This is the question every business should know, or at least ask, before allocating an online budget…. and can’t simply be answered by saying “very”.
I work with businesses that are looking to grow. Businesses that want to earn on the back of their ad spend. I have little interest in “branding” or “awareness” campaigns that do not yield results.
How do you measure these results?
When speaking with any new potential client I need to know the value that particular business places on acquiring a new customer. It’s a critical piece of information, it’s the end goal for any online business transaction… to make sure that your Cost Per Acquisition (CPA) is profitable. This single piece of information is what’s required to formulate just how successful your paid search spend is, your affiliate marketing, your email marketing campaigns … your entire online business.
Lets look specifically at the cost implications to your Adwords spend knowing the true value of a new customer in the online retail market:
- What is the total revenue generated on average per customer? (i.e. avg shopping basket)
- What percentage of your site shoppers are repeat purchasers?
- What is the average gross margin, or markup per sale?
Simple equation: (avg basket)+(avg basket x (1+ % repeat shoppers)) = approx value of a customer to your business in terms of total revenue.
Subtract the avg gross margin from this figure and you start to get a good feel for the value to your business of new buying customer.
This financial figure now represents a KPI (Key Performance Indicator) within your decision making in relation to your Adwords Click Spend. You may ask whether it makes more sense to equate back to the ‘net profit’ acquired by a NEW customer? There are a range of figures that can be included- shipping costs, VAT, staff, business infrastructure, etc. These are all costs that are built into your pricing structure, should they necessary have an impact upon your online advertising budget?
The above provides a simple approach to defining the potential value to your business for a NEW customer within a retail market. How do you define the costs associated within a service industry? Unlike hiring sales staff, your online marketing budget doesn’t require a set budget per month, no salary to pay, no NI or Tax implications… my advice for a B2B business is to associate your ad budgets to that of a member of staff. Your site, for all purposes, generates leads and sales working for you 24/7, it doesn’t require a lunch break and provides your business with financial reward based on the amount of time and effort you place on nuturing it.
Every business has a differing value placed upon the reward of a new customer or client. Crunch your numbers before setting your online budget just to see how far you can stretch your associated costs for a new business client. You may be surprised just how valuable your adwords or SEO campaign may be…
