While waiting for my meeting in the cozy Starbucks - Borders, Queensbaymall, I thought of doing a light post on internet advertising.
The biggest advantage of advertising on internet is the ability to keep track on how well the ads perform. That is something impossible for traditional media - newspaper, television, radio etc. Letting go of this advantage simply means money down to the drain, especially now with the hugely competitive industry.
Know Your Most Important Metrics
It is Cost Per Customer Acquisition, or can be called Cost Per Action (when visitors perform your desired action), or Cost Per Sale (when visitors buy something), but it essentially mean the same thing.
Cost per customer acquisition is the money you (the advertiser) need to pay for obtaining one customer. Before this metric means anything to you, you need to have in mind what is your profit per customer, either long term or short term.
Once you have these two figure of your business in mind, the rest is logic. Let’s take a look:
Cost per customer acquisition is higher than profit per customer = loss (negative return on investment (-ROI) ;
cost per customer acquisition is lower than profit per customer = gain (positive return on investment (+ROI).
So if you track these metrics, you can easily know whether you should put more money into internet advertising, and which area you should put in. At least, you will know when you are burning your money. Trust me, most people wouldn’t know.
How to calculate Cost Per Customer Acquisition:
Easy. Total advertising cost spent within a period of time / (divide by) Total customers obtained within the same period of time.
How to keep track? Google Analytics. It’s free. It has a new, revamped, easy to understand interface. I will save the details on another thread (I have made a post about it too, but it was for the old interface which will be discarded at the 17th of July).
Well that’s about it. What’s your experience on keeping track of your advertising source?
{ 2 comments… read them below or add one }
Paul Camp 07.07.07 at 1:06 pm
I agree with everyting you say save for the ROI calculation. One can go happily bankrupt if one uses revenue per customer rather than profit per customer as the rule of thumb. Revenue is important and for a fast growth company could be the only reliable measure of growth and advertising effectiveness, but for more companies acquiring a high volume of low or no profit customers could be result in a slow, painful suicide.
Lim CS 07.07.07 at 1:42 pm
Thanks for correcting Paul. I always thought revenue=profit, which is a mistake.
I have made the modification ;)