June 25, 2015

LCV

The problem with all online ad platforms is the auction model – over years, clicks become increasingly expensive. Higher click prices translate to higher costs to get each customer – ie. higher Cost per Acquisition, CPA.

Perhaps because of the inherently smaller bidding pool, Australia somewhat lags the US, however they passed a significant CPA milestone over 2 years ago.

Back then US marketers had to factor in that CPA levels were heading north of ‘profit on first sale’. That is, brands would now lose money to get each customer.

For years prior, Adwords was a cashflow positive investment. Then the game changed.

So if Brands are now losing money for each customer they get, how are they staying in business?

The answer lies in the same reason that great brands have always stayed in business:

Lifetime Customer Value, LCV.

What this CPA milestone shift did for Adwords was take out all the opportunists and short term players, and handed the market back to brands that take their customers on a journey over time. Brands that stayed in and nurtured their relationship with fans, could recoup their initial money lost at acquisition several times over during the lifetime of customer engagement.

This CPA milestone shift that happened in the US over 2 years ago is happening in Australia in Adwords today.

For this reason, the real game belongs to brands that have a plan for increasing their LCV.

How can you keep delivering more value to your existing customers over time?

Where are you taking your customers?

ps. Depending on niche, Facebook advertising CPAs are exceptionally low in Australia currently (ie. *very* cashflow positive), however again due to the auction model, this is also a closing arbitrage window of opportunity. Just as with Adwords, there will come a day when Facebook ads’ CPA will also exceed profit on first sale. Enjoy the profit you can make today, but use it to plan for the LCV you need to sustain tomorrow.

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About Adam Sugihto

Founder of Intentional - a specialist Pay Per Click Advertising Agency based in Melbourne, Australia. Member of Perry Marshall's Marketing Mastermind since 2011. Google Adwords Qualified Individual since 2010.

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Connection Economics