Okay, so you’ve figured out your key performance indicator— you’re all set, right? Almost. But to really make sure you understand whether your marketing is performing the way you want it to, you need to create a goal for your KPI that is specific and time-bound. Instead of saying that you just want “more leads,” for example, say that you want 100,000 leads in a year’s time. Sure, this seems pretty obvious, but you’d be surprised how many clients I talk to don’t have specific goals in mind. You’ll learn pretty quickly whether your target goal is realistic, but if you don’t at least put something out there then you don’t have a real yardstick to measure results against.
Basically everything I’m recommending here comes from asking clients what they’re trying to achieve and having them answer,”????” Not only do they often not know what metrics are most important to them, they don’t have a goal in mind and they definitely don’t have a target Cost Per Acquisition, or CPA. But this is a very important boundary condition to know, because it does a lot to dictate what marketing methods you’re willing to try and helps you figure out which ones are more effective. If you are willing to pay $100 per lead, there are a lot more programs you can try than if you only want to pay $10 per lead.
Calculating Your Target Cost Per Acquisition
There are a couple of ways to go about this. In one, you take the pot of money you have available for marketing, divide it by how many (we’ll just call them leads, but substitute your own success event) you want, and there’s your target cost per lead:
| Marketing Budget | $100,000 |
| Lead Goal | 25,000 |
| Cost Per Lead | $4 |
The problem with this method is that it doesn’t tell you if you’re losing money on every acquisition. If you’re spending $100,000 to get $10,000 your business isn’t going to be one for the ages. So the better method is to figure out how much value you get from each new lead:
| Leads | 10,000 |
| % Convert to Customer | 1,000 |
| Conv % | 10% |
| Lifetime Rev / Customer | $150 |
| Lifetime Profit / Customer | $50 |
| Target Cost / Lead | |
| Lifetime Profit * Conv % | $5 |
Once you’ve used a method like this to figure out how much you should be paying to get people to your site, it will be easier to evaluate each new method to see whether it is working.
Next up: making tracking a part of your product plan.
Related:
Lean Your Marketing: The Slide Deck
Slide 1 | Slide 2 | Slide 3 | Slides 4, 5, 6 | Slide 7 | Slide 8 | Slides 9 & 10 | Slides 11 & 12 | Slide 13 | Slide 14 | Slide 15 | Slide 16 | Slide 17 | Slides 18, 19 & 20
What advice would you give to an ecommerce retail startup when the number of leads and the likely conversion rate are unknowns?
Well, you might not have real numbers, but you probably at least have something to start with. For example, you know what the general price point of your products is, and you probably have some projections as to what your average purchase size and average COGS is going to look like. You can put those together to get a general idea that you’re clearing, say, $15/customer after COGS. It at least gives you an idea if you should be spending $5, $50, or $500 to get people in the door. As people start to move through the system you’ll be able to refine your numbers more. And of course, you might be willing to spend a bit more per customer in the beginning to get traction.