The first paragraph of this article provides a brief overview of the importance of establishing a clear return on investment (ROI) for your marketing efforts. This ROI becomes the benchmark for success and failure. The way you determine this ROI is crucial not only for the success of your advertising campaigns but also for the overall success of your business.
Many online businesses fall into the trap of using the "lifetime value of a customer" to determine their success. They estimate the number of purchases a customer might make over a long period and calculate the profit from these purchases. This "lifetime value" is then used to decide how much they are willing to spend to acquire the customer. This is how some businesses justify spending nearly $100 in advertising for every unique customer buying $20 worth of products.
But does the concept of lifetime value even make sense in an online environment where customers can easily switch to a better deal or a more appealing offer? Online, there are fewer opportunities for true customer loyalty. While customers may have a certain level of familiarity with a business that helps gain their loyalty, and businesses may offer rewards or incentives to encourage this loyalty, these online loyalty strategies are far more fragile compared to offline strategies like the location of your nearest grocery store.
Many online businesses find themselves in serious trouble when they acquire customers based on a lifetime value calculation that never materializes as their customers switch to the latest deal of the day.
In the book "Big Time Banner Advertising," it is suggested that businesses should use a cost-per-order (CPO) target instead of lifetime value. A CPO target allows you to treat each order as a one-time event. By setting a CPO target, there is no guesswork about what a customer may be worth to you in the future - you know exactly what customers are worth on a per-order basis.
For instance, based on your product margins and average order size, you may determine that $5 is the most you can pay for each order while still meeting your business objectives. This number becomes the CPO target for your marketing efforts. Marketing efforts that achieve this target CPO or better are "keepers" while those that don't are discontinued. A banner ad that costs $1000 and drives 250 orders is a keeper. A newsletter ad that costs $100 and drives 5 orders doesn't get renewed.
By using CPO targets, you are relying less on "what may be" and relying more on "what is" to make your marketing and advertising efforts more efficient, effective, and profitable. This approach is more grounded in reality and can help businesses avoid the pitfalls of overestimating the lifetime value of their customers.
The Silent Call of Opportunity
The business world often finds itself engrossed in grand schemes and large-scale projects. The next major advertising campaign or the development of a new product often takes center stage, consuming a significant chunk of our attention and resources. These large-scale endeavors, due to their magnitude and reach, are often seen as the gateway to exponential success, and thus, become the focal point of our efforts.
Enhancing E-commerce Performance through Single Page Conversion Tracking
The first paragraph of this article provides a succinct summary of its content. It emphasizes the importance of tracking and enhancing conversion ratios for e-commerce websites. It also highlights the need for a more detailed approach, focusing on individual page conversions rather than overall site conversions. This approach allows for more targeted improvements, potentially leading to increased sales.
