Measuring the cost per click or cost per acquisition is not good enough any more. Here's another approach.
Despite the known issues and problems with the way we measure the effectiveness of acquisition marketing activity such as the last-click attribution models, I often wonder whether we're measuring the right thing at all. By that I mean the point at which we define "acquisition" and therefore the point at which we determine the return on investment (ROI) of our marketing budget.
In the early days of Internet marketing, "acquisition" was typically defined as getting traffic to the site. At that time, we measured the ROI of different channels and different activity using metrics like CPC (define) and we managed budgets to optimize the CPC. To be honest we often didn't care what happened when traffic reached the site; we were just interested in getting visitors there.
Gradually, that mindset began to change as the value of a business was determined by how much money it was making rather than how many visitors it had or how many page impressions it was generating. The focus shifted to defining acquisition in terms of a conversion event, such as a transaction, a registration, or the like. The approach to measurement changed to measuring ROI and CPA (define). This changed the way that we viewed the effectiveness of different channels or campaigns. And we discovered that some activity might be great at driving traffic but it was low-quality traffic that didn't generate much value. So by changing the concept of what "acquisition" meant, we added in the notions of value and quality into our measurement framework.
But have we gone far enough?
How you define acquisition depends on your business. Most marketing activities are measured based on transactions rather than longer-term customer value. Consider this example: in subscription type businesses, acquisition is defined as the point of registration or sign-up. CPA targets may be set based upon an overall expected lifetime value. When working with subscriptions, there's often churn: people stop subscribing or using a service. So the notion of value is not necessarily that they signed up. Instead, value would be based on the extent someone uses the service and for how long.
Recently, we tracked the customer lifecycle from initial acquisition for one service through to the point at which people stopped that service. People who had used the service at least four times were very likely to remain a customer. In this case, true customer acquisition counted as someone who used the service four times, not when someone initially signed up for the service.
Analysis of the effectiveness of different marketing activity in different markets showed different patterns when you compared the ROI based on initial subscription compared to actual usage. Certain types of activity were great at driving registrations but the level of initial churn tended to be quite high. As a result, not that many would eventually turn into longer-term valuable customers.
Whereas, other activity wasn't so good at driving great volumes of registrations but the ones that did register were of better quality and were more likely to pass the magic "four times" mark. By shifting the point of measurement and focus, radical decisions about the mix of marketing activity could be made.
Maybe it's time to move our understanding of the effectiveness of acquisition marketing to a CPC model again with a twist. We might want to consider evaluating the cost per customer rather than the cost per click. Acquisition is about customers and not actions. And some businesses must take a long-term view rather than focus on a specific point in time.
This type of analysis is not necessarily easy to do. It's not something that really comes out of the box from your typical Web analytics tool or from your campaign management systems. It will usually require data integration between these tools and internal data sources such as the customer database.
As we work to improve the efficiency and effectiveness of our marketing spend, we must move the measurement capabilities forward and get that cradle-to-grave understanding of the customer lifecycle.
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Neil Mason is SVP, Customer Engagement at iJento. He is responsible for providing iJento clients with the most valuable customer insights and business benefits from iJento's digital and multichannel customer intelligence solutions.
Neil has been at the forefront of marketing analytics for over 25 years. Prior to joining iJento, Neil was Consultancy Director at Foviance, the UK's leading user experience and analytics consultancy, heading up the user experience design, research, and digital analytics practices. For the last 12 years Neil has worked predominantly in digital channels both as a marketer and as a consultant, combining a strong blend of commercial and technical understanding in the application of consumer insight to help major brands improve digital marketing performance. During this time he also served as a Director of the Web Analytics Association (DAA) for two years and currently serves as a Director Emeritus of the DAA. Neil is also a frequent speaker at conferences and events.
Neil's expertise ranges from advanced analytical techniques such as segmentation, predictive analytics, and modelling through to quantitative and qualitative customer research. Neil has a BA in Engineering from Cambridge University and an MBA and a postgraduate diploma in business and economic forecasting.
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Gartner Magic Quadrant for Digital Commerce
This Magic Quadrant examines leading digital commerce platforms that enable organizations to build digital commerce sites. These commerce platforms facilitate purchasing transactions over the Web, and support the creation and continuing development of an online relationship with a consumer.
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12:00pm ET/9:00am PT