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Author: John Hartley
Do you know how much it costs to acquire a customer? And do you know how much a customer is worth to you? These are two fundamentals of marketing, and they are interlinked. Another important figure is the visitor value (VV).
You need more than one product
It all starts with the sort of products you are selling. On the internet, you are likely to be selling an inexpensive product, at say, $20, and a couple of more expensive ones, costing $49 and $79. You certainly need a few products. The first turns visitors to customers, and then you sell products of higher value to them, or realistically, to some of them.
If you sell 40 products each month at $40, you are likely to sell about 12 products a month at $49, and six at $79. These are just approximate figures to give you an example. Just for an example, let us assume that for every 100 customers who buy your introductory product, 35 buy your second product, and 10 buy your most expensive product.
In this case, the average customer spends $44, and that is your customer value. What does this mean? It means that if it costs $40 to get each customer you don't have a business, because the profit margin is far too low. However, if you are spending $20 per customer, that is acceptable, particularly as you can add new products regularly, market them to your list and increase the customer value.
What is the actual CPA?
That is all very well, but what is the cost of acquiring each customer (CPA)? Well, that depends how you get customers. If you use Google Adwords, then you can very quickly find the CPA. You simply divide your advertising costs by the number of sales. For example, if you are spending $400 a month on advertising, and you make 40 sales, your CPA is $400/40 = $10. If you were selling just one product, you could not afford to spend more on advertising. However, as your customers buy more than one product, and each is worth $44, you can afford to spend more on advertising and still make money.
Of course, not all visitors to your site buy from you, and the advantage of Adwords is that you don't need to know that figure to find your CPA. However, you do need to know how many don't buy so you can experiment with your site to improve the number of visitors who buy. This is why visitor value is also a very useful figure.
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