Lecture Notes: Cost of Customer Acquisition (COCA)

Introduction

• Presenter: Dr. Adam Jae Bok
• Topic: Cost of Customer Acquisition (COCA) Calculation
• Relevance: Important for businesses, especially digital goods and startups.

Definition of COCA

• COCA: Total spending on acquiring customers / Number of customers who complete a purchase.
• Purpose: Determine average cost to acquire one customer.

Example 1: Email Campaign at UW-Madison

• Scenario: Send emails to 40,000 students at UW-Madison.
• Cost: $100 for sending emails.
• Conversion Rate: 1% buy a ticket.
• Calculation:
  • Total customers acquired: 40,000 x 1% = 400
  • COCA: $100 / 400 = $0.25 per customer.

Importance of COCA

• Indicator: Key indicator of long-term financial viability.
• Relation to Profit: Understanding COCA helps in assessing the profit per customer.
• Connection to Lifetime Value (LTV): Combined with LTV, provides insights into profitability.

Complexities in COCA Calculation

• Real-World Application: Not typically a single-step process.
• Multiple Contacts: Customer acquisition may require multiple interactions.

Example 2: Online Campaign - Home Energy Service Audits

• Platform: Facebook impressions.
• Cost: $50 for 1,000 impressions.
• Click-Through Rate: 6% click on the ad.
• Conversion to Proposal: 10% request a proposal costing $25 each.
• Final Purchase: Two-thirds of proposal recipients buy the audit.

Calculation Process

1. Impressions: 1,000 impressions cost $50.
2. Clicks: 6% click-through = 60 customers.
3. Proposals: 10% of clicks request a proposal = 6 customers.
   • Proposal cost = 6 x $25 = $150.
4. Orders: Two-thirds order = 4 customers.
5. Total Cost: $200
6. COCA: $200 / 4 = $50 per customer.

Exercise: Car Dealership Campaign

• Objective: Calculate COCA for a car dealership.
• Details:
  • Invitations: 10,000 mailed, cost $1,000.
  • Visit Rate: 5% visit dealership.
  • Test Drive Rate: 10% take test drives, cost $50 each.
  • Purchase Rate: 20% of test drivers buy a car.

Task

• Fill in the provided chart and complete calculations on Canvas.
• Note: Requires understanding of LTV calculations as well.

Conclusion

• Action: Attempt COCA calculations and proceed to learn about Lifetime Value (LTV) for comprehensive understanding.