Home » Blog » Office Hours » Why Is It Important to Know the Value of an Acquisition before Investing in a Marketing Channel?
Understanding the cost per acquisition can make or break your decision to use certain marketing channels.
David: So, without necessarily talking about the specific tool, because I don’t necessarily want to give them free advertising, I’m not opposed to talking about the specifics. But give us the high level of what this tool is and what appeals to you about it.
Dave: So, my understanding is somehow, and I don’t know exactly how, which is what I’m going to ask them, is if you are going on an ecommerce site, and normally what happens is… It’s pretty straightforward to implement some type of card abandonment, but that requires the person to have logged in so that they can tie the email message to an email address. Otherwise, if you haven’t logged in, then there’s nothing that they can do about that. So, supposedly this tool, and I don’t know how they do it, but they have some cookie on your computer or something that happens that allows them to match some kind of pattern that you’re looking at with their big database of email addresses, and then they can almost do, without them logging in, a card abandonment type of function, allowing you to potentially reach out to those people that are browsing on your website. So, this question came to me from a client, and they want to know what I think. I’m like, I don’t know what to think. And as I looked at it, I was like, well, I don’t mind learning new things. And I thought, well, let me do a quick demo with them. Why not? And so, I thought, let me bring it up to you guys.
David: Yeah. So, I had a different read, and maybe you read in more depth than I did. But I had a different read of the tool. I understood it was growing your email list by being on our partners’ email lists on a cost-per-acquisition basis.
Dave: That might be part of it. I was looking at it more specifically for how it could help these guys.
Dave: And honestly, it might be that. I have no idea how they make their money, right?
David: Well, there was a cost-per-acquisition statement on their website. Anything with cost per acquisition, whether you are doing an email list or Google ads, presupposes that you know the value of an acquisition. Right. And so, it might sound like a deal to pay a $5 cost per acquisition, for instance. Right. I paid $5, and I got someone to sign up on my list or to purchase a product. That might sound good. But the value of what we can do is we should know the value per acquisition. In other words, if we know how much having someone on an email list is worth or how much a lead from Google Ads is worth, then we should be able to know what a good cost per acquisition is. So, I guess what I’m suggesting to you is no matter what marketing channel or method you might use, always apply the principles that we use in Curious Ants to it and know how much value we get out of acquiring a lead, for instance, knowing that not every lead is going to be a sale. Right. Not every email or list is going to be a purchase. And so, to first make that calculation, then know how much you can spend; otherwise, you’re just kind of guessing. And the real value of what we do marketing-wise is to be able to say, I know how much a lead is worth to me because I know my close rate on a lead is one out of every ten. And I make $500 from a closed lead. Therefore, I’d be willing to spend how much per acquisition. That is just kind of a general principle for all digital marketing. That can help you make sure you’re not just blowing money. Well, surely, I’m getting something right. There are so many companies that blow money on marketing. And they surely must be getting something from it. But in reality, they don’t know.
David: Now, this is almost worse when it’s a big enterprise-level company, where they’re kind of lost in the weeds and have no idea how much a lead is worth to them. They just keep blowing money because they almost have unlimited pockets. But in reality, when it comes down to it, they’re like, well, I can’t afford an SEO campaign. Why? Well, because I’m blowing money on press releases, or email lists, or purchasing emails for an email list, or something absurd like that because they’ve never done the calculation to do that. So, I guess what I’m encouraging is as you look at this tool, or maybe at least when you understand the cost of this tool, then push back on the client and say, okay, great. If it’s a cost-per-acquisition model, what’s our value for acquisition? And then once they know that then you say, okay, there are other things to consider, like lifetime acquisition, right? The lifetime values of a customer are a lot better than the first-time value. So, you might be willing to break even on the acquisition because you know the lifetime value is this… But if we’ve never calculated those things, we could just blow with money, and then it’s blowing money away from things that definitely work, like a good SEO campaign.
Dave: Yes. Yeah. Thank you for the reminder about that. So, that’s definitely what I’m going to do. I’m going to push back to the client because we’ve talked to the client about the SEO that we’re doing, and the guy who’s really going to say yes or no said there’s no doubt that what we’re doing for the SEO, there’s no doubt what we’re doing for our SEO, there’s no doubt on our website. It’s like another salesperson. So, they’re happy, right? They’re spending money to make a lot more money, which is where I want them to be in that position.
Dave: So, that same exact principle needs to be applied to this using the data that they’ve got. Okay. That’s good. I’ll talk with these guys. See what they’re more about. Thank you for the reminder.
Dave: Right. Good. Thank you for letting me get it off my chest.
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