The Only KPIs that Matter Pt. 2: The REAL Cost Of Acquisition

What do your digital channels really cost? Oh, and don’t forget to factor in bandwidth.

Real-cost-of-acquisition

Here’s an honest question for small digital teams. Do you really know what your digital marketing efforts cost? It’s far more complex than just ad spend. How about content production expenses? Headcount? Software? When you’re looking at your channel strategy, are you factoring every cost? You kinda have to crunch all of these numbers along with site traffic to discover your REAL cost of acquisition. But once you can start attributing all these costs to things like digital campaigns and channels, I promise you’ll start developing far more sound digital strategy.

A Deeper Look at REAL Cost of Acquisition

There’s definitely no set formula to determine REAL cost of acquisition as every organization is different. Honestly, REAL Cost of Acquisition is more of an exercise than anything. You have to pull disparate cost data from your daily tasks, and compile it into one place. You have to build a little spreadsheet data model to crunch the numbers. However the effort itself is typically rewarding as you start to unburry costs and time losses you or your team incur on the daily.

Because of all this, REAL cost of acquisition is not a metric that you’ll end up tracking on a daily or even weekly basis. It is however, a big gun you pull out as you head into quarterly or yearly planning. It’s great for forecasting, for identifying weaknesses in your digital marketing strategy, and over time, it’s a metric that can help you determine you and your team’s improvements in efficiency.

Perhaps the biggest value to REAL cost of acquisition is to small teams and one-man shows, where digital execution is a daily struggle to just keep up with the frenetic pace of the web. Once you set up your model, it’s pretty easy to forecast out scenarios and add some hard data to your strategic decision tree. Will a brand video or a new email strategy be a better use of our resources? Should we increase our spend with media partners or boost paid search? These are the kinds of decisions that start moving the needle and start helping you do more with less in your digital marketing.

At its simplest, Cost of Acquisition is determined by the following

Bandwidth Required + Software Costs + Content Production + Promotional spend / Traffic Generated

It’s a clunky, but a worthy exercise. (And thankfully Google recently added a new Lifetime Value metric to help out.) The biggest hurdle is bandwidth. Who touches each channel and at what cost? It sounds obvious, but I haven’t run across too many small and medium sized organizations that have distilled bandwidth to a measurable number. They just throw manpower at initiatives that “feel” valuable or worse, divide it too thinly across too many executions. Dial in that metric, add it to the mix, and the whole process becomes pretty easy.

With time, it’s one you’ll actually start doing almost automatically in your head as you gain experience with your team, your channels, your executions, and the readily available data from your reporting platform. If digital marketing is an infinite river flowing infinite directions, REAL Cost of Acquisition is a KPI that will point you in the direction to row and hand you a paddle.

Revist Part 1 of our Only KPIs that Matter Series: Conversion Rate

Editor’s Note: We want this blog to be completely transparent about Craft 52 and our thoughts on digital marketing. It’s gonna be written off the cuff, about stuff we find interesting, published irregularly. But if this stuff is interesting to you, by all means, we encourage you to subscribe. We’ll email tasty, and probably sometimes tasteless, nuggets about digital marketing, ecommerce, code, marketing software and the like anytime we spit them out of our brains. It’ll be fun, we promise.

Digital StrategyKevin Luby