Aug 13, 2019 - 07:52 PM
Even once you start selling, accurately estimating cost of acquisition is challenging, since there are different ways to get the numbers. But making the estimation in your situation is even more difficult. Here’s a plan that will get you a realistic number to start with - but make sure to track results carefully once you start selling, since the costs can quickly change.
Step One: Calculate Marketing Costs
First, of course, you’ll need to have your marketing and advertising strategy put together. Your business plan should include a detailed concept of how and where you’ll reach customers, and how much each method in your strategy will cost. The details of your plan will depend on your type of business, but it might include things like paid social, AdWords, and more. What’s important is that you know how much you’ll invest in marketing over a set period of time.
Step Two: Estimate Site Visitors
Now, it gets a bit more difficult: you need to estimate how many site visitors you’ll get from the marketing you plan to do.
The best way to do this is by researching your closest competitors and seeing how much traffic they get (and what methods they use to get it). SimilarWeb is typically the best tool for finding this out. Ahrefs can also provide estimated organic traffic for a website. Use these tools to research a number of competitors with different marketing approaches, so you can make the most educated possible guess about what your traffic will be.
Step Three: Estimate Customer Numbers
Now, you’ll need to guess at how many of those site visitors will actually become customers.
Knowing the average conversion rate for your industry will help you with this estimate. (However, keep in mind that “conversion” can also mean many things besides becoming a customer.) Then, set your estimate a bit lower, keeping in mind that it often takes time for conversions to take off as a new company.
For example, some estimations set the average global ecommerce conversion rate at just under three percent. To stay on the safe side using this number, you’d want to assume that no more than one to two percent of your site visitors will convert into customers at first.
Image via PixabayStep Four: Put It All Together
Now, you have an estimate of how many customers you’ll get in a given period of time, based on the numbers from steps two and three. Divide your cost of marketing over that time period by the number of customers you expect to get in that time period, and you’ll have an estimated per-customer cost of acquisition.
This estimated number will be on the high side, because it’s not taking into account things like customer referrals and organic traffic that should grow over time. But when you’re just starting out, it’s best to only factor in what you can control, since you can’t count on things like referrals and organic growth (especially not at first).
Once you have your estimate, you may also want to compare it to the average cost of acquisition for your industry. This will help you see if your approach is reasonable, or if you should change your marketing strategy to keep costs closer to average.