Updated: Apr 30
As a business owner or director of marketing, its essential to understand and evaluate marketing expenses vs. returns. Marketing is typically a sum of its parts and therein difficult to meter the actual output of specific marketing campaigns. Therefore, we want to give you one of the main business analytic tools that we at Digihaus Inc. rely on.
This article should be a good starting point to understand, calculate and apply your businesses cost of acquisition (COA) in a strategic manner.
WHY COST OF ACQUISITION MATTERS
Cost of acquisition, simply put, is the marketing expense it takes to acquire one customer. COA expense is calculated using a period of time which helps accommodate for multiple marketing campaigns.
This is beneficial because as a marketing manager, advertising team, or business owner you are able to segment marketing efforts and evaluate expenses based on separate time-frames. Additionally, should you have a successful marketing campaign, it is easy to record the cost of acquisition KPI and look to replicate this the future
HOW TO CALCULATE COST OF ACQUISITION
One of the reasons we at Digihaus we love cost of acquisition is due to its simplicity. The basic equation is:
Cost of Acquisition = Expenses / Customers Acquired
The first step in determining your COA is choosing the timeframe with which you are working. Second, add together the marketing expenses for that timeframe (advertising, digital marketing campaigns, salary, direct mail marketing, etc.) and divide by the total number of customers acquired as a result of marketing.
Expenses / Customers Acquired = Cost of Acquisition
$900 (marketing expenses) / 4 (customers) = $225 (COA)
Ensure when calculating this KPI your timeframe is the same for marketing expenses as well as the total customers acquired. The output you receive will be the cost of acquiring a single customer.
HOW TO APPLY COST OF ACQUISITION
This KPI is useful when looking to understand the results of marketing practices. As stated before, should you have a great marketing campaign or successful period of marketing placements, a business leader is able to record this statistic and causes. Cost of acquisition will help you understand which marketing practices attract more of your customers and at what price.