Cost Per Acquisition & Lifetime Value

When engaging in direct mail marketing—or any other form of marketing, for that matter—there are two numbers you need to know regarding your business. Those numbers are:

• Your Cost Per Client Acquisition (CPA)—How much it costs you on average to land one new client or customer; and
• Your Customer Lifetime Value (or CLV)—The amount of revenue you generate during the lifetime of an existing client relationship.

Having these figures in mind when approaching a direct mail marketing service will help you make better decisions as you strategize your campaign. Let's explore how you can leverage these metrics to make your direct mail campaigns more profitable.

Understanding CPA and CLV

To determine your cost per client acquisition (CPA), simply divide your total marketing expenses by the number of new clients you obtain over a specified period of time. (For example, if you spent $10,000 on marketing over the past 12 months, and during that same time you gained 100 new customers, your cost per new client is about $100.) Knowing your CPA can help you know how much to budget to reach your marketing goals. It also gives you a standard of measure to understand whether your direct mail campaign was effective, so if your results were disappointing, you can make tweaks for the next time.

Calculating your customer lifetime value (CLV) obviously requires you to have some history with at least a few clients.

You can calculate CLV in three basic steps:

1. Determine the average cost of a purchase;
2. Multiply that number by the frequency of repeat purchases the average customer makes over a set period of time (customer value); and
3. Multiply customer value by the length of time the average customer stays with you to get CLV.

CLV can be valuable for direct mail marketing in its own right because it requires fewer marketing dollars to maintain an existing customer than to gain a new one. You'll also have higher conversion rates with mailings sent to existing customers because they're statistically likely to buy from you again.

Leveraging CPA and CLV for Better Profits

In any direct mail marketing campaign, if your customer lifetime value is greater than your cost per client acquisition, your direct mail marketing is considered profitable. Your goal then becomes to create as much distance between those two numbers as possible. In other words, you want to try to get your CPA as low as possible while making your CLV as high as possible (i.e., with repeat customers making repeat purchases). Try testing and retesting using segments of your mailing list to see which pieces generate the most conversions. The farther apart you can get those two figures, the greater your profits.

An experienced direct mail marketing service can help you maximize profits by creating direct mail campaigns that keep your acquisition costs low and help you build long-lasting client relationships. To learn more, call us today at (916) 296-0545.