How much does it cost your business to gain a new customer? On top of that, how much does it cost to lose a customer? For the most part, small business owners don’t have a solid grasp of what their cost per acquisition is in the first place. But hold up, what’s a cost per acquisition?
Cost Per Acquisition
Cost Per Acquisition (CPA) can simply be described as the cost it took to acquire a new customer. How much ad spend did it take for your customer to convert into sale? How many hours of your time did it take to close the deal?
You don’t have to be a large corporation to understand the costs associated with winning and losing customers. It should be an equation that every business owner can answer with confidence. Even if you own a stall at the flea market on Sundays you can still figure out your cost per acquisition. It starts with your capital outlay (cost of your stall) + the time it took to set up and manage things (sweat equity) / by the number of transactions and sales completed. Simples.
$100 for flea market stall + paying yourself $50 hour to sell. If you were there for 4 hours, that would ‘cost’ you $300. If you sold 10 things during that period for a total of $750, your CPA would be $30 and your average sale value would be $75. You then work out the profit margins and you have a solid CPA model.
At LeftLane Marketing, we often work with clients that haven’t really used the cost per acquisition model formula before. It’s actually quite an important part of any marketing strategy for small businesses. If it costs you more to generate new business online that the the value of the sale, you would struggle to stay in business.
Those business owners that understand their CPA model can quickly and easily understand if things like Pay Per Click advertising are worthwhile. Even if you don’t use a digital marketing agency, you should know your Cost Per Acquisition. Once you have this number figured out it can help you to better determine which channels are performing the best for your marketing.
If you think you might need a hand getting started with a cost per acquisition model, get in touch. We’d love to share with you how are digital marketing services could benefit your small business.