Analytics Vidhya
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Analytics Vidhya

Tracking the right cost data for customer acquisition

Business
Photo by Lukas Blazek on Unsplash

If you are doing a business then I have a question for you. Do you look over the cost you have to pay per customer you acquire? If the answer is ‘no’ then it’s high time you should start thinking about your customer acquisition cost. Why? Because you should know whether the cost you are making to gain a customer is worthy or not. Are you able to make some profit after making some investment to obtain the customers? Is your offering or marketing cost really helping you make a long term relationship with the customers? Are your offering and marketing able to gather customers for profitable sales value? If you haven’t asked yourself these questions yet then this article is for you. We shall discuss which customer acquisition cost KPIs you should mark on and why.

Firstly we need to know the types of CAC (Customer Acquisition Cost). That means from where to where you are spending money to attain customers.

Advertising Cost: All types of advertising cost including Facebook, google, YouTube, TV commercial, or any social media advertising you are doing for gaining customers. You need to know how much are you investing on this advertising and how many customers are you obtaining from these advertisements.

Offer Cost: When you offer something to the customers e.g. 10% off, 20% off or may be buy one get one free. You can have various types of offerings. For example in our country, Bangladesh we can often see that bkash along with other e-commerce platforms offering customers 15% cashback on some special days like 11 November or 10 October. So this 15% cashback definitely cost them. This cost should be looked over to see how much investment you have done to acquire a single customer and what profit that customer is bringing. Other offers may be like, free delivery, or gift cards, voucher cards etc.

Delivery Cost: When an order comes, from vendor to customer the whole cycle is distributed to different costs including vendor to warehouse, packaging, warehouse to customer, confirmation cost over call and so many on. You must look over how much money you are investing on delivering the product. Whether you are having enough profit to allow this cost.

Seller Salary: If you have some sellers in your store or your ecommerce, the salary disbursement also should be included in your customer acquisition costing. Because these sellers are dedicated to getting some new customers and recurring customers. How many customers they acquire and how much profit they bring through this investment should be looked upon.

Call Center Cost: Your customer might need some support for products. Your investment on the customer care support is also included in this customer acquisition cost. The more your customers are satisfied, the more they will rely on your business, the more they will come again again to buy from you and make more profit.

OTP Cost: The OTP cost is a very less amount of cost that you invest over confirming an order. We often forget this small cost, but this should be included too. If you are a business person, even if you offer a cup of tea worth 0.10 USD, you should mark it on your list of investments.

Email Cost: You may buy email services from various third party companies to reach more customers. This cost is again a small cost, yet you should look over this. Every single penny matters on a business platform.

Marketing Department Cost: Whenever you are doing a business, you must have a marketing department that is committed to gain more customers and recur previous customers. The whole investment you are doing in this department including your marketing & sales officers/executives salary to mobile bill cost, you must include this investment to your customer acquisition cost calculation.

Warehouse Management Cost: If your business is large, you may need a warehouse for managing products. Everything you are investing in your warehouse maintenance e.g. maintenance executives salary, electricity bill, water bill, land fare, and other costs that you are making in this warehouse management system. This is a very big amount of cost that you may ignore for customer acquisition cost but this cost is also important for calculating customer acquisition cost per customer. Because this warehouse is maintained only for the customers.

Affiliate marketing cost: You may do some affiliate marketing to obtain customers. This marketing cost is under CAC too.

Third Party Labor Cost (If applies): You may sometimes need some third party labor cost. For example when you don’t have dedicated executives for a department. You may hire some labor for a specific period of time. For example you are hiring 10 field workers for promotional offer marketing. Say you are hiring them for one month from other companies that give you this support. The hiring investment you are making in this area is also under CAC cost. Because at the end of the day you are hiring them for attaining more customers.

So we now know what kind of CAC (You may have more, we have listed common costs) you should include to calculate your whole CAC. Now let’s look over what KPIs you need to find out so that it becomes easier for you to calculate your profit over customer acquisition cost. Here are the KPIs (Key Performance Indicator) you should think of,

Traffic Source: If you are maintaining an ecommerce then you must think of where the traffic on your website comes from. You may have traffic from Facebook, google, affiliate websites, or other advertising you do on the internet. This will help you to calculate where you are having the best investment to acquire customers. For example you are getting 10 customers from Facebook for 5 USD investment and 12 customers from google for 4 USD investment. So you can see the traffic you are getting from Facebook costs higher than the google.

