Before you spend another marketing dollar, ask yourself this question:
If you and I were sitting in a room and there were an unlimited amount of customers waiting outside the door ready to buy your product or service, what would be the maximum you would pay to let each customer through that door?
That is what marketing is all about. It’s a measured approach to buying new customers.
Finding out how much it’s worth to buy a customer is called your “allowable acquisition cost.”
In plain English “allowable acquisition cost” means, “How much can you afford to pay to acquire a new customer?”
How do you figure out this number for your business? The answer to this depends on what you sell and how often your customer buys from you.
If you sell a one-off product that costs $200 at a 50% profit margin, anything under the $100 mark is profit.
If you sell a recurring product or service for $200 a month, the aim is to acquire the customer for a cost below the first month’s payment, so that in months 2, 3, 4 and 5 you start to profit on your investment.
Once you have figured out how much you can afford to pay to acquire a customer, it’s time to figure out a marketing strategy to acquire them.
At LBD Marketing, our favourite strategy is Facebook Ads. We find this is the most measurable way to acquire new customers for our clients.
We then use the following mathematical equation to find the acquisition cost:
Number of Clicks (Eg: 1,000 clicks) x Cost Per Click (Eg: $2) divided by (/) the Number of Conversions (Eg: 100 conversions or 10%) = Cost Per Lead ($1000 x $2 = $2000 spend divided by 100 leads = $20 per lead)
Note: The actual amount per lead will vary depending on your offer and your industry.
Once you have your cost per lead, you then need to see how many leads it will take to convert a sale.
In this case, if we have an allowable acquisition cost of $100, we will need to convert 1 in 5 leads.
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