Use the example in this article to calculate your cost per lead and cost per customer acquisition.
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Let’s say you sell a service for £5000.
You make £2500 after deducting your costs.
You could be selling:
- A recruitment service.
- Insulating products.
- A holiday.
- Double glazing.
- A bathroom refit etc.
You aim to do 10 jobs per month.
£2500 x 10 = £25k margin per month.
£300,000 gross profit a year.
For a service business to get 10 sales a month your website needs enquiries or leads first.
Start building your email list up but realise you won’t convert all leads that month into sales.
Some leads may never be customers.
Some sales leads will take longer than others to become customers.
You’ll need to nurture and educate them.
- 10 sales divided by
- 20% sales lead conversion equals
- 50 leads a month.
To get leads your website needs traffic.
You will only convert a percentage of your website traffic into enquiries or leads.
My website converts 3% of traffic to leads.
- So 50 leads divided by
- 3% website conversion rate equals
- 1667 website visits.
I know some website clients that convert 60% of leads to sales but they do sell lower priced services.
Website conversion rates will vary business to business.
Is there search demand?
Is there enough search volume and click volume to deliver 1667 extra visits per month ?
I will come to that later.
The thing about SEO is it takes time to earn traffic from new web pages.
As an active business, you probably need website traffic ASAP.
Use advertising to calculate cost per visitor.
You can pay Google Adwords to purchase the 1667 clicks you need.
Let’s say it costs £3 per click.
So the cost each month for the 1667 visits x £3 is £5001.
- £3 cost per click.
- Divided by 3% website conversion.
- equals £100 per sales lead.
- 20% sales lead conversion.
- equals £500 cost per customer.
Would you pay £500 to make a £5k sale and a margin £2000 (£2500 less the £500) ?
Yes you probably would.
That’s the cost of doing business.
The cost of acquiring a new customer.
But what happens when the cost per click is £7 ?
- £7 cost per click
- Divided 3% website conversion
- equals £233 cost per lead
- 20% lead conversion
- £1166 cost per customer
That’s a big dent in your margins.
What happens when the cost per click is £25?
- £25 cost per click
- divided by 3% website conversion
- equals £833 cost per lead
- 20% sales lead conversion
- £4166 cost per customer
Look at these 3 web design agencies advertising around the search query ‘web design agency’.
They would have to sell websites for around £15,000 to make this customer acquisition cost be financially viable.
You acquire £15k website deals from long trusting dialogues and relationships; not from a PPC advert.
With advertising, you have to pay £3 x 1667 clicks (£5000) every month to keep getting that traffic.
On top of the traffic cost you still have to pay your marketing guy or ppc advertising agency to manage and run the campaign.
If you stop paying Adwords for the traffic, the visits to your website, leads and enquiries and sales will likely dry up.
PPC & SEO Mix
Ideally you should have a mix of PPC advertising and SEO.
Here’s a typical Google search result.
I have put lines around the adverts.
And I’ve put a big purple block over the natural search results.
With research I can estimate the percentage of people that click on the paid advert results versus natural organic results.
- 26% click on the adverts.
- 74% click on the organic results.
Obviously the paid and organic clicks will vary per search query.
SEO is different from PPC.
With SEO you pay for different expenses.
- You pay someone to research and find out if there’s search demand.
- They identify the search volume, click volume, competition and the traffic the top pages get.
- There’s the cost and time to write, design, layout your page and add a call to action on a web page.
- Promoting your page for a few months takes time and money; outreach and backlink work.
The traffic to the page gradually grows over time.
Look at this search query (made by people in Google USA)
American tourists considering a holiday to Scotland will spend money on a foreign holiday – hotel, flights, food etc
One of many searches they make is “scotland vacations”.
The cost per click to advertise around that search query is $3.50 – that’s about £3.
The difficulty of the keyword is low so there’s a chance of breaking into the top 10 organic search results.
Now look at the pages in the top 10 search results.
There are 4 pages getting over 1000 visits per month.
One page gets 3519 visits to their page.
That page is getting £10,500 worth of traffic each month.
The company would have to pay Google £10,500 a month or £126,000 a year to acquire that traffic.
Let’s look at the same website
They rank at number one for ‘london vacation packages”; a phrase that has 1300 searches a month.
Let’s look at the metrics around this keyword.
- The keyword difficulty is 5
- Paid clicks 15%
- Organic clicks 85%
- Cost per click $4
Their web page is at number 2.
- Their page gets 2170 organic visits per month to his page.
- The page also ranks in Google for another 297 similar keywords.
So this business is getting £6510 worth of traffic each month.
If they didn’t rank where they do they would pay Google Adwords £78,120 per year for this traffic.
Cost per lead formula.
To work out your cost per lead:
- Cost per click (£3)
- divide by website conversion rate (3%)
- Cost per lead (£100)
Cost per customer acquisition formula
To work out your cost per newly acquired customer:
- Cost per click (£3)
- divided by website conversion rate (3%)
- equals cost per lead (£100)
- divided by lead conversion rate (20%)
- cost per customer acquisition (£500)
If you want immediate website traffic, use Google Adwords or Facebook advertising as part of your advertising plan.
What now ?
You need to start reviewing some key metrics.
- What’s my total website conversion rate ?
- How many enquiries do I get each month and what percentage do I convert ?
- What web page delivers me the most traffic from Google?
- Does my best page convert into leads ?
- What search opportunities could I capitalise on ?
- What’s the traffic estimate of ranking on Google’s first page ?
- What am I willing to invest in time, money and resource to be on page one ?