What measures can reduce user acquisition cost. CAC (Cost of Customer Acquisition): Why count this metric. Customer acquisition cost and its business value

Well-known indicators management accounting by no means always give an understanding of the real state of affairs in business in full. For example, profit margins generate an increase in operating profit, with each individual sale contributing to cost recovery. Everything seems to be simple. However, in many areas modern business, in our hyper-competitive society, margins can be very, very high, but the cost of acquiring new customers can also be very high.

Traditional cost management does not work here because today we spend money on acquiring tomorrow's customers and cannot be directly matched. In addition to this, success in such a business can only be achieved by achieving high level customer loyalty, thanks to which the current cost of acquiring customers (and future sales) will tend to zero and profits will remain high.

What are CAC and CLV?

The software industry, or rather "SaaS" (Software as a Service, cloud services), has made two concepts popular that we think can be applied to many industries to help better and more comprehensively assess the state of the business:

CAC(Customer Acquisition Cost) or " customer acquisition cost"- shows the average costs required to attract a new customer in a specific channel or for a specific product.

CLV(Customer Lifetime Value) or " customer lifetime value"- shows the total amount Money received from a customer from the moment the customer “acquired” (for example, from the moment of his first purchase).

In a SaaS business, customers pay a monthly or yearly fee to access cloud software. This is comparable to a subscription service fee: a typical situation where customers pay every month or year until they decide to stop. This is similar to repeat business, where customers purchase a product or service from time to time (for example, goods mass consumption or consulting services). We think that these indicators can be calculated for most types of business, it is just that in some cases it is not so easy to get the data necessary for this.

How to measure CAC and CLV?

There are several ways to do this. We will show you how to calculate these parameters using the example of the Odoo Direct Selling Team in Europe. They sell subscriptions online, as opposed to the indirect sales team, which organizes sales through a network of partners. Odoo uses an inbound model distance selling: Customers contact us through the website, after which employees complete the transaction over the phone.

For non-subscription businesses, CLV is based on frequency of purchases and average check. If buyers stop buying after a certain period, then we can talk about an outflow. For companies primarily engaged in indirect sales (so-called consumer goods), CAC and CLV can be measured through sales statistics or consumer demand surveys. I think these metrics are also important in assessing the viability of their products or destinations, and identifying actions to improve them (decrease churn, increase repeat purchases, etc.). But I don't think they are really measured in most companies in these industries.

How to interpret CAC and CLV values?

The CAC and CLV and their relationship (CLV / CAC) are extremely helpful in understanding how to balance your business and determine next steps:

If CAC> CLV or CLV / CAC ratio<1, то ваш бизнес в упадке или нежизнеспособен. У вас слишком большой отток или чересчур высокий уровень CAC. Также причиной этому может быть то, что у вас слишком низкий показатель среднего чека. Вам нужно будет приложить серьезные усилия для улучшения работы или перейти к другой бизнес-модели.

If CAC< CLV или их отношение CLV/CAC >1, then you are fine. However, if the ratio is close to one, then your business is on the edge of profitability. Also, if you have a good churn rate (less than 10%), then you are likely relying heavily on revenue from customers in the second year. This means that your cash flow will be in short supply all the time, as the CAC must be paid immediately (and usually in advance).

What else is good to know?

If you predict the income from customers after they have been attracted, then it is quite easy to calculate the accumulated profit and check when it "crosses the line": when the accumulated cash flow from the customer exceeds the cost of attracting him. Here are some examples:

Clients pay annually and their self-sufficiency occurs in less than a year. Great, your growth can be funded by your own clients. This option is very rare, but it is still possible. Typically, this alignment is typical for companies that are perceived as market leaders during a period of significant market destabilization.
Customers pay on a monthly basis (or repeat purchases every month or more) and are self-sufficient in less than a year. Great, but be prepared to fund new customer acquisition in advance.
Self-sufficiency occurs later than a year later (but earlier than two years). In many cases (other than when you have multi-year prepaid contracts), you will need significant funding to grow your business. Although, if you are all right with the churn rate, then the business will keep afloat. Many Saas startups fall into this category.
If the payback period exceeds two years, then the business is most likely not viable. Except when you are engaged in long-term investment. This is common, for example, in real estate. But this is unacceptable in a low-capital business or a business with high risks like startups. Especially in times of market volatility, when churn rates should be kept very low.

At the start, many entrepreneurs are ready to do anything to attract new customers. But not everyone understands what marketing moves need to be made in order not to waste money and get the maximum benefit from advertising. Every business owner should know the cost of attracting a client or CAC. If you learn how to calculate it correctly, then you can achieve the maximum, as well as predict the marketing budget for the future. Understanding the value of this metric will help you find the best channels for attracting new customers at the lowest possible cost.

