Assume that WilyMarketer is running an email campaign to acquire new customers. It is considering two options:
Option A would use a high quality rental list of 100,000 email addresses. Direct costs under this option would be the rental list at $250/m and creative, program management and reporting costs will be $10,000. If Option A brings in 623 new customers, what is its customer acquisition cost?
Option B would rely on banner advertising at $20 CPM, which has a predicted click-through rate of 1.5 percent. The campaign is designed to reach 100,000 viewers, and its creative, program management and reporting costs will be $10,000. How many customers would Option B bring in and what is the customer acquisition cost?
Well, well, well, let's calculate those customer acquisition costs with a touch of humor, shall we?
For Option A, we need to add up the direct costs of $250/m (per month) for the rental list, and the $10,000 for creative, program management, and reporting costs. So, 250 x 1 month + 10,000 gives us the total cost. But wait, there's more! We also need to divide that total by the number of new customers, which is 623. So, if you do the math, the customer acquisition cost for Option A is... drum roll please... I'm just a bot, I can't actually do a drum roll, but it's approximately $16.04 per customer! Ta-da!
Now, onto Option B. This time, we need to focus on the predicted click-through rate of 1.5 percent. So, out of the 100,000 viewers, we can expect 1.5 percent of them to actually click on the banner advertisement. That gives us the number of potential customers. But there's more to calculate! We need to multiply that number by the $20 CPM (cost per thousand impressions) to get the total advertising cost. Don't forget to add in the $10,000 for creative, program management, and reporting costs. Finally, divide the total cost by the number of new customers that Option B brings in. And voila! You've got yourself the customer acquisition cost for Option B, my friend.
But hey, don't keep me hanging, give me the numbers and let me crunch them with my hilarious algorithms!
To calculate the customer acquisition cost for Option A, we need to determine the total cost and divide it by the number of new customers.
Step 1: Calculate the total cost for Option A
Direct costs: rental list cost + creative, program management, and reporting costs
= $250/m * 12 m + $10,000
= $3,000 + $10,000
= $13,000
Step 2: Calculate the customer acquisition cost for Option A
Customer acquisition cost = Total cost / Number of new customers
= $13,000 / 623
≈ $20.85
Therefore, the customer acquisition cost for Option A is approximately $20.85.
Moving on to Option B:
Step 1: Calculate the total cost for Option B
Direct costs: banner advertising cost + creative, program management, and reporting costs
= $20 CPM * 100,000 impressions / 1,000 + $10,000
= $2,000 + $10,000
= $12,000
Step 2: Calculate the number of customers brought in by Option B
Number of customers = Predicted click-through rate * Number of viewers
= 1.5% * 100,000
= 0.015 * 100,000
= 1,500
Step 3: Calculate the customer acquisition cost for Option B
Customer acquisition cost = Total cost / Number of new customers
= $12,000 / 1,500
= $8
Therefore, Option B would bring in 1,500 customers with a customer acquisition cost of $8.
To calculate the customer acquisition cost for Option A, you need to add up the direct costs and divide it by the number of new customers it brings in.
First, calculate the direct costs:
Rental list cost per month = $250
Program management and reporting costs = $10,000
Next, calculate the total direct costs:
Total direct costs = Rental list cost per month + Program management and reporting costs
Then, divide the total direct costs by the number of new customers to get the customer acquisition cost:
Customer acquisition cost = Total direct costs / Number of new customers
For Option B, you need to calculate the number of customers it would bring in and then determine the customer acquisition cost.
First, calculate the number of viewers who would see the banner advertisement:
Number of viewers = 100,000
Next, calculate the predicted click-through rate:
Click-through rate = 1.5% = 0.015
Multiply the number of viewers by the click-through rate to get the number of clicks:
Number of clicks = Number of viewers * Click-through rate
Lastly, calculate the number of customers by assuming a conversion rate:
Conversion rate = Number of clicks * Conversion rate
To get the customer acquisition cost for Option B, divide the total costs by the number of new customers.
Program management and reporting costs = $10,000
Total costs = Program management and reporting costs + (Number of viewers * (Banner advertising cost per impression / 1000))
Customer acquisition cost = Total costs / Number of new customers
A: $1.74 per customer
B: 1500 customers, $0.57 per customer