Customer acquisition can be a tricky business, so we’ve put together 7 customer acquisition metrics you should be tracking right now to help make it simpler.
Marketers are continually walking the tightrope between ensuring that they are spending enough budget to drive the right levels of targeted revenue – with ensuring that they don’t waste spend (or overspend) which reduces the profitability of their marketing efforts.
Which is where customer acquisition metrics come into their own, showing marketers how to measure new customer acquisition. By establishing baselines, and monitoring and analysing key metrics over time, it is possible to make informed decisions that optimise marketing spend and profitability.
Below we take a look at 7 key customer acquisition metrics you should be tracking right now:
- Click-through rate
- CPA (Cost per acquisition)
- ROAS (Return on advertising spend)
- Conversion rate
- CAC (Customer acquisition cost)
- LTV (Lifetime value)
- Churn rate
What it is
In an environment where users are bombarded with a plethora of marketing messages getting them to, not only notice your ads, but also to engage and click through on them is key.
Click-through rate is a measure of the number of people who actually take action on your marketing efforts relative to the total number of people who are exposed to them.
By monitoring Click-through rate on a wide range of media from paid ads to marketing email and social posts you get an effective measure of engagement levels and the overall quality of the creative and content you are producing. So, Click-through rate is a measure of quality and engagement that can help you to refine your marketing efforts.
Why Click-through rate matters
Tracking Click-through rate matters because:
- at the most fundamental level it provides a measure of the success of specific advertising or marketing campaign content
- it can provide a good steer on what is and isn’t working in terms of your messaging and content
- by identifying content with a high Click-through rate, you can transfer content that is working well in one medium like email marketing, for example, into other channels like social and paid ads
- by constantly focusing on and reviewing Click-through rates you have a mechanism to drive up clicks which have a knock-on effect on engagement and revenues
How to calculate Click-through rate
The calculation for Click-through rate is going to have some nuance to it depending on which channel you are working with.
However, the core principle is the same regardless of where you are using it. For example, in the paid advertising space you calculate Click-through rate by dividing the total number of clicks on a specific ad by the total number of ad impressions in the same time period.
|AD CLICK-THROUGH RATE =
|Total number of ad clicks/total number of ad impressions
For email marketing, you would simply substitute the total number of email links clicked and the total number of emails delivered in the same equation above – to give you your email Click-through rate.
CPA (Cost per acquisition)
What it is
CPA (Cost per acquisition) is a marketing metric that allows you to measure the total marketing cost of acquiring a lead from marketing activity. And be really useful as you figure out how to measure new customer acquisition.
It is about assessing what it costs to generate contact with prospects that aren’t buying from your business yet. Essentially it bundles up all of the marketing costs that you incur in the process and divides by the number of conversions you generate from the specific activity.
How you choose to use it is going to differ depending on the depth and type of analysis you need. For example, in some cases you might be looking to delve into the effectiveness of spend on specific campaigns but it can also be used to assess effectiveness at a channel level too.
Why CPA matters
Tracking CPA as a metric matters because:
- it is a key component measure in your customer acquisition and growth strategy, because if you don’t know how much you are spending on growth it will be difficult to progress
- it provides a clear assessment of what you are currently spending to acquire customers
- once you have a baseline in place for CPA you can use it as a tool to drive the metric down (and drive up revenue). Right across your campaign portfolio in – for example – programmatic ads, search ads, display, paid social etc.
How to calculate CPA
To work out your CPA you want to bring together all of the media spend which is associated with a single campaign or channel. And then divide it by the number of conversions that have been delivered from this in a specific time period.
|Total media spend/conversions
What it is
ROAS (Return on Ad Spend) is a metric which provides a measure of how well specific campaigns are doing. By comparing the level of attributable revenue on the campaign with the amount of spend that was allocated to it.
Essentially, it is about defining the revenue generated for every £ of marketing budget spent.
So, for example, if you have a campaign that generates £10,000 worth of revenue, and you have spent £1, 000 on the campaign to generate this revenue, your ROAS is going to be 10:1. This is a fairly healthy ROAS because, depending on who you ask, an ROAS of over the 4:1 level is considered a good return.
Why ROAS matters
Tracking ROAS as a metric matters because it:
- provides you with a central metric to compare the effectiveness off your digital marketing campaigns of different sizes – across a range of customer acquisition channels from paid search to display and paid social
- can drive decision-making around where to ‘place’ and ‘pull’ marketing budget to ensure that you are optimising your overall spend
- becomes even more powerful if you combine it with other key metrics like CPA and LTV
How to calculate ROAS
To calculate ROAS you simply divide the revenue which is generated by your campaign by the spend that has been allocated to the specific campaign.
|(Revenue generated by ads/cost of ads) x 100
What it is
Conversion rate is a metric that indicates the percentage of individuals that have completed a desired action.
In a digital marketing context, it is typically used to measure the performance of a combination of activities from marketing campaigns to website and blog visits. The conversion itself can take any form that make sense for evaluating how you are doing from a marketing perspective – for example it could be at the level of CTA clicks or further down the marketing funnel at conversion to customer.