Everything successful brands carefully calculate the CAC, analyze and use this information for optimization.

What is Customer Acquisition Cost (CAC)?

CAC is an indicator that determines how much one new client... Sometimes the term User Acquisition Cost is used - the cost of a new user.

What does the CAC depend on:

From advertising and sales costs. This includes the salary of all marketing and sales employees, non-production costs for their maintenance, the cost of marketing tools;
From attracted new clients.

When running any business, you need to know how much profit you can get from investments in advertising. Investing in advertising for the purpose of promoting a business (for developing a website, advertising on radio, TV, social media, banners), everyone wants to know what and when they will receive in return.

If you calculate the return on a new paying customer in the long term (in relation to the customer's life cycle), you can see whether the money invested is paying off and which advertising moves are most effective for getting new customers.

Many people confuse CAC with the term CPA (cost per action). CPA is a payment on the Internet for a certain action (for example, a fee for registration, download, purchase). The company pays everyone, both new and existing customers. These are essentially completely different terms that have nothing to do with each other, since CAC refers to all costs associated with sales and marketing.

In a more understandable language, CAC is the amount of money spent on advertising to attract new customers. This is the main factor that shows how successful a company is in its business model.

A careful and correct calculation of the CAC shows which customer acquisition channels work most effectively and in which marketing moves it is best to invest your funds.

Understanding the CAC is very important for any company, as it reflects the success of the business in the future. At first, you need to invest a lot of funds and finances to attract customers, but with each subsequent month, costs will decrease, and profits will grow, if you correctly analyze the formula for calculating the CAC.

There are four reasons why a CAC score is needed:

Calculation of the CAC is necessary to understand how long it will take to make a profit after the advertising campaign and how much money will be spent on attracting a client.
The CAC score helps to calculate and improve the LTV / CAC ratio.
It is necessary to review the effectiveness of marketing campaigns every month and analyze their effectiveness.
The goal of any business is not only to generate income, but also to increase margins. CAC will show the ratio of gross profit to the cost of attracting new customers.

How to calculate the cost of customer acquisition?

There is a simple formula for calculating CAC. It is necessary to divide the amount of absolutely all funds spent on attracting clients for certain period time for the number of attracted clients during this time.

But you need to understand that this formula has exceptions, and the final CAC figure will not quite correspond to reality. When and why does a simple formula not work effectively?

If the company has made an investment in advertising in a new region.
Statistically, it takes 60 days for a potential customer to become your new customer.
Many buyers are considered returnable rather than new.
Additionally, there are costs associated with user support. Many people use the demo version of the product for free for a very long time before making the first purchase.

You can use a simple formula when all used complement and enhance the effectiveness of each other.

Before starting to calculate the CAC, you need to answer such important questions:

How long does it take between an ad campaign and new customers?
What costs need to be included in the CAC calculation formula?

To understand how long it takes to return the investment, you need to calculate the payback period for the client. You need to divide the income from one client per month by the cost of attracting him.

To understand which CAC figure will be optimal for your business, you need to focus on the ratio of two metrics: LTV and CAC.

LTV is the profit from the attracted customer for the entire time he stays with you (Customer Lifetime Value), and CAC is the cost of attracting him.

There is a scale that allows you to identify the optimal ratio of LTV and CAC:

Customer acquisition cost and its business value

To get closer to the 3: 1 ratio, you need to look for new customer acquisition channels.

The complete formula for calculating the CAC looks like this:

MCC is the total amount of funds spent on advertising;

W is the salary of marketing specialists;

S is the cost of software and online services;

PS is the cost of professional services;

О- overhead costs;

CA - the number of clients attracted using the spent amount of funds.

To get a reliable result, you need to calculate the CAC for each used advertising direction separately. Then you will understand which marketing move is most effective and in which direction you need to increase investments.

You can attract a lot more customers if more money invest in channels with low acquisition cost. At the same time, the total amount of funds for marketing will not increase.

We calculate the CAC on examples

Your customers don't care about your costs, they want to know how your service can solve their problems. Therefore, the company's pricing strategy should not be based on marketing costs, but it is necessary to calculate the CAC. Let's look at examples of calculating the cost of a client at various companies.

SaaS company

For example, a SaaS company does internal sales. Someone buys right away, and someone will turn from potential buyer(lead) into a real buyer only after 60 days.