Date: You must figure out on which date your customers are coming to your store or website. Was there any promotional offer or any advertising investment you did on that day. This will make your calculation easier how much you are investing to acquire a single customer.

User Device: On your website you must track your website traffic, and what kind of device they are using. For example if you see most of your traffic is from mobile devices then you must invest more google play advertisement or dedicated advertisement for mobile device users. Also you will be able to track, is this the same person visiting your website again and again? So that’s how you look over recurring customers.

Customer Geographic Location: You should know from which geographic location your customers are visiting. For example from your traffic you may see from Chattogram most of the traffic is coming. So you need to put a different eye to the customers of Chattogram. You should reach them more and more through advertising and promotional offers. They will cost you less for acquisition.

Campaign Geographic Location: Say you have arranged a campaign in Dhaka. It cost you 1000 USD. So you can now look over for the next 1 or 2 weeks to see how many customers from this region come to buy from you. This will help you to measure the fruitfulness of your advertisement investment to acquire customers.

Social Engagement Type: How much your customers are socially engaged to your business. How many customers are coming from your Facebook page posts, or your twitter posts, or Pinterest posts. This will help you to know where you should spend more to consume customers. For example, you have 5 million Facebook followers on Facebook page and 30 thousands followers on Instagram. You have invested 100 USD for advertising both of these platforms. Now you see although your Facebook page has more followers than Instagram, but your Instagram advertisement is providing you more followers, traffics and customers. So you definitely should look more over Instagram than Facebook.

Visiting Duration or Visiting Time: You must look over when your customers are visiting your website. Say from 8:00 P.M to 12 P.M they are visiting the most. So you must use a filtering for your advertisement in this period so that you can acquire more customers and traffic. You also should mark how much time they are spending on your website. If they are not spending enough time, then you must change your suggestions for that customer on your website.

Total Visits: How many traffic are coming to your website, you must look over this. Because the more you get the traffic, the more you can acquire customers.

Total Hits: You should look over how many hits are coming to your website. Because you may see the same customer hitting your website again and again, that individual customer is likely to buy something from you. Offer that customer something so that you can acquire that customer and make him/her recurring customer.

Total Page Visits: On your ecommerce platform you may have different sections. You may see that your mobile phone category is having less visits than other categories. So you can now think of what are the possible reasons your customers are less interested in that section. Think of it, find out and solve it.

Channels: There are 5 types of channels from where your customers can come.

  1. Organic: The customers that come from google search or Bing search or any other search engine search. This reminds your cost of SEO (Search Engine Optimization)
  2. Paid: When you search a keyword on search engines, you may observe that some websites are there advertised at the top. The customers that come from that advertisement on search engines are paid channel customers.
  3. Social: The customers that come from your social media platforms like Facebook page, group etc.
  4. Referral: This includes any affiliate marketing you do for acquisition of customers
  5. Direct: The customers that directly come to your website by just typing e.g. https://qtecsolution.com/ .

You must look on from which channel you are getting the most customers. This is a must look over for calculating CAC.

Registration Type: The hit or traffic coming to your website, are they from registered users or unregistered users. If you see most of the traffic are from unregistered users, then you must do something to register them. Because it’s easier to reach registered customers than unregistered customers with a promotional offer also you will be able to calculate how much value did it cost to acquire a single customer that registered. You may have 100 traffic but only 10 of them registered on your website. So your total investment will be distributed on this 10 registered customers. Because only they are the valid hit who will buy from you later.

Registration Time: The time when the customer registers on your website is important to look out how many customers are coming to register themselves in between any of your promotional or advertising periods. This will make it simple to calculate your CAC.

Order Time: Until a customer is not ordering from you anything, that’s not your valued customer. The moment when a customer ordering is also important to see whether the customer is ordering in between any promotional offer periods. It’s a must to figure out your CAC.

Cart Abandonment: You may want to keep track of your customers cart abandonment. If a customer is adding something to his cart and not ordering that means the customer is having some issue with the order. You must look over that customer’s requirements to make him a regular customer.

Order Placement: Many a time we see a customer may order something but later the customer is not confirming the order or not receiving the order. That should be marked out too. Because ultimately the 1 out of 10 customers who is cancelling or not receiving the order makes a higher CAC.

Sales KPIs are pretty much important for acquiring customers. These are the key factors that you may look up for your business. There are many more factors. But these factors here are the must.

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Md. Hasibul Islam

Md. Hasibul Islam

I’m a data science enthusiast. Always try to cope up with the upgraded technologies. Connect Me through polok.hasibul@gmail.com.

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