Where:
MCC – advertising campaign expenses;
W – cost of contextualist/targeting specialist services;
S – expenses on software and services used by employees/contractors to prepare and set up advertising campaigns;
PS – expenses for preparing the website/landing pages (creating design, layout, developing functionality, creating content, etc.);
O – other expenses (Internet fees, rent, etc.);
CA – the number of clients that an organization was able to attract through advertising.
For clarity, let's look at a cash app database specific example. As a result of the campaign in Yandex.Direct, launched for 1 month, the organization was able to attract 65 new clients. 30,000 rubles were spent on advertising, 10,000 rubles on the services of a contextual specialist, and 500 rubles on software. Other expenses amounted to 1,000 rubles. To determine the cost of attracting a client, the following calculations must be performed:
SAC = (30,000 + 10,000 + 500 + 1,000) / 65 = 638.5 rubles.
It turns out that the organization had to spend 638.5 rubles to attract one new client using an advertising campaign.
The more expensive it is to attract a buyer, the higher the expenses will be. It is quite obvious that significant expenses have a negative impact on the profitability of the business.
Case: VT-metall
Find out how we reduced the cost of attracting an application by 13 times for a metalworking company in Moscow
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LTV-to-CAC
LTV-to-CAC is a metric that shows the amount that needs to be spent on marketing and sales to outpace competitors and increase the company's efficiency. This parameter shows how capable the organization is of stable growth.
Let's look at several possible types of LTV-to-CAC calculation results:
< 1:1 – the business suffers losses due to the launch of an advertising campaign. The organization goes into the red when attracting clients.
1:1 – advertising does not bring profit and the company breaks even. In other words, the income from attracting new clients is equal to the costs of PR.
2:1–4:1 – the advertising channel is profitable. This is the most favorable result, it indicates that the company has managed to build a sustainable business model.
5:1 – Advertising also brings profit, but the company’s growth rate is lower due to insufficient investment in marketing.
Let's assume that the lifetime value of a customer is 65,000 rubles, and the costs of attracting one are 27,000 rubles. Let's do the calculations:
LTV-to-CAC = 65,000 / 27,000 = 2.4:1.
Therefore, advertising brings profit. However, the indicator cannot be called optimal. To improve the result, it is necessary to either increase the lifetime value of one client or reduce the costs of attracting one. To increase the indicator, you can increase the return on investment ratio.
LTV-to-CAC, like ROI, shows how effective the business model has been. This indicator helps to predict the company's future growth.
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