3 Ways to Validate Cost Per Client Acquisition.
As your client acquisition consultant, I must inform you that Cost Per Client Acquisition is a very important metric, one that must be calculated and measured. There is a caveat here though, a low CPA does not always mean your marketing dollars are well-spent.
Here are the top 3 Ways to Validate Cost Per Client Acquisition.
- Track the Numbers and Gain Clarity: CPA is considered a key performance indicator metric for determining true return on investment, and most firms are obsessive about making quick business decisions based upon this number. Stated a different way, how many marketing dollars must a business spend to gain a paying client? It matters less about how many clicks, views, or likes a campaign receives, if it is not acquiring new clients (and in turn generating revenue), it cannot be deemed successful. Many businesses do not track this KPI effectively, and some businesses do not track it at ALL, which is a gigantic mistake in this market. There are plenty of tools to track marketing efforts that will help to understand how to calculate Cost Per Client Acquisition, and with a little bit of work on the front end, it becomes easier to see which campaigns are successful. Success should ultimately be determined in the long run though, not from short-term gains, and this is when client satisfaction & retention makes an appearance. More on this point later…
- Determine an Effective CPA: The common questions we receive from our clients regarding Cost Per Acquisition is what designates a good CPA… And how much should it cost a business to acquire a new client? The short answer is that it varies from business to business, and by cost of products or services rendered; but it starts with average revenue per customer. After you determine how much an average client is worth to your business, and then further elaborate the long-term value of a client, only then can you calculate what your average profit is.
A low CPA seems to be the consensus, but I will argue that each firm must find a meaningful CPA. A simple CPA calculation is something like the following, take the total revenue over a period (year/month) and divide it by the number of clients served during the same period. If you know approximately how much revenue is brought in from a client, then you can determine how much you are willing to spend to acquire a new client. Some other values to be considered during the CPA calculation are as follows, estimated lifetime client value, complaints, returns, and client churn rates. This is where a low CPA may not be the best KPI to drive your business, it may just drive your business straight into the ground. This is the caveat mentioned above, find out what CPA makes fiscal sense for your firm, and validate it against the cost of service per client.
- Validate the Importance of Satisfied Clients: As I have stated in a previous post, learning what it takes to create & retain satisfied clients (read profitable clients) will serve your business far longer than simply pulling in new clients only to watch them walk out the door, never to return. I will assert that over-all client satisfaction is the most important factor that will determine the success of your business. Sorry to be the one to break it to you so bluntly, but not all clients are equal, and some clients should be considered of negative value. How much of the valuable business resources are spent on the high-quality clients vs. the negative clients?
Did your last “promotional discount” campaign bring you non-committed clients, the ones that you could not please no matter how hard you tried? The ones that were quick to complain and who might have left negative comments on your social media platforms. Here is a perfect reason to qualify your clients before dropping your prices.
In conclusion, it should be very apparent that it is necessary to effectively track, and validate the Cost Per Client Acquisition. It is also important to remember that clients that are a good fit for your business will see the value that you provide, and will be more than happy to pay you for performing your service at the professional market rate. Client satisfaction is a high priority to ensure the profitability of marketing campaigns, and the longevity of your business.