For example, the company tried several new channels in June, with marketing costs of $ 5,000. 50 new clients were attracted this month. So CAC is equal to $ 100. But it must be borne in mind that thanks to advertising company in June, after 60 days, the likelihood of more buyers will increase significantly.

Therefore, it is worth analyzing the effectiveness of the June advertising campaign in two months. In August, for example, the number of buyers rose to 100 people. Thus, the CAC will be $ 50. Therefore, when calculating, do not forget about the time interval between marketing costs and.

Then the equation for calculating the CAC will be like this:

CAC = (Marketing Cost (n-60) + 1/2 Sales Cost (n-30) + 1⁄2 Sales Cost (n)) / New Customers (n)

n = Current month

eCommerce company

For example, a natural candy company invested $ 200,000 in advertising and attracted 20,000 new customers. So CAC is equal to $ 10.

The average buyer's check is $ 25, and the markup is 100%. Then the net profit is $ 12.5, of which $ 2.5 is spent on salaries, offices, etc.

You need to understand that some customers will completely switch to this brand, many will become regular customers, that is, it is necessary to take into account the customer life cycle metric (CLV, customer lifetime value). We'll talk about how to calculate CLV below.

If the majority of customers buy sweets once a week for $ 25 for 20 years, then CAC $ 10 with an average bill of $ 25 is a pretty good result for such a company.

Online casinos

Profit is made if the players lose. Accordingly, the more there are, the higher the profit.

For example, a company spent $ 1,000,000 on a poker room marketing campaign.

Each player will play about 60 combinations per hour. If 20 players play in the casino at the same time, then the casino's profit will be at least $ 1000. If the number of participants is 100 people, then the profit from one person will be about 50 dollars, and from 100 people - 5000. This is only in the first months, then the percentage of profit will increase due to the return of players and the addition of new customers.

LTV calculation (customer life cycle metrics)

LTV = (average sales value) x (average monthly sales) x (average customer retention time in months)

For example, a person pays a subscription to yoga classes $ 20 per month for 2 years, then $ 20 x 12 months x 2 years = $ 480, but not all clients will go to yoga for 2 years. Therefore, there is a more accurate formula for calculating the lifetime value of customers.

LTV = (average number of orders per month) x (average bill) x (average duration of customer interaction with the company) x (share of profit in revenue).

Common mistakes when calculating the CAC

Many people forget to add the salaries of marketers and salespeople or those who help with marketing campaigns to the CAS calculation.
The calculation should include the cost of renting equipment for these employees.
In calculating the CAC, one must remember to include the cost of marketing tools.
It is necessary to conduct analytics on the site, how many orders came from this or that blog. You also need end-to-end analytics - the link between the source of the visitor and his first purchase.
The calculation does not need to take into account the number of old customers.

How do I reduce the CAC?

There are several methods for optimizing the CAC:

Often, marketers misunderstand and interpret the meaning of the Customer acquisition cost metric, or do not take it into account at all when analyzing the effectiveness of campaigns. Although it is extremely important, especially in the field of e-commerce. In order for you to better understand what CAC is and how to calculate it, we have selected, translated and adapted for you an excellent article that discusses this topic in detail. It couldn't be better.

CAC (Customer acquisition cost) is the amount you pay to attract a new customer.

Speaking at all simple language, then you can calculate it as follows: It is necessary to divide all the costs associated with attracting a client for a certain period of time by the number of new clients received during this period. Do not confuse this metric with Cost per Action (CPA), as there is a fundamental difference between the two. In e-commerce, the cost per action is usually the amount you pay to convert a customer (for example, to make a sale), and this applies to any (new or old) customer. CAC is an indicator related specifically to a new client. An example would be Google's description that explains CPA as “the price you are willing to pay for a conversion,” rather than for attracting a new customer.

The importance of CAC in e-commerce

We figured out what CAC is. But why is this indicator so important? And how can CAC help you make more money? We answer! So, the cost of attracting a new customer is one of the MOST important indicators for any online store along with LTV (LifetimeValue is the total profit from a customer for his life cycle). Why? Because your store needs to be profitable. This means that you should receive ROI (Return on Investment) from marketing and sales. So the ratio of the profit received from the client to the cost of attracting this very client can be called one of the most important indicators:

LTV: CAC

It's simple - your business will collapse if CAC is higher than LTV. Let's take a look at a few examples to help you figure out exactly which LTV: CAC ratios to strive for.

