Most business owners will understand the concept of ‘speculating to accumulate’. It’s a long-established business principle that in order to generate more customers or sell more products, you will need to invest a certain amount of money in advertising or marketing so that potential customers not only know who you are and what you have to offer but are also encouraged to build the confidence to do business with you.
When considering this, the question naturally arises ‘how much should I invest’? You may well have heard the term ‘Cost Per Acquisition’ (or CPA) before, which is the amount that you spend to acquire a new customer. CPA can be used to measure the effectiveness of different marketing channels, compare campaigns and determine other marketing opportunities, so it’s a great principle to become familiar with.
Knowing the potential value that a new customer can bring to your business is the key to working out your CPA. The first thing to do is to estimate the ‘Lifetime Value’ (or LTV) of your typical customer. Once you have this figure, the next step to consider is your margin. For example, if the LTV is £10,000 and your margins are around 50%, your LTV profit will be £5000.
Having an idea of this figure will help you to determine how much of that you want to invest in acquiring the customer. This will naturally be a little different for each business, but the rule of thumb tends to be around 1/3 of your LTV profit. However much you ultimately decide to spend the one thing that will be common to all businesses is that you’ll need to ensure that you’re spending that money in the most beneficial way, i.e. the most effective way to reach your target audience.
Digital Marketing is widely considered to be the best form of advertising for most businesses these days. It’s the only form of marketing that allows you to appear directly in people’s social feeds and their inboxes. It’s also extremely effective in generating recommendation through word of mouth, or sharing, and it’s the perfect way for your business to build a faithful community and following. Further to this, it also gives you the opportunity to spread your message in a way that eloquently demonstrates and showcases the personality and ethics of your business or brand.
If you’d like to find out more about how Digital Marketing could help your company to grow, just get in touch!
If you’d like to find out more about CPA, have a look at these links –
If you’d like to find out more about LTV, have a look at these links –
