Are you willing to buy a $10 bill for $50? Probably not. But if so please email me. Unfortunately many businesses do this transaction every single day by not understanding their true Cost Per Acquisition. It is a very simple task to undertake and ensures that your paid media strategy maintains profitability.
How to Calculate Revenue per Lead
You may have to do some ballparking here, but basically you have to look at your customer base. How much revenue on average does a customer bring to your business? Let’s say that number is $1,000. Next, what is our business margin, meaning; how much can we afford to spend and still stay profitable. Let’s say that number is $250 (eg: a 25% margin). Now, on average how many leads turn into clients? (Leads being calls, form fill outs, etc) Let’s say we average about 75%. The math is pretty simple from here: (Revenue Per Client * Margin) * Lead Conversion = Cost Threshold (for our example; $187.50)
How to Calculate Cost Per Acquisition
Now that we have a Cost Threshold we can work backwards to understand how much we can spend to acquire new leads. We need to review the analytics a bit here to determine our website’s Conversion Rate. Then we can do the math to determine how much we can spend per Conversion; Cost Threshold / Conversion Rate = Cost per Acquisition (for our example $18.75)