Why Should You Calculate What You Can Spend to Acquire a Lead?
- To know how much a customer is worth to your business.
- To know how much you can afford to pay to acquire a new customer.
Cost per Acquisition Formula
[Revenue ➖ (Production Cost ➕ Overhead Expenses ➕ Refunds)] / Number of Customers
= (Cost Per Acquisition ➕ Profit) per New Customer
*Revenue, Costs, Refunds, Customers, Expenses should be from same time period. (Ex. Jan. 2017 – Jan. 2018)
Definitions
Lead – A qualified visit to your website.
Revenue – Amount of money received or sales.
Production Cost – Costs incurred by a business when manufacturing a good or providing a service. Production costs include a variety of expenses, such as labor (employee salaries), raw materials, consumable manufacturing supplies, etc.
Overhead Expenses – Costs on the income statement except for direct labor, direct materials, and direct expenses. Overhead expenses include accounting fees, advertising and marketing expenses, rent, repairs, supplies, taxes, telephone bills, travel expenditures, utilities, etc.
Refunds – Return of money to a customer who is not satisfied with goods or services bought.
Customers – A person or organization that buys goods or services from a store or business.
Cost Per Acquisition (CPA) – The total cost of generating one paying customer or closed deal.
Cost per Lead (CPL) – The total cost of generating one lead.
Profit – Profit is the positive gain remaining for a business after all costs and expenses have been deducted from total sales.
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