Determining The Right Customer Cost per Acquisition For Your Business
Trying to figure out your paid search budget? Clearly defining your acceptable cost per acquisition for new customers is the best place to start.
All things being equal, the more your company is willing to invest to acquire new customers, the faster the customer base will grow. However, there is also a direct relationship with your desired number of new customers and the amount you need to invest to obtain them. Deciding how much to invest in acquiring each new customer depends on the value of your customers over time, as well as your overall business goals.
Let’s Start with Annual Value
There is a lot of talk about the “Lifetime Value of a Customer”. Understanding the lifetime value is important, but most businesses don’t have the luxury of waiting a lifetime to get a return on investment. Thinking more in the short term, let’s understand the annual value of a customer. Take a home cleaning business as an example. The annual value of a new home cleaning customer can be figured out like so:
Average Transaction Amount: $100
Average Transactions per Year: 26
Gross Revenue per Year: $2,600
Average Profit Margin: 50%
Annual Gross Profit Margin: $1,300
In addition to the value of one customer, you should also consider how much of your new business comes from customer referrals. If 50% of all new business is the result of customer referrals, for example, you can assume that every new customer generates another customer.
Once you’ve done the preliminary math, then you can wisely determine how much of that annual gross profit margin you are willing to invest. Continue Reading…
Microsoft’s proposal to buy Yahoo! certainly has our hallways buzzing. But the fact is, any attempt to analyze the impact of a Microhoo! union at this point would be pure speculation for a number of reasons. First of all, it is far from certain that this deal will go through. This was an unsolicited offer by Microsoft according to the media, so acceptance of the offer by Yahoo! may not happen. Second, this deal will face much scrutiny from regulators in the same way that Google is getting scrutinized over their desired purchase of DoubleClick.
If the deal does go through, it has not been reported as to how the companies will integrate. Questions that remain:
1- Will there continue to be two separate brands: MSN (and Live) and Yahoo!, or will they merge under one portal name?
2- If they keep two separate brands, it is likely that they will use one company’s search technology, but that is still to be determined.
Keep in mind that this deal goes well beyond search engine marketing. This is about all forms of online marketing including image based advertising and video advertising. It is also a defensive move against Google, which is trying to more rapidly evolve the “software as service” business model. With hundreds of millions of people on the combined properties of Yahoo! and MSN, that is a strong platform to build that business from.
Isn’t it great to be in such a dynamic and exciting industry?
So you enter a search term into a search engine like Google, Yahoo!, or MSN. What happens next? Read on to find out…
Search engines have a short list of critical operations that allows them to provide relevant web results when searchers use their system to find information.
1. Crawling the Web
Search engines run automated programs, called “bots” or “spiders” that use the hyperlink structure of the web to “crawl” the pages and documents that make up the World Wide Web. Estimates are that of the approximately 20 billion existing pages, search engines have crawled between 8 and 10 billion.
2. Indexing Documents
Once a page has been crawled, its contents can be “indexed” - stored in a giant database of documents that makes up a search engine’s “index”. This index needs to be tightly managed, so that your search requests (which require the search engines to search and sort billions of documents) can be completed in fractions of a second. Continue Reading…
