Having worked in ad tech for several years, I regularly encounter advertisers who use “the big three” digital ad platforms (Google, Facebook and Amazon) as a strict benchmark for how much they’re willing to spend on advertising to generate a new lead, otherwise known as cost-per-lead (CPL).
That said, CPL isn’t everything. As Kelly Goldston, VP of Marketing at Eloquii, eloquently put it “just looking at acquisition costs by channel can be misleading”. The reason is simple: each channel may generate leads at a different cost, but these leads are also pulled in at different stages of the marketing funnel.
Let’s consider an example: it may cost you $10 to acquire a lead from paid search and $15 to acquire a lead from programmatic display. However, the lead generated from display may be further along in your buyer journey, and thus, of higher value.
Know Your Numbers
So how does one determine which channel is the most effective at driving higher value leads, you ask? It’s all in your customer acquisition costs (CAC). In its simplest form, CAC is a calculation that looks at your acquisition costs (e.g., marketing expenses) divided by the number of customers (not leads) acquired during a specific period of time. To break this down further, if your company spent $100,000 on marketing in a year and acquired 100 customers, your CAC would be $1,000. However, the math isn’t quite this simple.
In his blog post on Customer Acquisition Cost, advertising industry veteran, Neil Patel dives into detail on how to calculate your CAC by marketing channel (i.e., search, social, programmatic). He also explains how to more wisely earmark your media spend so you’re not allocating budget under the wrong pretences by focusing on CPL alone. Patel considers variables such as customer lifetime value (CLV), attribution models, word-of-mouth referrals, as well as meals and entertainment expenses that go into selling, all of which collectively impact your calculation.
Remember: all leads are not created equal. Is a qualified lead someone looking for more information or someone ready to buy? Some leads require more education and nurturing, whereas others are ready to flip the switch right away. Therefore, even if you acquired a lead at a “cheap” price, you may end up spending more in the long term, driving up your true acquisition costs. This is why it’s important to consider the time, resources and expenses required to move the lead through the buyer’s journey into official customer status. If you start with CAC, you’re already on a better path to effective marketing planning and will have a clearer picture of a lead’s value when it enters your marketing funnel.