RE: UKNM: Cost of bringing in visitors

[Geoff Inns]

An 'average' cost is only the result on the success of various strategies

involved. If you spend a lot on above-the-line marketing, your costs will be

high (too high, as some companies have recently found out). Different

acquisition costs are acceptable to different companies -if I was selling

cars online and made £2k profit on every sale, I would happily spend more

than £1 on converting a visitor. Different metrics for different operations.

An online media owner whose sole income is ad revenue needs to look at net

ad yield per page displayed and number of pages viewed per user per month,

and ensure the cost of attracting a visitor is below that of the revenue

raised against their visit, otherwise you get the classic internet business

situation of losing money when you get a user - and never making a profit.

For e-tail companies, the cost is based not just on getting a visitor but

primarily on converting them to buyers - your cost of conversion AND

attraction must be less than the projected lifetime profit of that customer

to you. No easy feat, and one that only massively virally marketed (or other

low marketing cost) companies achieve.


You need to determine what the acceptable cost to YOUR business is, whether

it's £1, 50p or £50. Each transaction/visit (dependent on your revenue

models) must mean profit NOW, if the investment of start-up is to even to be

dreamt of being recouped in 1-3 years time via an aggregation of such events

over time.


Geoff Inns

Business Development Director

Questico UK Ltd

geoff [dot] innsquestico [dot] co [dot] uk

www.questico.co.uk



-----Original Message-----

From:

ownerchinwag [dot] com

 [

ownerchinwag [dot] com]On">mailto:ownerchinwag [dot] com]On

 Behalf Of David

Cabrera

Sent: Tuesday, January 09, 2001 03:10

To:

uk-netmarketingchinwag [dot] com

Subject: Re: UKNM: Cost of bringing in visitors



In online as well as direct marketing, customer acquisition and response /

visitor costs vary according to:


1.    the effectiveness of your media (targeting) strategy

2.    any incentives or special offers being used

3.    creative

4.    campaign timing


These aspects can be tested and measured to establish their impact on the

acquisition mix. However 4 further factors which are harder to quantify will

also have a significant bearing on visitor / acquisition costs


5.    how well known / regarded is your company or brand amongst your target

market

6.    the degree and type of competitive activity

7.    the basic demand for your product (e.g how many CD's and how many

holidays do you buy each year)

8.    the propensity of consumers to consider and then buy from a new

source.


For example in the online banking sector the average cost of acquiring a new

customer is reported to be £265 (FT late Nov / Dec 00). If you were to

assume a conversion rate of 1:20 then visitor costs are £13.25. Whilst these

figures would be unprofitable for many business models, it may be highly

profitable for others. Consider how much people pay each month in mortgage

interest payments, spend on credit cards (interest charges + banks take 2%

ish of total spend from the merchant) then add pension contributions, an

endowment policy, bank charges if you are overdrawn from time to time, etc

etc etc.


Therefore a financial services organisation with a good product mix that

offers competitive interest rates / investment returns, combined with a well

focused and targeted customer acquisition, cross selling and retention

programme will turn a £265 customer acquisition cost into a very profitable

investment.


The key starting point is to try and estimate the lifetime value of a

customer, the cost of customer service and then determine how much can be

invested in customer acquisition.


You will need a cost effective relational marketing database which amongst

other points (e.g. selling to existing customers is far more profitable than

generating new ones) will measure and quantify the effect of each and every

core variable in your marketing mix over the short and longer term. For

example visitors generated from one media source at an average cost of £x

could turn out to be significantly less profitable than customers generated

from a second source at £2x because a lower proportion make a first or

subsequent purchases and / or the average value of their spending is lower.


If you would like to know more mail me off line and we can discuss


Regards


David


[Sam says: msg chopped]



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