if you should continue spending dollars in a certain area or not. You could add other channels such as social media, for example, if you paid for things like sponsored stories. You could also add affiliate traffic providers like Outbrain and others to see what kind of conversion rates you get from that traffic.
Hopefully this is a simple enough guide to get you going in the right direction, and should you need any help working through any of it, please call us at (888) 427-2178 and let us help!
Over the past couple of years we’ve been working with lots of customers in various industries from all over the world. We eventually gathered enough data to be able to reasonably predict your success based on the products you purchase from us. In short, businesses want to know how their Internet marketing spend is going to help grow their business. At the end of the day, it’s not just about rankings, or just about traffic increases. We see lots of Internet marketing companies pitch the importance around these “vanity metrics” – but did the increase in traffic result in any leads, and did any of those leads result in new business (i.e. paying customers)? So, we had to create the Internet marketing prediction modeling tool.
Those of us in marketing would all love to believe that every lead we send is qualified – but the reality is they are not. Sure, there are keywords with more “commercial intent” than others, but this is a tough road with SEO. Google is giving more and more preference to educational and self-help content in organic results, and pushing commercial content further down. Why? They want you to buy Adwords for that. That’s why almost every Internet marketing campaign requires a mix of SEO to help generate educational, thought leadership content that can generate visitors we can “nurture”, and compliment that with a PPC campaign for those who are ready to “buy now”.
So while our prediction tool incudes things like traffic increases and potential lead flow, we also have to account for things like:
- Qualified lead % – what percentage of the total leads generated are really good leads? We assume 5-10%.
- Internal close rate – Is your sales team on the ball, or letting leads fall through the cracks? Your customer acquisition cost depends on this.
- What is the customer willing to pay for a lead, or even a new customer? This requires knowledge about what the lifetime value of the customer is, and what makes sense from a lead cost standpoint.
- What is the current conversion rate of the website? Well, that’s sometimes a loaded question. Most clients are not really tracking that, or are not tracking enough channels to get an accurate number. We might assume somewhere in the 2-4% which would include calls and form submissions – maybe higher if you have other avenues such as newsletters, free trials or free downloads.
How Internet Marketing Prediction Modeling Works
We took actual analytics data from nearly 50 customers and tracked their KPI’s over a two-year period. We normalized the data and came up with a linear regression model of how just about any client would react to any of our plans given a) current traffic; b) conversion rates; and c) market competition.
Then, with our add-on products like call tracking, retargeting and a/b testing, we’re able to create a conservative assumption of how the conversion rate would be affected by these, which slowly improves the lead flow in the model over time.
Finally, we built the model to work backwards from a client’s total budget. Once we choose the recommended services, what’s left over will go towards the click expenditures, resulting in something that looks like this:
From here we can easily do a sensitivity analysis and see how the lead flow and cost/lead are affected by changing the marketing mix. Want less SEO and more PPC spend? No problem, lets see how that changes things.
We can also play with the model to get the client into the right cost per acquisition “zone”, and so we can indicate how much we are over or under their acquisition cost expectation.
Testing Against the Model
This model has been in play for only about 2 months now, and what we’re doing is using it to compare current customers who are maybe in their 5th or 6th month to see how close we are to the prediction (we’re able to plot results out for traffic and leads for 12 months in advance), and so far we’re between 75 and 85% accurate. As we add more data to the core analytics, I think we’ll be able to improve our accuracy, and even perhaps get enough data to model against certain industries, such as medical, law, technology, etc.
Want to learn more, or get a demo? Call us at (888) 427-2178 and let us help!