Accenture reports that a “lack of benchmarking media performance and media spend” is one of the five biggest areas of corporate overspend. In other words, businesses waste money on marketing campaigns and lack insight into their performance. It’s easy to be seduced by slick ad agencies and viral media campaigns – but if it’s not producing sustainable growth, what’s the point?
Today’s marketers are part data scientist, part salesperson. That’s not to say digital marketing has changed selling, but you have more tools at your disposal to make quantifying your efforts easy. The more you know of what works, the less you waste on what doesn’t, which betters your results. And better results lead to better revenue, so let’s take a look at how to ensure your paid acquisition efforts are worth it.
What Is Paid Acquisition?
Paid acquisition is anything you do to Acquire customers that costs you money. For example:
- Social media advertising (Google, Facebook, Amazon, and so on).
- Press and TV advertising
- Pay per click advertising
- Display ads (site banners, billboards, and so on)
- Paid search
Affiliate deals also fall under the banner of paid acquisition, but as you only pay if you get a sale, it’s much easier to manage.
How to Recognize Profitable Paid Acquisition
The success of paid acquisition depends on two metrics:
1. Lifetime Value of Customer (LTV)
This measures a customer’s total worth to your business over time. Generally, this is customer profit minus the cost of acquiring and retaining the customer.
2. Customer Acquisition Cost (CAC)
The CAC measures how much it costs to Acquire a new customer. In other words, the amount you spend on paid acquisition.
A positive LTV means you’re making money, a negative LTV means you’re losing money. The CAC is the likely culprit behind a negative or low LTV. However, there are costs to retain customers and this might be another area in which to assess performance (but outside of the scope of this blog).
How to Improve a Negative or Lagging LTV
If you want to improve your LTV, which ultimately boosts revenue, you need to reduce the CAC. A high CAC could be symptomatic of one or a number of issues. The questions you need to ask are:
- Are you selling to the right people?
- Are you selling on the right channels?
- Are you selling using the right medium?
- Are you being persuasive?
- Are you being timely?
- Are you incentivizing action?
- Are you and your offers credible?
- Are you testing and optimizing?
And countless others.
It’s all about understanding who your ideal customers are and then using the best means to reach them with an offer they can’t refuse. First, identify where your existing customers came from and understand why they bought from you. You then know what messaging to replicate and whom to target.
For example, your ideal customers – those for whom you add the most value – should serve as a “lookalike” audience for Facebook ads. You’re then advertising to the people who would benefit from your product or service. Google ads, for example, should include keywords relevant to your customers’ needs. The SERP will then display your ads as solutions or answers to their queries.
Why the Customer Journey Is Important
You must also think in terms of the customer journey. Are you selling to people who know you? Are they aware of the problem your business solves? Hubspot defines the customer journey as three stages and you should customize your ads to each stage.
The customer has a problem to solve but doesn’t understand it yet. They’re doing research to understand their problem better. You should therefore focus ads on the problem itself, contextualizing it, exploring how it impacts customers’ lives, and so on. This helps the customer understand the nature of their problem and you as a possible solution.
The customer understands their problem and is considering solutions. They’re still researching, so you should focus on why your solution outshines others, focusing on the ease, speed, price, or efficacy of your product or service. If you sell software on a subscription model, you might focus on the affordability over owning a full license.
The customer has decided on the best solution. They’re now comparing vendors before making a final decision. Now is the time to focus on why the customer should choose your business. You might quote Trustpilot reviews, press coverage, or include a compilation of customer video testimonials.
Paid acquisition works best when you know your audience and how to sell to them. Once you understand the basics of this set-up, turning a negative or flagging LTC into a positive one is a matter of testing and refinement until you hit your target.
A Strategy for Profitable Paid Acquisition
If your budget is swirling down the drain due to paid acquisition, the first thing you should do is turn off the tap. There’s no point wasting money even if growth slows. With budgets on hold, identify where things are going wrong. Then, with an evidence-led hypothesis behind you, formulate a reentry plan. Should you steam ahead with full budget?
No. Doing so only risks getting it wrong again. Instead, increase budget in test-led increments. If you’ve plugged the leaky hole in your acquisition strategy, you’ll rack up profits instead of watching them go down the drain. Add a little more budget, keep your eye on revenue levels, until you’re back at full budget but with a commensurate boost in revenue and profit. If your CAC creeps up again, dial back budget until you’ve fixed the issue.
You should already know who your customers are (your buyer personas) and where they are (on Facebook? On SERPs?). You should also know how your product improves their lives. At the intersection of these two points lies a paid acquisition plan that catalyzes growth. Do the work outlined above and you’ll find it.