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Blog / Looking For Long-term Success in E-commerce? Optimize Your Customer Acquisition Cost First!

Looking For Long-term Success in E-commerce? Optimize Your Customer Acquisition Cost First!

In 2017, retail e-commerce sales had their moment on the global stage: They exceeded $2 trillion, a nearly 25% increase from the year before, according to findings by eMarketer. Mobile, too, played a key role, as m-commerce accounted for almost 60% of all digital sales.

If there was only one example of a success story in the industry, it would have to be Amazon. Amazon is everywhere: It’s the number-one most valuable brand worldwide. Last year alone, it accounted for 50 percent of all online revenue on Black Friday. Just a few days later, Cyber Monday was its biggest shopping day in history. And those are not isolated cases. Ever since the launch of its Prime program, about two-thirds of U.S. households have become members. The key to Amazon’s success, among others, has been the company’s ability to analyze every single bit of data, generated from its operations, and more specifically, from every package it has ever shipped.

The fact is, you cannot really manage something that you cannot measure. Amazon is your textbook example. Yet, e-commerce is much more than Amazon itself.

E-commerce is about the industry giants, just as much as it is about that one-man company somewhere across the globe, selling its products with Shopify or Magento. It, too, needs to leverage marketing data to match the wants and needs of its customers, and make the most accurate business decisions. 


Nail your Customer Acquisition Cost!

Clearly, e-commerce is more than just a trend, and quality marketing data can help you leverage it.

In an effort to keep up with the market, e-commerce companies are looking to leverage new techniques and target their customers with precise and timely offers. Data is playing a key role in this process. Figuring out just what customers want, need and are willing to spend their money on is not based on (educated) guesses anymore, but on facts.

And it's not just simple facts, but ones that are becoming more specific and more accurate by the day.

According to research by BigCommerce, personalization and localization will be two of the key features for e-commerce brands in 2018, and especially their ability to leverage niche data to create relevant and powerful customer experiences.

Data-driven e-commerce is really the only e-commerce you need to concern yourself with. It is based on monitoring and analyzing various metrics – from website traffic to search, email and social media, and dealing with large amounts of data on a daily basis. This data is not just big, but also scattered and diverse, and it requires a great deal of attention to make sure its analysis generates valuable insights.  

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As many of you may have already experienced, this is often easier said than done.

Your cost of acquiring new customers - and especially customers that are likely to come back to you - is what can make or break your e-commerce business. Have it too high, and your company may tank. Nail it, though, and you are on your way to success.


Rethink the way you acquire new customers

If a decade ago, acquiring new customers was a matter of launching one big ad campaign and hoping to attract as many people as possible, today, you can target them on a number of different channels until you find just the right combination. Not to mention the fact that, once acquired, those new customers can then be re-targeted to generate even further sales.

So, how do you determine the perfect Customer Acquisition Cost (CAC) for your e-commerce business?

At first glance, the calculation seems rather straightforward: You divide your marketing expenses by the number of new customers acquired in the period the money was spent. So, if one month you spent €1,000 and you acquired 100 new customers, then your CAC is €10.

The catch is that CAC is just a number - and it can be both good or bad, depending on the future purchase behavior of the customers you’ve just acquired. If you got yourself a one-time buyer, then €10 was probably a high cost to pay. But if you got yourself a customer who comes back and makes purchases every other week, then €10 may have well been a reasonable investment.

Therefore, you need to always place your CAC in the context of customer loyalty and retention.

A study by Bain & Company has found, in fact, that only a 5% increase in customer retention can account for more than a 25% increase in profit. “Why?,” author Fred Reichheld asks. “Return customers tend to buy more from a company over time. As they do, your operating costs to serve them decline. What’s more, return customers refer others to your company.”

In short: it is costly to get new customers into your business. But once you have them, make sure to serve them with great content and the right offers to monetize them more than once. With increased life-time-value (LTV) your business will become more profitable - always remember that retaining your existent customer base is cheaper than getting new purchasers in.

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Measuring your CAC per marketing channel

Now, because you can target customers on so many different platforms (from social media, to blogs, to email), your CAC, too, will be spread across them - and in time. So, how do you calculate your CAC per marketing channel?

A campaign you launch next week may have an effect in two weeks or in two months. Or never. Figuring out which of your advertising efforts count – and when – is key to really gaining insight into your CAC.

This is where the marketing attribution model can come into play. The idea of marketing attribution is to essentially tie conversions to the exact channels that were involved. You can decide between first-, last- and multi-touch attribution.

First- and last-touch attribution takes into account a single marketing touchpoint: The former focuses on the first marketing channel that engages a user, while the latter does the exact opposite - it focuses on the last channel and often the one that leads to the conversion. Multi-touch attribution, on the other hand, gives credit to a combination of touchpoints, making it a lot more flexible and diverse. Of course, it would require you to have a lot more specific and accurate data about your marketing performance.

“Multi-touch attribution has the power to be the most accurate but relies on a properly chosen model and accurate data collection. Unless your company has a particularly complicated marketing mix, a single touch point attribution can be just as effective,” says marketing and analytics professional Matt Leap.  

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Knowing the specific performance of each of your marketing channels can help you identify the ones with the lowest CAC. After all, the more you focus on lower CAC channels, the more customers you can gain with a fixed amount of money. It is also more likely that their LTV will quickly offset the initial cost of acquiring them.

At the end of the day, your goal is to run a successful e-commerce business. Having an insight into your marketing performance - especially CAC and your customers’ LTV - is key to knowing which customers, channels and approaches to focus on. Yet, that’s not nearly all. Knowing what to focus on is one thing, but knowing how to make improvements is a whole new ball game. And data can help you with it.

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