Customer Acquisition Cost vs Lifetime Value: Digital Marketing
Year by year digital marketing has led to increasing the valuation of many customers. When it comes to spending on marketing and acquiring new customers tracking & calculating CAC and lifetime value of a lead is important.
Effective company executives evaluate their expenditures in terms of the possible return on investment. However, executives and individuals assigned to lead marketing often fail to properly grasp (or quantify) the value of marketing outcomes when reviewing marketing strategies. We often come across businesses that either undervalues their leads or misinterpret the whole value of their paying clients.
Customer acquisition cost (CAC) is a statistic that has risen in popularity as Internet businesses and trackable web-based advertising campaigns have emerged.
What Is Customer Acquisition Cost?
By aggregating sales and marketing expenses over a certain time and dividing them by the number of new customers acquired during that time, this statistic provides insight into the cost of acquiring a new client for your business.
CAC calculations may incorporate a range of variable and fixed expenses, depending on the level of insight desired into your acquisition costs. CAC measurements may also be calculated on a per-account basis by segmenting expenses more precisely.
Customer Acquisition Cost is a very important metric; however, successful companies also keep lifetime value of a lead in mind.
What Is Lifetime Value of a Lead?
While this is a crude estimate, what happens if consumers make several purchases throughout the course of their lifetime? What if they totally abandon brick-and-mortar grocery shops in favour of this one?
Customer lifetime value (CLV) was created specially to address this. You may locate a CLV calculator by doing a simple search on your preferred search engine. In general, this measure aids in the development of a more precise knowledge of what client acquisition costs imply to your business.
A client acquisition cost of $10.00 may be very cheap if the consumer makes a $25.00 purchase per week for twenty years! However, an ecommerce business is failing to retain consumers, with most customers making just one purchase.
We have many lively examples of the companies that use these metrics very seriously. For example, Uber Eats provides a $10 – $20 voucher to the referee and the referred customer when joining for the first time. If we only take CAC and profits in mind then it a clear loss for the company.
However, if you see the bigger picture, you will know that the first-time customer is likely to use the services again and again.
Top Customer Acquisition Channels in Digital Marketing
It is beneficial to see how your company stacks up against rivals in terms of internet traffic mix. You may use analytics tools like, Google Analytics to know where your customers are coming from and compare your company to others of comparable size and industry, which can help you make the case for reallocating acquisition resources, such as increasing investment in organic or paid search.
Some of the popular channels in digital marketing that helps in the customer acquisition process are;
Organic: Organic marketing generates traffic and exposure via natural, genuine, and value-based methods. Rather of relying on sponsored articles or paid advertising, your organic digital approach incorporates techniques that create revenue over time.
Social: Social media marketing is a subset of digital marketing, a single channel. It simply refers to promoting goods and services through social media platforms like as Twitter, Facebook, Instagram, Snapchat, Clubhouse, and YouTube.
Email: Email marketing is a very effective marketing channel that combines direct and digital marketing by using email to advertise your business’s goods or services. It may assist you in informing your consumers about new products or special offers by incorporating it into your marketing automation activities.
Paid Search: Paid search is a kind of digital marketing in which search engines like Google and Bing let marketers to display advertisements on their search engine results pages (SERPs). Paid search is a cost-per-click approach, which means you pay only when someone clicks on your ad.
Customer Acquisition vs Lifetime Value in Digital Marketing
As implied by the name, customer acquisition cost (CAC) is the expense of converting a prospect or persuading a prospective client to become an actual customer. If this sounds a bit like cost per action or acquisition (CPA), be assured that you are not insane—the two concepts are similar but not identical.
You may conceptualize CPA as a campaign-level measure and CAC as a more encompassing, business-level metric. CAC refers to the total cost of business acquisition across all marketing channels—online and offline, billboards and media placements, Google Advertising and Facebook ads, and even the cost of a storefront sign.
When a company/ client has access to those metrics, then only they can make their decision on the real value that their marketing spend is bringing to the business.
Nifty Marketing Australia is one of those digital marketing agencies in Sydney where we provide customers clear insights about these metrics. These metrics have been very beneficial to all kinds of businesses, from local to multinational, when it comes to company success in the long run.