New Customer CPA guide.

Understanding your new customer Cost Per Acquisition (CPA) is essential for businesses striving to hit their ambitions.

This guide not only walks you through the calculation of but also delves into optimising it through the traditional yet still relevant lens of the 4Ps of Marketing: Product, Price, Place, and Promotion.

But first of, let’s make sure we’ve got the new customer CPA analysis understood.

How to calculate new customer CPA:

1. Identify New Customers: Begin with defining a “new” customer for your business context. This might mean any customer who hasn’t purchased within a certain timeframe, say 24 months. Calculate the total number of new customers within your analysis period.
2. Aggregate Associated Costs: Sum up all the expenses related to acquiring these new customers. This includes all marketing, sales, and direct acquisition costs.
3. Determine CPA: Divide your total costs by the number of new customers. If your business attracted 6,900 new customers at a cost of £350,000, your CPA equates to approximately £50.72 per customer.

Life isn’t all roses, and more often than not, businesses aren’t’ happy with the numbers they’re achieving. A typical trap to fall into here is zeroing on one factor that can influence your CPA rather than a more holistic approach.

This is where the good old 4Ps of Marketing can add some value…

Deepening Understanding with the 4Ps

Product:

• Ask yourself, is your product competing as it should? Has the market changed over the years? Does it still offer the value to your target audience you thought it did? Ultimately, does it do what it says on the tin, and does it do it well? If your product quality, function and/or appeal has slipped over the years relative to your competitors your CPA is no doubt going to reflect this.
• Action: Consider a product comparison analysis pitting yourself against the latest competitors in your marketplace.

Price:

• Your pricing strategy should reflect your product’s perceived value and remain competitive. Incorporate CPA into your pricing to ensure profitability. Techniques like dynamic pricing, discounts for new buyers, or bundling can effectively reduce acquisition costs.
• Action here is again to consider how your product stacks up at a certain price point relative to those you’re competing with.

Place:

• In the digital space, your website and apps serve as the primary interaction point with customers. An optimised online experience, characterized by speed, mobile-friendliness, and easy navigation, can significantly lower CPA by improving conversion rates.
• Action: Consider A/B testing various elements of your customers online user journey. Small wins here can build into meaningful impacts.

Promotion:

• The efficiency of your promotional efforts significantly impacts CPA. Optimising ad creatives and leveraging effective marketing channels can enhance engagement and conversion rates. Tailored campaigns and A/B testing of different promotional strategies ensure that your marketing budget is spent on high-return activities.
• Action: Chat to the REBEL team to ensure your getting the most out of your performance marketing.

Implementing the 4Ps Framework

• Integration and Alignment: By viewing CPA optimisation through the 4Ps, businesses can ensure that their strategies are cohesive and aligned with broader marketing objectives. This holistic view fosters strategic consistency and enhances the overall marketing effectiveness.
• Strategic Decision-Making: The 4Ps framework encourages businesses to think strategically about each element’s impact on CPA. This might involve exploring how improvements in product development, pricing models, digital presence, or advertising strategies can collectively lower CPA while boosting market competitiveness.
• Actionable Insights: Focusing on the 4Ps allows for the identification of specific, actionable steps that can directly influence CPA. Whether adjusting the product offering, refining pricing strategies, enhancing the digital customer journey, or optimising promotional tactics, these targeted actions are likely to yield significant improvements in marketing efficiency.

Summary

Mastering CPA requires not just a formula but a strategic framework that encompasses the entirety of your marketing and product strategy. By employing the 4Ps framework, businesses can adopt a structured yet flexible approach to not only calculate but significantly optimise their CPA. This method ensures that efforts to reduce customer acquisition costs are balanced with the goal of achieving higher customer lifetime value and sustainable growth, making it a robust strategy for today’s competitive and ever-evolving market landscape.

Food for thought

It doesn’t stop there… there’s a bunch of other factors that will influence your CPA. This could be supply chain, tax strategy, overheads to name a few.