The cost of social media marketing is important for your digital strategy. Have you ever wondered, how much money you’d need to spend to get one new customer via Social Media Marketing? The cost can depend on many mitigating factors, but you can read on and learn the best methods to calculate media cost for your business aims.
-By Pål Storehaug
Digital marketing is much more cost effective compared to traditional forms of media marketing. However, this will depend on getting it right! As platform complexity increases and new developments come into play, you need to understand key details and keep up with new advancements. Alternatively, if you’re short on time -you can work with experts that can handle it all for you.
In this article, I’ll take you through the different variables that can affect your Customer Acquisition Cost (CAC). Much of what we’ll discuss related to CAC when you use Social Media or Search Engines for Marketing.
CAC is the total cost of acquiring a new customer – including sales and marketing personnel, media cost, external services etc. In this article, I will focus on the media cost.
These are the variables you need to understand:
Customer LifeTime Value (LTV)
Customer Acquisition Cost (CAC)
Price Per Click (PPC)
Price Per Thousand Views (CPM)
Step 1: Calculate the Value
The first important figure to understand is the value of one new customer. Customer LifeTime Value (LTV) is the average total earnings you get from a customer.
To calculate this you need to know your average revenue per customer, your margin and your churn rate. Churn is the average percentage of customers you lose per year (sometimes calculated per quarter or month).
For example, if you sell a subscription service that cost 2.000 GBP per year, with a 50% gross margin, and your churn is 15% (you lose 15% of your customers yearly). Your LTV would be about 6.600 GBP. That is the value of getting one new customer. If your CAC is lower than your LTV you would eventually get a profit from your new customers.
However, many companies can only afford to look at earnings from the first two to three years when they decide their marketing budget. For instance, they would need to get a new customer at a cost approximately equal to their first-year revenue.
Step 2: Decide Your Conversion Goal
Before you start your Digital marketing campaign, you should define your conversion goal. This will vary between different types of businesses. If you have a webshop or online reservation solution, your conversion goal would typically be online revenue. Understandably, for many companies, their products are too complicated to sell online. So, their main conversion goal would be generating leads.
Understandably, for many companies, their products are too complicated to sell online. So, their main conversion goal would be generating leads.
A conversion rate is the number of sales you get (or the amounts of leads you accumulate.) It’s a percentage of how many visitors you get from your campaign. Our research shows that average conversion rates vary between different sectors, between 0,7% up to 7%, with an average of about 1,7%. The best campaigns achieve conversions rates above 50% (!)
Many of our customers sell their products from a webshop. One good example to consider is; our customer has an average revenue of about 150GBP per person and with a 50% margin. They estimate that on average a new customer will buy 5 products over time, which give an average LTV of 375 GBP.
This customer is mainly doing product ads on Facebook for now because this has proven to give the best conversion rates. Also, their marketing is so effective that their marketing cost is way less than first order sales margin.
Their conversion goal is 1,2%. This means that out of 1000 visitors to their website they expect 12 sales from their web shop. In a typical day, they target 50.000 visitors and a goal of 600 orders.
Their Marketing CAC is about 5 GPB, excluding work. Highly profitable!
Many of our customers focus on Lead generation. That’s also our main focus too, as most of our services are too complicated for people to order online.
There are many different conversion strategies you could choose. We use mainly two: A) Call To Action (CTA’s) on our blog, and B) Landing Pages with “lead baits”.
CTA’s are all the different places we encourage our visitors to leave their contact details if they need help with Digital Marketing, SEO, need a new website etc. The quality of leads from our CTA’s are very high and we are able to qualify a high volume of them.
Lead baits are different ebooks, webinars, case studies etc. that we offer as a free download. This is valuable information for anyone that want to learn about Digital Strategy, Social Media Marketing, Web Design, SEO etc.
The cost of leads gathered from Landing Pages are very low, but the quality is also lower so we qualify less of lead bait leads.
Our conversion goal is 2,5% overall different activities and a cost of about 20 GBP (excluding work) per lead. We use many different lead sources; Facebook, AdWords, Twitter, G+, LinkedIn, Instagram and Pinterest. Also, we pour most of our marketing spending into remarketing towards previous visitors, which increase the conversion rates.
Step 3: Estimate the Cost of a Visitor
The next question you need to figure out is; how much it will cost to get people to visit your website. A low number of visitors will ultimately leave you with low sales in your webshop or few leads generated, so investing in Digital Marketing will increase the number of visitors and your revenue.
