Digital marketing is now the status quo when it comes to marketing, and can provide the transparency needed to assess and calculate business performance.
More importantly, it needs to be considered and thought through to ensure each channel contributes to the core commercial goals. Companies need to be monitoring their customer acquisition cost (CAC), breaking this down throughout the sales funnel and tracking the customer journey to understand the value each interaction contributes to your sales process.
Adido's Andy Headington (CEO) and Haynes Marcomm's Ryan Haynes (Director) recently ran an insightful webinar offering expert advice about understanding your cost of acquisition, what to do about it, and how to successfully implement effective changes.
In this article, we share their key points with you, plus a recording of the full webinar (available to watch here).
“CAC = the monetary value to capture the lead and convert to a paying customer”
It can be particularly challenging to correctly figure out how much it actually costs to convert a lead to someone who is paying for your product or service. We all know that truly successful strategies and campaigns require fully understanding the performance of your marketing activity. Accurate knowledge linking your return on investment (ROI) to the time, money and effort you are allocating to each activity will be of huge benefit when advising or deciding where you should be spending your budget. If you don’t know the exact cost of obtaining that sale, then how can you know if it was worth it?
It sounds simple, but if you haven’t correctly identified your different metrics across the marketing channels you are using, as well as how you are tracking them, how can you calculate their contribution to sales in order to ensure success?
Why is it bad for your health?
Finding out how much sales really cost can be very complicated, involving many people, systems and numbers.
During the webinar, Andy and Ryan posed a number of questions that we, as marketers should all be considering including:
- How do you calculate cost?
- What does it take to secure a sale and how do you measure the cost?
- Have you included any commission (if relevant to your sales model)?
- The cost allocated to all channels of digital marketing?
- Staff resources/costs/time?
- Advertising & ‘traditional’ media?
- Which processes need marketing or sales investment?
- Can you identify the commercial performance of each channel and business process?
- How well do you know your own CAC for your business and when did you last check?
By fully identifying accurate costs, you may find that your CPA target is very different in reality!
“You probably know that this needs to be discussed and new ways of doing things agreed with people above you in your organisation. But finding the time, energy and skills to fix the problem can be very difficult! Do you carry on with the status quo or try and fix the problem and cause yourself risk and more mess?”
Is there light at the end of the tunnel?
Addressing these questions can be understandably challenging, especially if you are unsure of where to find the right data, and the best way to curate the journey process through the various touch points you are communicating with your sales lead.
However, if you get it right, it presents a strong opportunity because many businesses aren’t analysing their Customer Acquisition Cost effectively. You on the other hand, will be enabled to surpass their performance by focusing your attention on the most effective and efficient channels to market.
It's useful to firstly reflect on the infographic below which outlines how to calculate ROI in digital:
So, does digital activity make results easier to track?
Andy offered a clear example of how we approach tracking digital marketing spend, both for our clients and of course, our own marketing!
Client X came to us suspecting their marketing investments weren’t being spent properly. In the last 12 months they had spent £280k on Google Ads which was broken down as follows:
- £89k / 32% was spent on campaigns that never yielded an MQL conversion based upon the main conversion parameter
- £152k / 54% of the spend was pushed into campaigns over CPA target (sometimes many 100’s% over!)
- £39k / 14% of the total spend was spent in a profitable manner
Also, of the profitable spend on media, a large chunk was based on ‘brand’ (company & product name) spend which could have been converted through natural search anyway. Plus, results get worse if we then factor the time and effort taken by the sales team dealing with irrelevant or poor quality leads , pushing costs up even further, in addition to the marketing person who ran the campaign over the year.
With less than £1 in £10 of total marketing budget being spent efficiently, this is a great example of how NOT to run a campaign!
“Messaging and audience is essential to get right across every marketing channel. Fundamentally, your audience comes first, and with paid media you need to make sure that you’ve got the right phrases and landing pages to facilitate that. With digital, you can measure everything, but measuring at a basic level won’t necessarily help you to maximise your budget spend.”
Next, we consider how you are tracking success:
Three examples are presented here for how leads/sales are handled. In the first example, quotes are generated and bought online. In the final one, there is no link from quote to sale, causing large inefficiencies in marketing activity.
When you're using Google Analytics, make sure you're measuring your marketing ROI effectively (more advice here!).
Then, if we are using both offline and online channels, how do we link them in our tracking?
By storing a unique reference ID to online quotes and offline sales, we are able to link revenue back to source and so understand the impact of channel performance, even to a keyword level. This lead to a 42% increase in online revenue generated for one client!
Remember, all journeys are not equal, and some may be longer than others. But by applying the right techniques and having effective tracking tools in place, there is no need to be intimidated.
Sometimes it takes many visits or interactions to convert. Looking at the last activity and giving it all the credit can often be very wrong. It’s worth looking at your typical conversion journey and seeing where the gaps are. Google Analytics doesn’t make it easy to understand value across multiple touch points, whereas advanced tools like Ruler Analytics or Hubspot give valuable insights which can be used to increase conversions and reduce wastage.
Tracking your performance and measuring achievements with smart metrics and clear KPIs is all well and good, but having an external mentor, sponsor and support can help you go even further. They can help you to unravel your costs across all channels, and create a journey, by linking and pulling together the customer touch points.
To discover more about measuring ROI effectively, read this blog which covers our top five recommendations.
In summary, in order to improve the health of your customer acquisition cost:
- Understand the businesses commercial goals
- Review the data of your existing / current marketing investments
- Understand the customer journey
- Tracking all channels as effectively as you can - investment in data is key
- Optimise and attribute to CAC!