Less than 1: 1 - You are racing towards bankruptcy
1: 1 - you lose money on every attracted client
3: 1 - Ideal ratio. You have a thriving business and a solid business model
4: 1 - Sounds good, but it looks like you are not investing enough money, but you could develop faster. Run more aggressive customer acquisition campaigns and achieve close to 3: 1 metrics

In addition to all of the above, it is worth adding that CAC is also needed to measure the performance of your marketing campaigns. The goal is to find marketing channels that have a good LTV: CAC ratio. It doesn't make sense to spend all your time on campaigns that bring in a small number of customers. Find the right balance between time and effort, LTV: CAC ratio, and customer acquisition. To summarize, there are two main reasons why CAC is a very important metric:

Calculating the LTV: CAC ratio and the time it takes to acquire new customers will help you assess the overall health of your business. To understand how solid your business model is, it's helpful to understand how long it will take to get back the money you spent on acquiring new customers. The return on investment in 3 years can hardly be called a success, because you want to regularly invest this money over and over again. You should aim for a refund within one year or less.
CAC helps in optimizing your marketing campaigns and the channels you use. Where do your most valuable customers come from? Which marketing channels have the best LTV: CAC ratio? Remember that the cost of attracting a buyer differs from campaign to campaign, it is constantly changing and you need to regularly monitor this metric - if you stop getting ROI, then stop investing in this campaign.

How to calculate the CAC for your online store?

There are two ways to calculate the cost of acquiring a customer: a simpler (but less accurate) method, and a more complex one, which will require more data to be collected. In general, there is only one way that can be called truly correct - and that is the one that is more difficult. However, it is better to do a simple calculation than not do it at all. That way, you can at least understand which of your marketing channels are working and which are not.

Be careful when using this data to calculate your LTV: CAC ratio, as many of the key costs are not included.

Simple way to calculate CAC:

Where: CAC (Cost of customer acquisition) = Cost of new customer acquisition. MCC (marketingcampaigncosts) = The total cost of marketing spend aimed at customer acquisition (but not retention). CA (customers acquired) = The total number of acquired customers. When we talk about marketing costs, we mean direct costs, such as the cost of impressing ad campaign banners or the cost of clicks on AdWords.

Sophisticated (and most accurate) method for calculating CAC

Where: CAC = New Customer Acquisition Cost. MCC (marketingcampaigncosts) = The total cost of marketing spend aimed at customer acquisition (but not retention). W (wages) = Salary for marketers and sales managers. S (software) = Cost used in advertising and sales software(for example, the sales platform used, marketing automation, A / B testing, analytics services, etc.). PS (professionalservices) = The cost of professional services rendered to marketing and sales departments (design, consulting, etc.). O (other) = Other overhead related to marketing and sales departments. CA (customersacquired) = The total number of customers acquired.

We mention here the sales department, which is usually rarely associated with e-commerce... But some companies have dedicated people who are looking into wholesaling and making deals. As you can see, all unknowns are involved in this equation. possible costs, one way or another related to the process of attracting customers for a certain period.

If you want to know the exact cost of acquiring a new customer in an individual ad campaign or marketing channel, then you will have to start calculating all the costs associated with the acquisition. For example, spent work time your employees for one or another advertising campaign, in order to calculate that part wages, which was spent on its development.

What other computation problems could there be?

Often, before the user makes a purchase, he goes through several advertising campaigns... For example, for the first time he gets to the site through an advertising campaign on Facebook, but does not buy anything. Then he comes back to the site through retargeting and makes a purchase. What costs and in what proportion can then be correlated? In these calculations, break down each campaign by the cost of acquiring and converting an existing customer and the cost of acquiring and converting a new customer. This will give you the total cost of acquisition for each campaign. And to calculate the total cost for each channel, add up the received costs in the campaigns involved in it.

This is a very useful calculation to help you figure out which campaigns and channels are the most successful in terms of customer acquisition and conversion. At first glance, this may sound a little confusing. But if you spend an impressive amount on certain marketing channels, then the time for such a calculation will definitely pay off. You will be able to see that some channels are not at all as profitable as you thought, or vice versa - you might have underestimated a certain method.

Improved CAC score

There is simple ways Raise and optimize your CAC: improve conversions on your own website, work on improving your ad copy and targeting (always focus on those customer groups with the highest LTV: CAC ratio), analyze new, potentially more profitable , marketing channels.

We wish you success with calculating the cost of acquisition! We hope this article was helpful and we welcome your comments. Soon we will have a white paper completely dedicated to KPIs in E-commerce. It contains and structured all the information about the indicators necessary for a successful e-commerce business.

Subscribe to the CubeLine Agency blog and don't miss it!

Translation and adaptation of the material: "How to Calculate Cost of Customer Acquisition (CAC) in Ecommerce"

The online store has a lot of metrics to keep track of. How not to get lost among a heap of indicators and always keep your finger on the pulse of your business?

