Welcome to the Neighborhood
The first step in understanding your customer acquisition costs is knowing how you acquired them! Different acquisition methods will carry different cost structures, so the better you can pinpoint where a user was acquired the easier it will be to know how much they cost.
Unfortunately, in the real world customers are rarely acquired in a single transaction. A single customer might read an article about you, see some of your ads, receive a few of your emails, and finally click on a link shared by a friend on social media. Would the customer have clicked on that social link if they hadn’t read the article? If they hadn’t gotten the e-mail? Or seen the ad? Here is the timeline, and as you can see it’s not clear:
So, who gets the credit?
Attribution is challenging and there is no easy answer. The good news is that there are a few common attribution models you can choose from depending on your marketing strategy.
Last Touch Attribution assigns 100% of the credit for a customer acquisition to the last channel the customer touched before converting. In our above example, the social sharing channel would get 100% of the credit and the others would get none.
Distributed Attribution (also known as Linear) divides up credit among all channels that touched a user. In our example, this means each of the 4 channels (ads, email, PR and social) would each get 25% of the credit for the customer.
Decaying Attribution also distributed credit across channels, but assigns more credit to the last channel the customer touched than the first one. This model reflects the traditional model of marketing where the customer is more likely to convert the more they are exposed to your company.
These are just a few simple attribution strategies; there are many more. If you’d like to read about more, Google provides a comprehensive list on their support website. Many web analytics tools support attribution tracking, and there are even dedicated attribution tracking services you can use to automate whatever attribution strategy you choose.
Whatever you choose, you should not expect 100% accuracy. There will always be a few customers whose decisions are influenced by factors you will never know! Tomorrow we’ll talk about how to turn your attribution strategy into a CAC calculation.
(Note: Yes, I know the green areas of the above charts add up to more than 100% and are hence not accurate. It’s easier to read this way, so consider these artistic illustrations.)
Quote of the Day: “Know from whence you came. If you know whence you came, there are absolutely no limitations to where you can go.” – James Baldwin