TLDR: this question might sound very basic and everyone knows that marketing budget spend on a current customer should be lower than on a new customer so that business is growing but at the same time is profitable. But how do you know what portion of some broad campaign is actually spent on current customers and how much you really pay for every single new customer? It is actually surprisingly easy!
The golden formula of profitable and growing business
We see that coronavirus is rewriting rules of the retail industry – people are forced to buy online even products that they would prefer to buy offline in the past. New habits are being created and smart marketers are taking this advantage and focusing their marketing budgets on acquisition of exactly these new customers that are starting to change their shopping behaviour. But how much is reasonable to pay for new customers?
Here is a golden formula of profitable growth:
Acquisition cost + retention cost < Lifetime Value
Lifetime Value is a prediction of the net profit attributed to the entire future relationship with a customer. In other words how much profit customer creates over the estimated lifetime (until you lose their loyalty and need to pay again acquisition cost to get them back)
Customer Acquisition cost is total marketing expense that you pay to get new customer make their first purchase
Customer Retention cost is total marketing expense that you pay to keep the customer over the lifetime
Seems easy right? But the devil is hidden in detail – how do you calculate future profit attributed to the relationship with a customer? And how do you really distinguish what part of your marketing budget goes to acquisition cost and what goes under retention cost?
We have spoken about these questions with more than 100 eshop owners during our Ecommerce-Academy.cz workshops and tried numerous mathematical models to answer these questions and we have found out that actually the biggest challenge is to really divide marketing spend into acquisition and retention as customers are influenced by so many touchpoints and campaigns data are in different silos than customer data. But since Marketingintelligence.io can aggregate campaign and customer data in one place, we have decided to crack this challenge.
How can you see how much you really pay for new customers?
It is very easy:
- We will plug in your main marketing platforms (Facebook, Google Ads and others) and Google Analytics.
- We will check if all campaigns contain UTM tagging and turn on automatic downloading of their spends and all user paths (even those without conversions) into marketingIntelligence platform.
- We will connect either your CRM or any transactional database and check if Google Analytics is receiving Order ID that is matching your system (in case that you do not have Order ID implemented our engineers will implement it for you using Google Tag Manager).
- Our data scientists will adjust all inputs and install modules to your MarketingIntelligence.io that will combine all previously described data and attribute user paths to each customer and calculate their spends and revenue. This will create models including millions of conversion and non-conversion paths describing shopping behaviour of every single user and cost of every touchpoint.
- Thanks to these data MarketingIntelligence.io can calculate and keep updated the exact Customer Retention Cost and Customer Acquisition Cost even on campaign level so that your marketing department can make smart strategic decisions and adjust their campaigns accordingly.
Our goal is not to provide companies with just charts showing how much they pay for new vs existing customers. Mission of MarketingInteligence.io is to provide clients with actionable knowledge that can improve their business. Therefore we have analytics that team-up with your marketing department to utilize the data in daily campaigns so that your business is always aligned with the golden profitable & growth formula.