It is impossible to imagine an effective business without clear KPIs, so every online store should have a system of indicators to measure the effectiveness of its activities.

Let's talk about the most important indicators that you need to track on an ongoing basis.

Metrics that will be discussed:

Unit-economy of one order

To track the situation in dynamics, it is necessary to conduct daily monitoring of the following indicators for each traffic channel.

CPC

CPC (Cost Per Click) - cost per click. The ratio of the cost that an online store spends on advertising in search engines, online publications, on thematic sites and other resources to the number of clicks on this advertisement. That is, this is the amount that the advertiser spends for one user who went to the site through an advertisement.

CTR

CTR (Click Through Rate) - the ratio of the number of clicks on advertisements the number of their impressions. This metric helps to determine the effectiveness of a particular site for advertising, the effectiveness of the advertising campaign as a whole, as well as individual advertisements.

CPA

CPA (Cost Per Action) - the cost of the targeted action of a site visitor. A targeted action can be understood as registering on the site, subscribing to a newsletter, adding to the cart, etc. CPA is one of the cost-effective advertising models as the advertiser only pays for a specific user action.

CPO

CPO (Cost Per Order) - the cost of attracting one order, i.e. the ratio of the cost of advertising or marketing activity to the number of orders received. Unlike CPA, in this case only the purchase is considered the target action.

This is one of the most important metrics in eCommerce and online business, as it helps to understand the cost of one order in different channels. CPO is a measure of ad performance. The lower it is, the higher the profitability.

DRR

DRR (share advertising costs), also known as CRR (Cost Revenue Ratio), is the ratio of all advertising costs to the revenue that advertising has brought. That is, this metric is similar to ROI and helps to assess the effectiveness of investments in advertising campaigns.

DRR depends on the final turnover and gives the most objective assessment of the advertising campaign, perhaps that is why it is so loved in Russian eCommerce.

The metrics that we talked about above are worth tracking every day, but there are metrics that play an important role in the long term and are important for making strategic decisions.

Average check

Average Order Value (AOV) is the ratio of the total value of completed orders (i.e., the income received) to the total number of orders for a certain period. Measured in monetary terms.

Understanding how much each order brings, you can adjust your development strategy. Based on the traffic and conversion values, the size of the average check allows you to predict the revenue of an online store.

How to increase the average check

You can increase the size of the average bill using the following suggestions:

Cross-sell
Up-sell
Free delivery upon reaching a certain amount of the order
Providing discounts when purchasing multiple copies of a product, etc.

Offering related products or accessory items to the user on the cart page has a positive effect on the size of the average check.

For example, the online store BUTIK. the introduction of personal recommendations allowed us to increase the average check up to 27%.

Conversion

Conversion Rate is another key metric for an online store, which shows what proportion of site visitors have made a purchase. Expressed as a percentage.

To get reliable conversion data, the metric can be segmented according to various criteria:

Sources of traffic
Device types
New and returning visitors
Product groups (for online stores with a wide range of products)
How to increase conversion
Conduct A / B tests on the website and in mailing lists
Create convenient site navigation
Create additional filters to find the desired product

The work to increase conversion should be carried out constantly, as is done by Growth Hackers in Retail Rocket. For example, fine iterative tuning of product recommendation blocks in the Toy.ru online store ensured a 5% increase in product page conversion at the first stage, by 4.63% at the next stage, and by 3.3% at the last stage of testing.

Customer Acquisition Cost (CAC)

CAC Rate (Customer Acquisition Cost) - total marketing costs for attracting one new user. The cost of attracting a client means taking into account the costs of all advertising channels and the cost of all programs involved in attracting a client.

CAC is often confused with CPA (Cost per Action) - the cost of an effective action, or CPO (Cost per Order) - the cost per order. But these metrics apply to both new visitors and loyal ones, while CAC is solely the cost of acquiring a new customer.

Simple calculation formula:

The second, more accurate, but more complex formula:

MCC (marketing campaign costs) = The total cost of marketing costs aimed at attracting new customers (but not retaining current ones)
W (wages) = Salary for marketers and sales managers
S (software) = The cost of the software used in advertising and sales (for example, the sales platform used, marketing automation, A / B testing, analytics services, etc.)
PS (professionalservices) = Cost of professional services rendered to marketing and sales departments (design, consulting, etc.)
O (other) = Other overhead related to marketing and sales departments
CA (customers acquired) = The total number of acquired customers

The most important thing is that the ratio of LTV and CAC is in favor of the former - with a balance of 1: 1 or less, the online store loses on each attracted client.