The reality is that, while your core goal may be to convert prospects to customers, there are a whole host of activities that contribute to this in a series of ‘mini’ conversions that need tracked.
Why Conversion Rate matters
Tracking Conversion Rate matters because:
- it allows you to measure the efficiency and effectiveness of your overall customer acquisition strategy
- by digging into different elements of the types of desired actions that underpin your marketing strategy – like newsletter sign-ups, gated ebook downloads, adding to shopping cart etc – it possible to optimise individual components that drive conversion rates up overall
- by focusing on improving your conversion rate, you can potentially get higher levels of revenue for the same amount of marketing spend
How to Calculate Conversion Rate
Quantifying conversion at a global level is relatively simple.
You do this by aggregating all of the conversions you have had for a specific time period and then dividing them by the total number of visits or interactions you have experienced in the same period.
|CONVERSION RATE =
|Total number of conversions/total number of visits or interactions
CAC (Customer Acquisition Cost)
What it is
CAC, or Customer Acquisition Cost, is an assessment of the total amount of outlay you are making to bring new customers to your business.
From a cost perspective, CAC is going to include a plethora of input costs from both sales and marketing. This includes advertising, content and creative. staffing, tech stack and other associated costs that don’t fit under these categories, for example, agency fees or publishing costs. And while calculating CAC centrally is hugely useful there are other variants to explore including renewals (Renewal CAC), geographical territory sales (Market CAC), customer re-engagement or reactivation (Reactivation CAC) or specific product sales (Product CAC).
Why CAC matters
Tracking CAC as a business matters because:
- it lays bare the efficiency or otherwise of your go to market strategy and provides a framework to help marketers to navigate the difficult balancing act of spending enough to drive sales with potentially harming ROI and overall business profitability
- it provides the mechanism and data that lets you understand whether you are building the growth in your business in a way that is going to be sustainable
- for external investors and other interested parties it provides a good steer on the potential long term health or your business – and any potential investment as a result
How to calculate CAC
You calculate CAC by totalling all of the sales and marketing costs you incur in the process of acquiring new customers (in a specific time period) and then divide that by the number of new customers you added during the same period:
|Total cost of sales & marketing /number of new customers added
LTV (Lifetime value)
What it is
One metric that is closely related to the CAC metric outlined above is LTV or Lifetime Value.
LTV is effectively a measure of the average amount that a customer spends during the lifetime of their relationship with your company. It provides a really useful insight into where your business is headed longer term and provides a good measure of how well you are meeting customer needs and how loyal they are to your brand.
Why LTV matters
Tracking LTV as a business matters because:
- a focus in LTV means your business is firmly focused on building long term value and not short term metrics
- when you combine LTV with CAC is provides a powerful combination that can help you optimise not only customer acquisition but also customer retention as well
- by focusing on improving customer LTV you can drive up your profitability by encouraging repeat sales from customers that don’t have the high acquisition costs that are associated with new customers
How to calculate LTV
You measure LTV by taking the average value of purchases made by your customers and multiplying it by the average customer lifespan.
|Average customer purchase value/average customer lifespan
It is worth noting that combining LTV with CAC can give you a powerful way of assessing the long term viability of your marketing efforts. For example, high initial acquisition costs for a customer might not be the inhibitor you might expect – for example in premium branded markets – as long as you can recoup them over the lifetime of the customer relationship. And by bringing these two metrics together you can assess this.
What it is
When you are focused on piling customers through the front door it can be easy to fixate on how you are going to get the next customer. And how you can do that as cheaply as possible.
However, no amount of good work on the front end is going to be sustainable if you are leaking unhappy customers on the back end. That is where Churn rate comes in.
There is an inevitability that you WILL lose customers. But what Churn rate is able to tell you is whether you have lost too many of them in a specific period of time.
Why Churn rate matters
Tracking Churn rate matters because:
- at the most fundamental level it provides a check on whether the marketing strategy you have in place is working or needs to be adjusted
- it has clear implications for customer acquisition, because if your acquisition strategy is adding customers but they are churning due to the quality or profile of those customers then it might be that your acquisition strategy has to change
- high churn has a direct impact on overall profitability by increasing associated metrics like CAC and reducing LTV
How to calculate Churn rate
You can work out your Churn rate by taking the total of all customers lost during a certain time period and dividing this figure by the total number of customers at the beginning of the same period:
|Churn rate =
|No. of customers lost/No. of customers at beginning of period
Track your customer acquisition metrics with Corvidae
Your customer acquisition metrics are only as good as the data that underpins them.
Which is where Corvidae, our patented cookieless attribution solution comes in. It enables you to understand true marketing performance at channel, campaign and keyword levels by:
- breaking down data silos – to provide an accurate picture of what is driving conversion across your marketing mix
- reducing the cost of your CPAs – by identifying opportunities in media like display and paid social
- improving ROAS – by providing proactive suggestions for reallocating wasted spend to higher performing campaigns
Or need to learn more? Download a copy of our ebook – a Complete Guide to Customer Acquisition