eCommerce: Calculate Cost of Customer Acquisition
Calculating the cost of customer acquisition is an extremely important metric to have not only for your eCommerce store but for your business as a whole.
Please keep in mind that this formula for calculating eCommerce cost of customer acquisition is going to be slightly different than doing it for a normal business.
In past blog posts we’ve gone over how to calculate CTR (click through rate) as well as conversion rate for a website which was a very successful post, and are planning on doing a lot more “how to” type posts in the future.
Pick a Range of Dates
The first thing you need to do is decide over what period of time you want to use to determine your cost of customer acquisition. 2013 will most definitely look different than 2015. Do you want to calculate your average cost since you have been in business? Or do you want to calculate your average cost over the last 6 months? Whatever you choose, stick to it.
In the next step when you are gathering your data, you need to stick to the same set of dates. You can’t select 18 months of data for one parameter and 6 months for another one.
Before you are able to calculate the cost of customer acquisition, you need to gather some data. Be prepared to crack open your books. Just remember, the more accurate and honest you are with yourself the more accurate your results are going to be.
- Marketing costs – This could be anything from your Facebook or Google Adwords budget to an SEO directory (gasp.)
- Wages paid (contractors or employees) – Do you pay a blogger to write posts for your eCommerce blog?
- Infrastructure costs – An eCommerce infrastructure stack can be anything from your hosting plan to your Shopify subscription. If you have a phone used for customer support for instance, add that in there. SSL certificates, CDNs, payment gateways, and PCI compliance are more costs you might need to factor in.
- Other costs – Rack your brain for anything else you might have had to pay for. Maybe you pay a monthly fee for some random service.
It does not matter how you categorize the 4 items above, as long as you include them. For instance, if you include your hosting costs in your “marketing costs” that is OK.
Customers obtained – The total number of customers you have obtained. This one should be easy. You can generally get this number from the backed of your eCommerce site.
Once you have all of this information available, you are ready to move onto the next step.
The formula: Calculating Cost of Customer Acquisition
Once you have all of this information, you are ready to calculate the cost of customer acquisition. This is a very basic principle. Essentially you are just adding up your costs and dividing them by the number of customers that you have. If you are just looking for a round number, feel free to make a few guesses and round things off. If you want an exact number you may need to spend a few days gathering this information.
In the end, what does this all mean? With this number you can do a lot. There are a number of other eCommerce business metrics you can calculate. It is also good to have for investors or if you ever go to sell your company, this is one of the first questions anyone will ask you.
Download Excel Calculator for Calculating Cost of Customer Acquisition
If you are an Excel person and wish to download the spreadsheet for calculating cost of customer acquisition you may do so here.
If you have any questions or think I missed anything, please feel free to give me a shout!