Abandoned carts indicator

The Abandoned Basket (Shopping Cart Abandonment) rate reflects the number of visitors who added an item to the cart but did not complete the checkout. According to the SaleCycle study, 74% of users leave the cart page and don't return to shop.

How to reduce the percentage of "Abandoned carts"

Send abandoned cart reminder emails
Offer related products and accessories on the shopping cart page
Add the ability to place an order without registration or simplify this process as much as possible

To motivate the visitor to return to the checkout page, you can not only send an email with a reminder of an abandoned cart, but also offer them personalized recommendations for related or similar products that are most likely to interest them.

Important email marketing metrics

Email marketing plays an important role in communicating with customers. Well-crafted newsletters help to establish personalized communication with customers. Analytics of email marketing results allows you to evaluate the effectiveness of interaction with subscribers. You can measure it in the following metrics:

Open Rate

The OR (Open Rate) ratio shows how many subscribers have opened your mailing list. It is measured as a percentage of the number of emails sent.

How to increase the Open Rate

Use dynamic sending time (send emails at the moment when the subscriber is most active);
Work with the subject line: use intrigue, emoji, question subject, etc.

For example, for the online store OLDI.ru, the use of intrigue in the subject line provided an increase in Open Rate by 31%.

CTR

CTR (Click-Through-Rate) shows the number of clicks from the letter to the site, that is, it reflects how interesting the offers in the mailing lists are to subscribers.

Test different email elements to determine the most effective email template variations.

For example, the online store 220-volt.ru with the help of the Growth Hackers team managed to increase the CTR by 12.7% by introducing the item “bought today” into the product card in the letter.

Conversion Rate

Conversion Rate is the ratio of the number of orders made from mailings to the number of unique clicks from emails.

How to increase your Conversion Rate

Segment subscribers according to various criteria (from gender, age and interests to psychotypes) and compose mailings for each segment
Send personalized offers in the interests of the user

For a more accurate measurement, use utm tags and set goals in Google Analytics or Yandex.Metrica.

Revenue per email

RPE (Revenue Per Email) is an indicator of income per email sent. Measured in percentage terms. It helps you understand how much profit you can get from working with an email list and identify the difference in income for different emails.

How to increase RPE

Segment your subscriber base
Use personalized recommendations

And a few more metrics that are important for business.

LTV

LTV (Lifetime Value) is a measure of the total profit that a customer can bring to you during their life cycle. Expressed in monetary terms. This is one of the most important indicators, since it allows you to predict the company's profit and determine how much you can spend on attracting a client so that these costs pay off.

Knowledge of LTV allows you to adjust your marketing strategy, reallocate the budget for attracting new customers and retaining existing ones, highlighting the most valuable customers in order to focus special attention on them, etc.

There are several forms of LTV calculation:

Simple formula

To calculate, you need to know the income that the client brings, and the cost of attracting and retaining him.

Basic formula

It is clearer, but because it is based on averages, it can be applied separately to different customer segments or product groups.

The importance of LTV is constantly talked about, but in practice this indicator is very difficult to measure, since there are many channels through which customers come, and it is not always possible for an online store to track all customer purchases. Firstly, even the most “advanced” multichannel loyalty programs do not exclude one-click orders or offline purchases without a card. regular customer... And secondly, it is very difficult to create a system that will take into account all purchases of one person, issued through different channels, including mobile app and call center. Therefore, despite the importance of LTV for business, in practice it is rarely used.

How to increase LTV

To do this, you need to work in three directions: to motivate to buy more, to motivate to buy more often and to motivate to buy constantly, i.e. necessary:

Work on increasing the average check
Implement a loyalty program
Encourage repeat purchases

One of the ways to encourage a customer to buy again is an informational letter about the burning of bonus points, as well as placing a block with personalized product recommendations in it. Products that are interesting to the user and an urgency trigger can induce a purchase.

Retention rate

Retention Rate - Customer retention rate, another key metric in ecommerce.

It costs about seven times less to retain a customer than it does to acquire a customer, which is why it is so important to pay special attention to users who have already made a purchase.

How to increase Retention Rate

Provide excellent service
Invest in a brand
Use rewards and loyalty programs
Communicate regularly with the client

Offer the user the products they are most likely to buy, possibly in addition to a previous purchase. This can be done, for example, using the "Next Best Offer" or "Next Best Offer" trigger scenarios, which use predictive analytics to generate personalized recommendations.