The cost of a visitor is determined by:
Which channel you use
The look and message in your advert
Where you send your visitor
Your bidding strategy
The cost of getting a visitor will vary depending on which channel you use to attract visitors. Facebook is well known as a low-cost channel with very high reach. It is a great channel for getting new visitors as well as remarketing to previous visitors.
Cost Per Click (CPC) vary depending on your target audience, target market, relevancy score, bidding strategy and a number of other variables. We have seen the cost per click as low as 2 pence and up to 2 GBP but a typical cost is about 50 crush. (50 penny – the reason for different values is the cost is higher in the UK)
Also with Facebook, you can choose to bid for reach instead of clicks. This is called CPM and you bid for how many people you want to reach or how many thousand impressions you want. Generally, we recommend using CPC when your ads would be interesting for a low number in your audience, and CPM when you have a very popular post. You should try the different strategies and see for yourself.
With AdWords, the cost is more dependant on your keywords and quality score, but also with AdWords, there are a lot of other factors that will affect the CPC. A popular keyword may cost 20-50 GBP, while less popular keywords can be yours for 2-5 GBP.
The clicks from AdWords may be more relevant as you get visitors that is actively searching for your products or services, whereas other digital ads are hitting people that may be interested but not necessarily ready to purchase. This means that conversion rates may be higher.
With Google AdWords, you can also do banner ads on the Google Display Network. This is particularly recommended for remarketing. Basically, this means that you can present ads in more than 2 million websites to people that have visited your website.
There are many other channels to consider. Twitter, Instagram and G+ are other low-cost channels. LinkedIn is more expensive, but target “professionals” and may be more valuable if you work with B2B marketing.
The Look and Message in Your Advert
The cost per visitor is very dependent on the image, headline and your ad copy, of course. The different Social Media channels and Search engines main goal is to make their user experience as good as possible for their users, so they spend more time there.
That’s why you have Facebooks Relevancy score and AdWords Quality Score. If your advert gets good feedback from your audience it will reach more people. A low score may lead to very few impressions. So you should focus on making adverts that people like, comment on and share. That way your advert will reach more people, hence reduce your cost per click.
Please contact Cloudnames if you have questions or need help! You can send us an email directly with your questions to email@example.com .
Where You Send Your Visitor
Still, we see many advertisers on Digital Media sending their visitors to their home page. This will reduce conversion rates dramatically. Ideally, you should create a Landing Page for each campaign, that is specifically designed to optimise conversions.
If you make a product advert for a product that can be ordered in your web shop, you should send the visitor directly to that product in your webshop.
If your aim is content marketing, you should make sure you have good CTA’s and send visitors to your blog post. Odds are high that you came across one of Cloudnames adverts on Social Media and found this article there. Or you have visited our website before and see our ads regularly or you may have left your email with us earlier and got an email from us with links to this article. Nevertheless, it’s a good chance you are reading this article because we are promoting it.
Your Bidding Strategy
All ads on Social Media and Search Engines are delivered based on an auction. So when you post an advert you will have to leave a bid or let the channel handle your bid for you. If you want to get the lowest possible click cost you leave a low bid, towards a huge audience with a compelling message. If you are willing to spend a bit more and want fast results you choose a more targeted audience, leave a higher bid and your ad will get a higher reach faster.
There are very many variables that decide the cost per visitor and conversion rates. And there is a huge distance between a good campaign and a bad one. If you do your Digital Marketing well a small budget may bring you lots of new customers, while even a huge budget may fail if you make mistakes.
Conversion is the Key
The only way to find out for sure is to try it out for yourself. At Cloudnames we handle Digital marketing for many customers and we would love to help you out as well! We tailor campaigns for any budget and can help you with all your Digital Marketing needs.
We can help you develop a Digital Strategy, set goals for your Digital Marketing and run your Digital Marketing activity in any channel. Or you could test it out by yourself, and learn how by reading our blog.
Your main focus should always be to maximise your conversion rate. Think through what your customer journey is, from seeing your message to paying for your product or service. If that customer journey is informative and attractive, your cost of a customer will be low. If it, on the other hand, is difficult and complicated you will have to spend more.
We offer a managed web design service where we manage your website and keep it updated and secure on a regular basis. We can also take care of your Search Engine Optimisation, Search Engine Marketing, Social Media Marketing and all other Digital marketing campaigns you need.
Please contact Cloudnames if you have questions or need help! You can send us an email directly with your questions to firstname.lastname@example.org simply click on the link below and leave your contact details.
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At Cloudnames our motto is “sharing is caring,” so we have made a guide on everything you need to know to be successful with Digital Marketing. You can download your free copy today!
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