Cost per acquisition is a monster. In slavish devotion, 41% of businesses consider CPA their top metric (according to recent DMA study) thus making ill-advised marketing decisions that further nourish the CPA beast. Fiendish is an understatement when you consider the hypnotic power of CPA. After all, who wouldn’t, on first blush, want to determine how much it costs to acquire customers and then figure out how to minimize these costs?
But herein lies the true villainy. Because CPA is so easy to calculate, especially in the case of digital media spending, business leaders have become obsessed with this number and critical decisions are made in an effort to achieve the lowest possible CPA. This seeming no-brainer for marketing then wreaks havoc across the organization as complaints, returns and churn rates rise while lifetime customer value averages drop.
CPA is Destroying Businesses
Lest you think I’m being melodramatic, let me provide a representative real world example with the name changed to protect the innocent. Brand X is a tech company that when it first launched had a game changing value proposition that helped them acquire several million customers who heaped praise on their service and served as willing brand evangelists. But in the last 2-3 years, their competitive advantage slipped and the market stopped growing.
At weekly staff meetings, “new customers acquired” was the predominant metric determining not just the mood in the room but the actions for the subsequent week. If one media type or promotional program was achieving a lower CPA than another, then dollars were shifted accordingly. Meanwhile, the weekly-lost customer count was generally ignored even if it exceeded the newly acquired figure that particular period.
So now we get closer to the real problem with a CPA obsession. Brand X drove down its CPA by running price promotions that attracted “switchers,” those savvy seekers of special deals who abandon ship once a better deal comes along. These folks were also the first to complain, sucking up expensive customer service time, driving down sentiment on social channels and depressing employee morale creating a vicious cycle of ever-rising acquisition costs.
It’s Time for a New Metric: Cost Per Satisfied Customer
Having established the villainy of CPA, we can now turn our attention to a radically new yet simple metric solution: Cost per Satisfied Customer or CSPC (because an acronym is essential here!). In this calculation, we seek to differentiate between all customers acquired and those that are actually satisfied with your product or service. By isolating the characteristics of your happy customers and how you came to acquire them, you can then replicate this in future acquisition efforts.
Practically speaking, this is a bit more complicated than I make it sound but fortunately in the world of big data, not beyond the reach of most companies. The key is the willingness to recognize the problem (not all customers are of equal value and some are even of negative value) and the solution requires more than changes in media buying and data monitoring, including an entire organizational shift from gaining customers to satisfying them on an epic scale.
For Brand X, calculating Cost Per Satisfied Customer is not a stretch since their CRM system already tracks means of acquisition and length of service. These two data points alone can root out the “switchers” who can then be further profiled against the rest of the customer base acquired in a similar timeframe, allowing for the isolation of problematic promotions and preferred prospect characteristics. This data could deliver a rudimentary CPSC by dividing the marketing spend by the total of non-switchers acquired. No doubt the data geeks out there can bring more sophisticated math to this conversation.
What you Measure Defines Your Organization
Here’s the bottom line—Cost Per Acquisition is the wrong bottom line and leads to organizational problems that can be disastrous. All customers are not equal; some can help you grow and others might just put you out of business. By focusing on Cost Per Satisfied Customer, you can shift marketing/promotional/sales efforts towards those programs that deliver customers you actually want today and for the long haul, thus extinguishing the CPA monster once and for all.
For a deeper dive into Cost Per Satisfied Customer (CPSC), visit TheDrewBlog.com.