Online store efficiency checklist

To ensure a positive shopping experience for online retailers, it is important to track other metrics, which we will not dwell on in detail, but will present in the form of a short checklist. These are indicators that some managers and specialists start their day with, while others check once a week / month:

Traffic
Conversion by traffic source
Advertising costs
Turnover, income, margin
Order processing speed
The speed of order picking in the warehouse
Order delivery speed
Call-center statistics (calls received per day / week)
The number of returns and cancellations of goods
Product turnover: statistics on the best-selling, stale goods
Employee productivity (in accordance with KPIs in different areas)

Metrics are compared both with previous periods and with planned indicators in order to understand how the company is developing, what should be paid special attention to and where the growth points are hidden.

Finally

All metrics are created in order to draw objective conclusions based on data-driven analysis and optimize business processes to increase the revenue and profit of the online store.

There are a huge variety of tools, counters and indicators to assess the effectiveness of advertising. To assess whether the advertising budget has been wasted, you first need to determine the goals of the advertising campaign. Then - select tools. And in the end, evaluate the required marketing metrics. Stanislav Rybakov, the founder and leader, helps us to understand all this. marketing agency Increase.

- The legendary American businessman and one of the founders of modern advertising, John Wanamaker, noted back in the 19th century: “Half of the money I spend on advertising is wasted. The only problem is that I don't know which [half of the budget] is. "

Founder and Head of Increase Marketing Agency

Currently, there are a huge number of special tools for determining the effectiveness of advertising, the main thing is to know where to look for them, how to use them skillfully and which one to give preference to.

We prioritize

Overloading modern society advertising, we have spawned selective Internet users. Now they only pay attention to ads that are of particular value to them. Thus, in order to calculate whether our advertising reaches the target audience, you first need to determine the goals. Having knowledge of the audience characteristics and building a goal-setting system, we will be able to select reliable metrics to assess the effectiveness of advertising.

For most commercial projects, sales growth is of interest, but for some, for example, the media, an increase in the number of visits will be enough. In this case, we will use the metrics for monitoring visits - until we achieve the desired goals or acquire new ones.

We select tools

For a competent analysis of the effectiveness of online advertising and obtaining statistical data, it is important to choose the best set of tools.

Below are the possible and popular today tools used to collect and store various kinds of statistics on Internet pages:

Internal counters - located on the site itself, provide access to statistics in real time and guarantee the confidentiality of information. Such counters can be of our own design (to create you need to know a programming language, for example PHP), be provided by a hosting platform or a separate service (CNStats)
External counters are special script programs that communicate with a specialized statistical server when loading a website page. As a rule, it is free services statistics (,). Some of them allow you to participate in ratings, however, for this they require images with the service logo (LiveInternet, Rambler, Mail.ru, OpenStat) to be posted on the website.
Programs for the analysis of Cookies - files containing dynamic information and remaining on the user's computer (Cisco)
Programs for analyzing Log files that record events on the site (Semonitor, AlterWind Log Analyzer, AWStats)
Analysis systems capable of comprehensively replacing counters and analyzers of Log files (for example, such as "Site Statistics" from NetPromoter)
Data statistics systems for online advertising campaigns (Yandex.Metrica, AdTracker, AdsControl, etc.), as well as sets of modern web analytics tools (free Google Analytics or Microsoft AdCenter)

Examining performance indicators

Marketing indicators for evaluating the effectiveness of advertising. To determine them, you need to visit the advertiser's office or carefully study the interface of the studied page.

The most popular marketing metrics for measuring ad performance are CTR and CR. In fact, there is nothing in common between these two abbreviated terms, except for the letters C and R. Let's take a closer look at what these and other marketing metrics for evaluating the effectiveness of advertising are.

1. Metrics for monitoring visits. The first and simplest indicator is the number of visits itself, although it only shows the tip of the iceberg. At correct use advertising, the number of visits should be at a constant level, otherwise the campaign should be optimized.

It is also important to pay attention to the audience by determining who is visiting the page, where your visitors are from, whether there are new guests and whether there are those who have returned to you again. Information about how long users have viewed your page can also be a signal to edit the site due to identified content issues.

A useful tool for assessing efficiency is a landing or selling page (landing page), which can be either a separate page of an existing site or a specially created "one page" site. The selling page becomes a kind of "hook" for the user, where he will either have to leave his contact information for further communication, or more carefully read individual products at the request of the owner.

2. CTR (Click-Thru Rate) - indicator of the click-through rate of advertising materials. CTR is a metric showing the effectiveness of an ad, expressed as a percentage of the number of clicks on an ad to the number of its appearances on the network. Naturally, the higher the number of impressions on the network, the more likely it is to increase visits. The CTR formula looks like this:

3. CR (Conversion Rate) - conversion rate. CR is rightfully considered the main indicator of the effectiveness of advertising campaigns, displaying the proportion of visitors who made a targeted action after going to the site through contextual advertising... Thus, if 10 people out of 100 visitors to the selling page leave their phone for feedback, the conversion rate will be 10%.

