Customer Acquisition Cost for Search Engine Marketing
Every business must market and advertise to promote themselves. The typical ways people advertise are...
- The Yellow Pages
- Direct Mail
- Advertising in newspapers, magazines, television, trade journals, etc.
- Direct marketing through salespeople
In the last 10 years a new way to promote your business became available... online marketing through search advertising.
How Much Does It Cost To Get A New Customer?
Each marketing tactic has an associated cost to acquire each new customer. Some are more cost effective than others.
Some Marketing Can't Be Tracked
Some marketing tactics are also very difficult to track. A billboard, for example, would be extremely hard to track to see to what degree it created a new customer. Even newspaper and TV advertising is very difficult to track.
According to a study done by the research company Piper Jaffray & Company, Internet search is by far the most cost effective of the 5 channels they WERE able to track.
The study, “The New eCommerce Decade: The Age of Micro Targeting,” which was released in 2006, compared the customer acquisition costs of search, Yellow Pages, online display ads, e-mail and direct mail.
Here's the results...
It's clear that the new boy on the block is a very cost effective way to get a new customer for you business.
How Do People Get To Your Website... and Why?
One of the strengths of Search Marketing is you're connecting with a customer at the exact time they are considering a purchase. That's one of the reasons it's so effective. You are gaining a very qualified lead — especially compared to other forms of advertising. That's another factor for why the Customer Acquisition Cost for Search is so low.
Remember people get to your website in many different ways and for many reasons. Search Engine Optimization will draw people to your website based on the keywords they use in the search queries. It's certainly a tactic that is worth pursuing.
But if those search keywords are not "buying keywords" they are not necessarily coming to your website to buy something. Search Engine Advertising lets you choose buying keywords and that makes that type of marketing much more effective.
The Lifetime Value of Your Customer Factor
Another aspect of Search Advertising to consider is Lifetime Customer Value. If your customers spend a lot of money over time, or if your product or service has a high cost, then you must put your Customer Acquisition Cost in that context.
If a customer has a large LCV then it may be worth spending more on your Search Advertising Campaign. One new customer could make a big difference to your bottom line so this is not the time to be thrifty with a very effective marketing technique.
How To Determine Your Lifetime Customer Value
If you're not familiar with the concept of Lifetime Customer Value, Harvard University offers an excellent calculator tool that can help you determine your company's number.
Here's what you'll need to know to use it...
Average Spend Per Purchase
Average Number of Purchases per Year
If you also know your Direct Marketing Costs over the course of a year you can pin down that cost per customer and if you know your margins then you can also get down to the average profit per customer. As a business owner these are certainly numbers that are worth determining.
How Does This Effect My Advertising?
If you can pin down your Customer Value you can begin to determine how much to invest in your advertising and other customer acquisition tactics. As far as an AdzZoo Search Marketing Campaign, this will help you determine how much you should consider spending.