The problem with Cost-Per online metrics

My direct marketing friend Laurie and I were lamenting the strange knowledge gap that seems to be cresting among our younger online siblings.  Given the comparatively really, really inexpensive costs of online advertising (versus any offline tactic), why not optimize a campaign to achieve the lowest CPC, CPA, CPO – afterall, why not drive traffic at the lowest possible cost?

For a start-up going from zero to post-launch, this makes perfectly good sense.  But once you start to scale, and start to get a base of customers, this front-end only focus will ultimately kill your business.

The reason is that driving for the lowest possible CPX assumes that all visitors to your site are equal in value to your business.  Take the total number of visitors, apply some average conversion rate and average order size, and bingo – you have a revenue projection.  But visitors are far, far from being equal.  Remember the old 80/20 rule?  80% of your business will come from 20% of your customers?  That rule still rules today.  Not only are visitors to your site not equal, but none of your customers are equal either.

That is where the back-end analytics and data analysis comes in.  Once you start developing a base of customers (B2B or B2C – doesn’t matter), you must start understanding them in-depth.  Where did they come from?  What message did they respond to?  Basic demographics.  Basic behavioral data.  Conversion efforts and costs.  Retention efforts and costs.  All must be figured into a Lifetime Value metric by customer at best (for large enterprise customers) or by profile for B2C customers.  A good direct marketer (online or offline) will have this background.

The problem that I’ve seen with a lot of companies is that marketing (and therefore, IT) doesn’t understand the scope of data that should be captured for these types of analyses.  Therefore, their databases are inappropriately structured, and unfortunately, usually not scalable.  Integrating databases and ultimately migrating to new platforms and adding BI is probably one of the largest IT infrastructure investments that companies need to make when they are ready to jump to that next level of growth.

Without understanding who your best customers are, you’ll flood your organization with low value, generally high maintenance customers, while your best customers get lost in the shuffle and are driven away.  Don’t let that happen to your company.


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