Questions

Hello, We run a web agency. We started off as product guys (python/django shop), and over the years built a variety of tools that allow us to begin offering/branding our services as "marketing experts" -- whether it be CPC/CPM in the popular networks out there. The ability to create unique marketing user flows with our specific method to building products / architectures gives us a leg up to not only offer branded custom tools for our clients, but also place them in marketing distribution channels for maximized exposure. Our solution turned out to be very focused to driving ROI, and it's all custom from scratch + very affordable due to our methods of building / sourcing the products. So given we're ready to scale production, we've been preparing for a series of campaigns to acquire new business. Without going into detail in regards to the medium and method for acquisition, we're trying to anticipate the industry's average costs to acquire new business in the web development, web marketing space (without pinpointing on any specific mediums, but rather take the average on a year end sum of all activities put into 1). I'm anticipating the sum to be dependent on the average value of the service, so let's say $10,000 - 15,000 for the initial development, and then costs for the average monthly retainer that could be attached for marketing. From your experience, what would you expect the average cost per acquisition to be for that sum? Can it be argued that it be a an average fixed cost, or is it more of a percentage from the service's costs? I'm trying to estimate and anticipate required budgets to scale our reach and drive positive ROI. Thanks!

With an upfront of $10-15k you are in the 'sales range'. Companies won't part with that money without a few conference calls and whether it's you or a team someone needs to hold their hand to get that sale.

CAC is a lot easier to gauge on consumer products because they can be sold on an advertisement. But you can't sell airplanes on adwords, as they say.

So assuming you will be using a sales team to close this sale, the real question become cost per lead. And that is a 'how long is a piece of string' question. But don't worry.

Industry averages won't really help you anyways for two reasons.

1. Consider the fact that the average human has one testicle and one breast. Forecast around the average and you'll be no better off than guessing
2. CAC will rise to match LTV over time. There were these guys selling sugar water at a ridiculous margin called Coca Cola until these other guys started selling their own. Now instead of making gobs of cash on each can, they are duking it out with some of the most expensive advertising in the world.

What I would do instead is test a proxy. You know your market, you know your message, and even if you have the most elaborate campaign out there you will be able to develop a proxy for it using plain old images and copy.

Test it small scale and you'll have a MUCH closer approximation for what a lead will actually cost than any industry average. You can look at your own historical close rates and divide your CPL by that for an effective CAC.

Hope this helps. Give me a shout if you have any questions.


Answered 5 years ago

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