The Metric That’s More Important Than Customer Acquisition Costs

Marketing School - Digital Marketing and Online Marketing Tips

Eric Siu and Neil Patel

Business, Marketing, Careers

4.6 • 1.4K Ratings

🗓️ 18 June 2023

⏱️ 8 minutes

🔗️ Recording | iTunes | RSS

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Summary

In episode #2486, Neil and Eric do a deep dive into the metric that’s more important than customer acquisition costs! This episode was inspired by a blog post by Elena Verna and in it you will hear why it is more important to focus on the lifetime value and the payback period of your customers than your customer acquisition costs. TIME-STAMPED SHOW NOTES: [00:00] Today’s topic: The Metric That’s More Important Than Customer Acquisition Costs. [00:18] The importance of understanding your Customer Lifetime Value (LTV). [00:47] The blog post by Elena Verna inspired today’s episode. [01:17] An example that highlights the problem with focusing only on customer acquisition (CAC). [02:45] The benefits of looking at LTV per channel. [03:20] Why the length of your payback period matters more when your business is just starting out. [03:50] Understanding the paid marketing loop. [04:21] What does the payback period metric measure? [05:06] Key takeaways from today’s episode! [05:51] How losing money in the short term can benefit your business in the long run. [07:10] How to optimize your payback period. [09:01] That’s it for today! Don’t forget to rate, review, and subscribe! Go to https://www.marketingschool.io to learn more! Links Mentioned in Today’s Episode: Elena Verna Cost of Acquisition (CAC) trap Microsoft Microsoft Clarity Timothy Sykes Don’t forget to help us grow by subscribing and liking on YouTube! Leave Some Feedback: What should we talk about next? Please let us know in the comments below Did you enjoy this episode? If so, please leave a short review. Connect with Us: Single Grain << Eric’s ad agency NP Digital << Neil’s ad agency Twitter @neilpatel Twitter @ericosiu Learn more about your ad choices. Visit megaphone.fm/adchoices See omnystudio.com/listener for privacy information.

Transcript

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0:00.0	All right, so we're going to talk about the metric that's potentially more important than customer
0:04.9	acquisition costs because the macroeconomic environment that we're in is a little different now.
0:10.9	What do you think that might be Neil if you have customer
0:13.3	acquisition costs you have kak what do you think the counter might be I don't know but the
0:18.5	most important metric that we look at is LTV over anything else okay and we look at LTV and the profitability of the LTV over anything else. Okay. And we look at LTV and the profitability of the LTV.
0:25.2	Because that dictates what we do in all of our marketing and shockingly a lot of businesses don't really know
0:30.8	their real LTV. They kind of have idea, they say they're track it, but in a lot of cases is inaccurate and it's off.
0:37.0	Agreed. So what I would say at a high level is what LTV, LTV matters, but this kind of goes hand in hand with LTV and you probably know where I'm going with this and so I'm going to share this post over here
0:47.3	Elena and Verna I want to give her credit for this because this is kind of the basis for this podcast.
0:52.8	So this post is entitled, or not entitled, it's titled
0:56.7	Cost of Acquisition Kac Trap.
0:58.9	And this is from a newsletter, Elena's Growth Scoop.
1:02.0	And her argument here is that just focusing. a lennonnen s
1:04.7	growth scoop and her argument here is that just focusing on kak is the wrong move and
1:07.9	the move is to focus on payback period instead so there's a highlight over here that
1:11.8	I put in so let me just give you this example over here. Those
1:15.1	you that can't see the screen. So let's say you have two channels. Channel A generates a high volume of customers with a
1:20.5	kayak, so customer acquisition, cost of customer acquisition of $5.
1:25.0	So that's channel A, a cack of $5.
1:27.5	Channel B brings in fewer customers but has a cack of $1,000. And so what she says here is that cheap acquisition is cheap for a reason.
1:36.4	Consider that Channel B, despite its high-cAC, attracts customers who convert to paid in less than a month,
1:42.1	recoup their acquisition costs, and contribute significant
	...

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