Set a Customer Acquisition Cost Goal

Search engine advertising attracts new customers. However, it increases your sales to a limited extent. That's because a finite number of people seek your product or service. If there are 10,000 searches for "home aquarium tanks," you can't make additional people perform searches for that phrase. If you buy this phrase, your text link can only appear a maximum of 10,000 times, and no more. The good news is that you can work to lower your customer acquisition cost, which can significantly increase your overall ROI. Setting CPA goals helps you accomplish three main tasks :

• Immediately identify and delete (or modify) the search engines, products, and campaign components that are weakening your overall ROI.

• Forecast potential ROI before you launch a new search engine ad campaign.

• Negotiate CPA deals for Fixed Placement search engine programs or other Internet marketing campaigns .

The easiest way to set your customer acquisition cost is to use your retail product price. Using the example from the previous section, let's say your company sells a $15 product. A profit margin is typically included. If you spend $15 on advertising, you need to acquire at least one new customer at $15 to break even. Therefore, $15 is your customer acquisition cost maximum. More than likely, you'll strive to earn a larger profit. Perhaps you initially set a CPA target at $12 then.

Obviously, this is a simplistic way of figuring out your customer acquisition cost. It'll at least help you plan and track an initial campaign. Be aware of other factors that affect your customer cost, such as:

• The lifetime value of a customer: Does your business generate revenue from long- term relationships with customers? If not, think about how to grow business from your existing client base (the 80/20 rule of marketing: 80% of your revenue comes from 20% of your customer base). For example, an auto dealer knows the sales cycle doesn't end with the purchase of a vehicle. Car accessories, extended warranties, and financing services are all additional revenue opportunities.

  You may assume that to sell a $15 product, you must acquire a customer for $15 or less. But if on the average your customers make a minimum of three purchases at $15 each over their lifetime of being your customer, then you can acquire a new customer at $45 or less. The bigger your CPA number, the easier it is to find advertising programs that deliver results under this amount.

• The profit margin: Most products and services have production or labor costs. If your $15 sale gives you only $1 of "pure profit," then acquiring new customers at $15 each is certainly not ideal.

  However, if you use the profit margin as your customer acquisition cost, search engine advertising might not be profitable for you. In general, it's highly unlikely that paid listings would yield new customers at $1 each. Clicks at $1 each? Yes. New sales at $1 each? No. Without a doubt, using the profit margin as your cost per customer acquisition is a good, yet aggressive goal. Consider working toward it over the course of your advertising campaign.

Consider how these two factors impact your customer acquisition costs. Initially, you might track your results by total ad profit instead because it's less time consuming. That works. When you're ready to take your campaigns to the next level of efficiency, then start evaluating your CPA data. Work toward increasing your profitability as well as sales volume.

My examples here focus on product sales. Of course, ROI and CPA analysis apply to services. Additionally, this analysis is an important part of nonrevenue-generating calls to action as well. For instance, if one of your objectives is to increase subscriptions to your e-zine, then set your CPA goal to anything you want and still track your ROI. I bought paid listings on Overture to increase my own newsletter subscriber list. By modifying the keywords in my campaign, I cut my CPA from a few dollars to under $1 per subscriber. Paid listings work for transactions that don't immediately produce sales, too.