The golden marketing metric for online startups: customer acquisition cost
Founders are often so focused on the big picture vision that they lose sight of the key details that ultimately make it happen, such as customer acquisition cost. This saying is especially true in marketing, where there can be a lot of noise. Vanity accomplishments may make you feel good but do little in moving the needle for your business. What good is appearing in a industry magazine if it doesn’t get you new business?
Fortunately, online startups have universal marketing metrics that founders must pay very close attention to. Online startups are scaleable companies that generate leads online, such as e-commerce, software-as-a-service, or some other business model, including FullSuite’s very own. The metrics for online startups will allow you to connect the dots and forecast your company’s top-line in a data-driven manner.
For example, these marketing metrics can enable you to compare your actual performance versus your budgeted one. You can then identify which areas you need to focus on when things do not go according to plan. You can then reallocate your budget and your team’s effort on areas that generate higher revenue per US$1 dollar of marketing spend.
The golden marketing metric for online startups is customer acquisition cost, which is what it costs you to acquire a new customer. The customer acquisition cost is calculated by dividing the marketing spend on a particular platform for a specific cohort over the number of new customers generated from that cohort. Your customer acquisition cost thus tells you how profitable your business is. For early stage startups, customer acquisition cost tells you whether your business is profitable at all.
The metrics that enhance your customer acquisition cost
Founders can think of all other marketing metrics as pre-requisites to the customer acquisition cost. After all, there is no way to properly measure customer acquisition cost without them. Tracked properly, they make the customer acquisition cost an even more powerful metric to optimize the way the company allocates marketing spend. That’s why all co-founders must be aware of them, and how to capture them.
Let’s start where founders will naturally be most interested: the point of customer purchase. We will break down these key metrics in reverse order as they appear in the marketing funnel.
1. Repeat rate
Startups should measure the annualized repeat rate. This is the rate at which an existing customer (i.e. a converted lead) comes back to order more within 12 months. The annualized repeat rate makes more for startups than lifetime value because most have been operational for fewer than three years.
2. Order value
This is the amount of revenue generated from a customer’s order before value-added tax. When coupled with the annualized repeat trend, your average order value will enable to you to reasonably estimate the total amount of business you can expect from a customer on a yearly basis.
3. Conversion rate
This is the rate at which all leads are converted. Although this is a sales function, the conversion rate should be monitored by the marketing team for consistency. Understanding the conversation rate should allow the marketing team to fine-tune their marketing spend allocation. You can also better forecast your top-line impact if you drive traffic to specific platforms or perform A/B testing to increase registration rates.
4. Registration rate
This is the percentage of visitors that become identifiable by giving the company some way to contact them. Not all platforms are created equal in this regard. Some will generate a significantly higher registration rate. The best marketers will be able to optimize marketing spend across platforms through proper tracking of their individual registration rates.
5. Unique traffic
This is the volume of unique visits to your website or page. This is most often measured through Google Analytics for the web or Facebook and LinkedIn for those respective pages. It’s important to pay attention to this information as it uncovers any seasonality to your industry. It also reveals the volume of introductory interest in your business, along with the key words that bring them there. Such information is useful as it’ll enable founders to decide when and how you will drive traffic to the site.
It’s helpful to examine all the marketing metrics that play into the customer acquisition cost in reverse. But the ultimate precursor – before even all of these – is attitude. Cofounders must not only be willing to give interviews to media, pitch to investors, or schmooze with clients. They must also be willing to roll back their sleeves and spend time with their data. What are these various key metrics telling them? More importantly, how should they respond in kind? The great entrepreneur is the one who not only listens to his customers, but also to his data.