The conversion rate indicates the quality of ad customization and the relevance of the services offered. If users become customers without problems, advertising satisfies their needs, and the landing page is a means of solving their problems.

4. CPM (Cost Per Mille / Thousand) and CPC (Cost Per Click) - cost per thousand impressions and cost per click. These are the simplest metrics for the cost of advertising campaigns.

In fact, CPM is the amount that a client pays to get an ad to appear on the network a thousand times. CPC is an average indicator, which means that if during a certain period of time you received three transitions at a conditional price of 1.5, 2 and 2.5 rubles, then the average cost of a transition will be 2 rubles.

However, these metrics should not be considered as basic, because if you set yourself the goal of reducing the cost of the transition, you can lose the quality and effectiveness of advertising in general.

We will consider additional indicators of determining the effectiveness of advertising below.

CPA (Cost Per Action or Cost Per Acquisition / Cost Per Lead / Cost Per Sale) - the cost of the targeted action. It is calculated as a result of dividing the amount of advertising costs by the number of targeted actions performed (registration, subscription to a newsletter, trial period, etc.).

CPO (Cost Per Order) - order cost. This is one of the options for the CPA indicator - provided that the target action is a completed deal. Calculation formula: The amount of ad spend divided by the number of confirmed orders.

I would like to pay special attention social indicators (Social Metrics), which are determined by the number of references, for the most part, in in social networks... Currently, a campaign can be considered really unsuccessful, after learning about which users do not share information on Facebook or Twitter, do not subscribe to accounts on a particular social platform and do not show activity, without leaving comments and likes.

Financial performance indicators of online advertising. Their calculation is only possible if there is a customer relationship management (CRM) system and accounting data. As mentioned earlier, to work with this group of metrics, you need to have information about the number of sales. The indicators presented below are the qualitative and quantitative characteristics of advertising. In addition to them, there are simpler quantitative metrics for assessing the effectiveness of campaigns: the number of transactions, the number of attracted customers, the number of product units sold, etc.

1. ROI (Return On Investment) and ROMI (Return on Marketing Investment) - return on investment in advertising

What is the difference between these indicators? In fact, the difference between these concepts is small, since the term ROI is more general, while ROMI remains the more universal name for the metric. Return on investment in marketing is calculated using the same formula as ROI, only it does not take into account financial and accounting costs, logistics costs - in other words, things that do not apply to the field of marketing.

Thus, one of the main indicators of the effectiveness of an advertising campaign - the return on investment in advertising - is calculated as a percentage according to the following principle:

2. LTV (Lifetime Value) - lifetime value of the client , CAC (Customer Acquisition Cost) - the cost of attracting a client

LTV is the most important financial indicator, evaluating investment in advertising and determining the amount of income from an average client for the entire period of cooperation with the company. Let's dwell on a simpler formula for estimating the value of a client for a certain period of time, where the total amount of the company's profit is divided by the number of clients.

CAC is calculated by dividing the amount of investment in advertising by the number of attracted customers. Tracking the dynamics of the indicator, you can judge the effectiveness of advertising. Growth indicates a drop in efficiency, a decrease in product relevance, and an increase in competitors' activity. The fall is about increasing the effectiveness of advertising, respectively.

Particular importance is attached to the ratio of LTV to CAC, which determines the advisability of using marketing tools for a long time. An example of such a calculation: if the customer lifetime value is 50 rubles, and the cost of acquisition is 20 rubles, the ratio of LTV to CAC is 2.5.

Graphics provided by an expert

If the result of the calculations is less than 3, the use of a marketing tool is considered ineffective in its long term. To improve the situation and solve the problems that have arisen, it is necessary to revise the settings of advertising campaigns, as well as pay attention to the quality of customer service.

conclusions

When choosing a set of metrics for tracking and evaluating the effectiveness of advertising campaigns, it is always worth remembering that it is the entrepreneur who decides for himself what results he considers positive. It is important to understand that effective advertising on the internet should generate a significant return on investment. However, this does not mean that the results already achieved are maximum: any efficiency can always be doubled.

One of the ways to improve efficiency is to work with the ad unit submission structure. Another possibility is to reduce agency costs by eliminating the most expensive and ineffective means of attracting clients to a customer.

Competent complex work with content and tracking relevant performance indicators in the presence of clearly set goals will undoubtedly lead to the desired results.