What's the most I can pay to get a customer and still make money?
Efri · 1 min read
(Rewritten from "maximum allowable CPA")
In short
4 key points
- Take what a customer is worth to you over their lifetime
- Then decide what fraction of that margin you're willing to pay to acquire them
- Once you have that number, a lot of decisions get easier
- Most people run ads without ever calculating this
Take what a customer is worth to you over their lifetime. Take out what it costs you to serve them. What's left is your margin.
Then decide what fraction of that margin you're willing to pay to acquire them. A third is a common place to land. That's your ceiling.
Once you have that number, a lot of decisions get easier. Ads above it get switched off. Channels below it get more money. Agencies get measured against it instead of against how good their reports look.
Most people run ads without ever calculating this. Which means they have no idea whether the campaign that's "performing well" is actually making them money.