Last week we talked about defining success with Google AdWords. Today I’m going to go into more detail on the average Cost of Acquisition and the Average Net Lifetime Value and why these numbers are so important.
When I start Google AdWords campaign for clients one of the first things I try to find out is whether the client knows what their average Cost Of Acquisition (COA) is in any other channels they are using, or the Average Net Lifetime Value (ANLTV) of a customer. Almost always I find that clients have no idea. They have never bothered to calculate them, or on the rare occasion that they have calculated their COA, they have left out real costs like their time or staff time, especially for time intensive marketing approaches like trade shows or events. The reason it’s important to have some comparative COA and ANLTV numbers is that it helps you form a more accurate judgement about the cost of acquisition that you will pay in Google AdWords.
For example: I had one client that after a few weeks of testing discovered that their cost of acquisition for a new lead by a Google AdWord was around $20. They thought this was expensive and wanted to pull the plug on Google AdWords. After helping them analyze the data from their other marketing programs which included outdoor signage, direct mail and events, we worked out that in the previous year their average cost of acquisition was in the $300-$500 range. Suddenly $20 looked really good and Google AdWords was a positive initiative.
Check out my list of the top 9 mistakes people make with Google Adwords.