Cost of Customer Acquisition is vital for online retailing. The cost of customer acquisition has always been a critical topic as it has been difficult to adopt a right formula to calculate the CCA.
There are atleast 4 types of customers
- Buys high tag price items once only
- Buys high tag price items multiple times
- Buy low tag price items multiple times
- Buy low tag price items once only
Interestingly first time customer acquisition is always expensive as they would enter the CRM list by buying expensive product in first shopping which would shoot the CCA
There are atleast three ways to judge the customer acquisition cost
- Estimated CLV – when a customer buys a high-end printer from a webstore there are high chances that he would buying printers and will remain customers if right service and accessories are provided in timely manner.
- Business or personal customers – It is clear that business customers will definitely return to buy more printers as compare to personal customers and the frequency and probability of shopping by small businesses would be more than the personal customers
- The source from where the customer is buying from. If he is buying through ads or affiliate network then this might be sales with short CLV (Customer Lifetime Value) as compare to customer coming in from exhibition or popular site like CNN.com
So the formula could be
product price x cost of acquisition (ads) x source of traffic x business/personal x product purchased price x item/s purchased
Concluding that, new customer acquisition is vital but, it is equally important to keep an eye on cost spent on different types of acquisition and monitor the CLV and try to increase the CLV by product merchandising, customer services and innovations.