Search University 2013: How Much can I Pay for a New Prospect or Customer per Order?

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Presentation about the calculation of the Cost Per Acquisition (CPA) in 3 cases :
- Lead Generation Website
- E-commerce website
- SAAS business
A presentation given at Search University 2013 on May 31st 2013 in Brussels by Hubert de Cartier, co-founder of Universem. More information on www.universem.be

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Search University 2013: How Much can I Pay for a New Prospect or Customer per Order?

  1. 1. P0SEARCH UNIVERSITY 2013How Much can I Pay fora New Prospect orCustomer per Order?Hubert de Cartier – Universem10h00 – 10h30
  2. 2. P1SEARCH UNIVERSITY 2013 Co-Founder of Universem A big passion for Digital Marketing … and Web AnalyticsAbout me …
  3. 3. P2SEARCH UNIVERSITY 201351 millions websites added in 2012Source: Internet 2012 in numbers, Pingdom
  4. 4. P3SEARCH UNIVERSITY 201371% of businesses plan to increasedigital marketing budgets this yearSource: 71% of businesses plan to increase digital marketing budgets this year: reportEconsultancy, 2013
  5. 5. P4SEARCH UNIVERSITY 2013 Determine maximum Cost Per Acquisition(CPA) for 3 cases: A lead generation website An e-commerce website A SAAS businessOverview
  6. 6. P5SEARCH UNIVERSITY 2013Solar4You: lead generation case
  7. 7. P6SEARCH UNIVERSITY 2013 Average solar panel installation: 25,000 € Margin on each installation: 10% 2,500 € for a new contract One contact/prospect on twenty leads toa contract (Offline conversion rate)125 € for a new prospectSolar4You: lead generation case
  8. 8. P7SEARCH UNIVERSITY 2013 125 € per prospect: key informationfor running AdWords campaigns! Use it for your conversion values andcalculate easily your ROI If you have a 3% online conversion rate on,you can bid up to:Maximum CPC = 125€ * 3% = 3,75 €Solar4You: lead generation case
  9. 9. P8SEARCH UNIVERSITY 2013 The Traffic Estimator by Google AdwordsSolar4You: lead generation case
  10. 10. P9SEARCH UNIVERSITY 2013Solar4You: lead generation case
  11. 11. P10SEARCH UNIVERSITY 2013Solar4You: lead generation case
  12. 12. P11SEARCH UNIVERSITY 2013 On a monthly basis:Around 700 clicksAround 20 leadsAround 1 solar panel installation sold!Solar4You: lead generation case
  13. 13. P12SEARCH UNIVERSITY 2013 Summary:Average customer value* Average margin* Online conversion rate* Offline conversion rate--------------------------------= Maximum cost for a visitNB: we consider all visits with same qualitySolar4You: lead generation case
  14. 14. P13SEARCH UNIVERSITY 2013Bioticas: e-commerce case
  15. 15. P14SEARCH UNIVERSITY 2013 Average order size: 80€ (excl. VAT) Margin on each order: 15% 12 € margin per order Online Conversion rate: 3%Maximum 0,36 € per visitBioticas: e-commerce case
  16. 16. P15SEARCH UNIVERSITY 2013 Traffic estimator Magnesium pills against stress Several keywords in France, Belgium& Luxemburg around anti-stress topicBioticas: e-commerce case
  17. 17. P16SEARCH UNIVERSITY 2013What if we could bid more?Bioticas: e-commerce case
  18. 18. P17SEARCH UNIVERSITY 2013 Consider Lifetime Value:Bioticas: e-commerce caseCustomer 1Customer 2Customer 3Y0 Y1 Y2Y0 Y1 Y2Y0 Y1 Y2 1,66 order per customer on a period of 2 years! (+66%)
  19. 19. P18SEARCH UNIVERSITY 2013 Consider Word of MouthBioticas: e-commerce case On average, 10 new customers lead to one more customer (+10%)
  20. 20. P19SEARCH UNIVERSITY 2013 We can consider a new customervalue as high asAverage order size: 80€* Lifetime Value: 1,66* Word of mouth: 1,10--------------------------= Total Customer Value: 146,08€Bioticas: e-commerce case
  21. 21. P20SEARCH UNIVERSITY 2013 Average order size: 80€ (excl. VAT)Total customer value: 146,08€ Margin on each customer: 15% 21,91 € margin per customer (12€) Conversion rate on the website: 3%Maximum 0,66 € per visit (0,36€)Bioticas: e-commerce case
  22. 22. P21SEARCH UNIVERSITY 2013Bidding more leads to more clicksBioticas: e-commerce case+82% CPC max, +105% clicks
  23. 23. P22SEARCH UNIVERSITY 2013 Summary: Focusing only on one order can lead tomissed opportunities Post sales promotion are important toincrease Lifetime Value Customers’ data are essential for successBioticas: e-commerce case
  24. 24. P23SEARCH UNIVERSITY 2013Mailjet: SAAS business case
  25. 25. P24SEARCH UNIVERSITY 2013 Software As A Service – SAAS characteristics forMailjet: Monthly recurring revenues Freemium model High growth 3 currencies and 4 languagesReminder: all data are only there for illustrationMailjet: SAAS business case
  26. 26. P25SEARCH UNIVERSITY 2013 From a visit to a good customer: many steps!1. Lots of visits2. Freemium users  Signed up on Mailjet3. Active users  Sent at least one email4. First time paying users5. Holy Grail: Recurring customers  !Mailjet: SAAS business case10%50%30%70%
  27. 27. P26SEARCH UNIVERSITY 2013 The conversion funnel:Mailjet: SAAS business case10%50%30%70%VisitsFreemium usersActive usersFirst timecustomersRecurringcustomers1000100501510,5
  28. 28. P27SEARCH UNIVERSITY 2013 Defining your maximum CPA, parameters: Monthly Recurring Revenues (MRR): 50€ Gross margin: 75% Churn rate: 3% as opposed to retention rate (97%)Mailjet: SAAS business case
  29. 29. P28SEARCH UNIVERSITY 2013 Example of a cohort analysis for MailjetMailjet: SAAS business case
  30. 30. P29SEARCH UNIVERSITY 2013Lifetime value = MRR * Gross margin *Mailjet: SAAS business case1Churn rateLifetime value = 50€ * 75% *= 1250€A customer uses Mailjet 33,33 months on average13%
  31. 31. P30SEARCH UNIVERSITY 2013 Two key guidelines for SAAS startups:Lifetime value > 3* CPAMonths to recover CPA < 12 months Max CPA for Mailjet = 417€Inspired by http://www.forentrepreneurs.com/saas-metrics/Mailjet: SAAS business case
  32. 32. P31SEARCH UNIVERSITY 2013 With a global conversion rate of 1%, you shouldpay less than 4,17€ for each visit on Mailjet.com But conversion rates are varying hugelydepending on: Traffic source Location Awareness of your product in the market Timing …Mailjet: SAAS business case
  33. 33. P32SEARCH UNIVERSITY 2013Mailjet: SAAS business case
  34. 34. P33SEARCH UNIVERSITY 2013CPA and CPC calculation toolhttp://toolbox.universem.be
  35. 35. P34SEARCH UNIVERSITY 20131. Determine how much you can pay for a newcustomer/prospect2. Measure and calculate your ROI with simplemaths depending on your business model3. Take actions and enlarge your horizon to findgreat ideas for your business while alwaysusing data to confirm your new initiatives.Conclusions
  36. 36. P35SEARCH UNIVERSITY 2013Contact me atcontact@universem.behttp://www.universem.be@Universemhttp://www.facebook.com/UniversemThanks for listening!

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