Tracking your online business is no easy feat. If you’re not an expert in the field, understanding what the terms CPC, CTR, CPL or CPA are can seem like a mammoth task.
At Lighthouse8, we have found that when it comes to measuring the success of your digital campaigns, two important metrics will tell you what you need to know about your online achievements. Without either of these, you are likely to be operating without knowledge of how your business is operating.
Customer Lifetime Value (CLV)
You may already be familiar with the first of these two metrics, the Customer Lifetime Value or CLV, especially if you operate an e-commerce site that seeks to acquire and retain highly valuable customers.
What exactly is CLV?
Also known simply as lifetime value, it represents the total amount of money a customer can reasonably spend with your business and its products over their lifetime.
The easiest way to calculate CLV is = Average value of a purchase X number of times the customer will buy each year X average length of the customer relationship (in years).
The idea is that the longer a customer continues to purchase, the greater their lifetime value becomes. Armed with the knowledge of this metric, the objective is to help businesses in making decisions regarding investment in digital to boost profitability. CLV should also get you thinking about more ways to boost customer value by:
- Determining the ideal spend to maintain existing relationships
- Identifying who your most profitable customer segment is
- Developing original products that bring in new customers.
Should you find yourself spending more on acquisition than the lifetime value of a customer, it is best to reconsider your current approach. Alternatively, it may be better to work towards boosting their overall CLV and brand loyalty via upsells or by strengthening the customer service aspect.
Cost Per Acquisition (CPA)
The second metric for online success is by your business’ cost per acquisition (CPA). This is a metric that specifically measures the aggregate cost of acquiring a paying customer on a campaign or channel level. Calculated as:
Total Campaign Cost
_________________ = CPA
Each conversion is counted whenever a customer takes a desired action, such as purchase completions, form submissions, whitepaper downloads and so on. Dependant on the nature of your business, each action can also be counted as part of its key performance indicators (KPIs).
However, in comparison to simply using conversion rate, CPA is a gauge of just how well the campaign has performed from a business perspective. The value of your customer acquisition costs is a direct measurement of campaign success on revenue.
In structuring paid digital campaigns this information is best demonstrated when bidding on Facebook, Google, or another ad network to monitor ad spend. Marketers can drive the most value by setting the definition of an acquisition before they start advertising. As a result, they only pay when the desired action happens.
What is a good CPA?
There is no benchmark for the ideal CPA, however each industry has its own measure for what is deemed a successful campaign. In ecommerce for example, the average CPA for Google Search is $45.27 while Display is $65.80. Anything above this is a reason to review and optimise the customer acquisition approach.
Finally, a high quality tracking solution or CRM system must be in place to be able to measure CPA.