You can calculate the profit per customer by subtracting the acquisition cost from the lifetime value, as follows:
Posted: Sun Dec 22, 2024 7:14 am
For example, if you are
selling a SaaS product with an average order value of 199 USD/month, and
customers pay 12 times per year, and
stay with you for 2.5 years on average, then
you have a variable profit margin of 80%.
Overall, your lifetime value is 4,776 USD.
SaaS companies that sell at fixed rates are good at doing these calculations. But, what if you’re a service business with a range of project sizes? I recommend you make a reasonable guess because it’s better germany phone number list than nothing. Just because you don’t have perfect data doesn’t mean that you can avoid making deci
Then move on to calculate Baidu ad costs, which you can use as a comparison. Your Baidu ad costs are what you’d need to pay to acquire each client.
For example, let’s imagine these numbers:
Cost-per-click (CPC): 1.5 USD.
Current conversion rate (clicks-to-leads): 2%…but bring it down to 1.5% to be conservative.
Percentage of leads that end up as actual sales: 10%
In this case, it will cost 1,000 USD to acquire each new client.
Of course, this model is just something to start with. You might extend it by
measuring ROI as profit-per-customer over the cost-of-acquisition,
building a long-term cash flow estimate into the model instead of using only lifetime customer value, and
adding additional stages to the funnel.
Plus, the above model might not give anything to the marketing or sales teams yet. Don’t forget to pay them.
Why Are Some Companies Not Ready for Baidu Ads?
It’s not uncommon for me to do this analysis for companies and end up seeing that they actually do not have a great opportunity right now. In fact, that happens about a quarter of the time.
Baidu ads, like Google ads, have their costs bid up by companies competing for the same ad space for the given keywords they’re targeting.
So it’s not uncommon for Chinese companies to capture more value from their users and then spend more on ads on a CPC basis.
Incumbent competitors might be able to do this for many reasons:
They not only value the sales from new customers but also attach a USD value to each new social follower acquired.
They can upsell their customers’ additional products, e.g: They provide a visa application service, as well as global wealth management services.
They have a stronger sales team, meaning even if they sell the same thing
selling a SaaS product with an average order value of 199 USD/month, and
customers pay 12 times per year, and
stay with you for 2.5 years on average, then
you have a variable profit margin of 80%.
Overall, your lifetime value is 4,776 USD.
SaaS companies that sell at fixed rates are good at doing these calculations. But, what if you’re a service business with a range of project sizes? I recommend you make a reasonable guess because it’s better germany phone number list than nothing. Just because you don’t have perfect data doesn’t mean that you can avoid making deci
Then move on to calculate Baidu ad costs, which you can use as a comparison. Your Baidu ad costs are what you’d need to pay to acquire each client.
For example, let’s imagine these numbers:
Cost-per-click (CPC): 1.5 USD.
Current conversion rate (clicks-to-leads): 2%…but bring it down to 1.5% to be conservative.
Percentage of leads that end up as actual sales: 10%
In this case, it will cost 1,000 USD to acquire each new client.
Of course, this model is just something to start with. You might extend it by
measuring ROI as profit-per-customer over the cost-of-acquisition,
building a long-term cash flow estimate into the model instead of using only lifetime customer value, and
adding additional stages to the funnel.
Plus, the above model might not give anything to the marketing or sales teams yet. Don’t forget to pay them.
Why Are Some Companies Not Ready for Baidu Ads?
It’s not uncommon for me to do this analysis for companies and end up seeing that they actually do not have a great opportunity right now. In fact, that happens about a quarter of the time.
Baidu ads, like Google ads, have their costs bid up by companies competing for the same ad space for the given keywords they’re targeting.
So it’s not uncommon for Chinese companies to capture more value from their users and then spend more on ads on a CPC basis.
Incumbent competitors might be able to do this for many reasons:
They not only value the sales from new customers but also attach a USD value to each new social follower acquired.
They can upsell their customers’ additional products, e.g: They provide a visa application service, as well as global wealth management services.
They have a stronger sales team, meaning even if they sell the same thing