Search Engine Marketing (SEM) is a bread and butter way to acquire new customers. You bid a certain amount per click, impression, or acquisition, and in return you get new visitors to your site. The key with SEM, as with any marketing channel, is to make sure that what you pay for new customers isn’t taking too big of a bite from your profits.
One of Custora’s customers, DataSauce, recently confronted this very issue. How could their client, “The Unusual Pea,” still profitably acquire customers despite low profit margins and thus a smaller budget for acquisition?
Read on for the summary of our recently published case study, and download the full case study below.
DataSauce is an e-commerce and digital marketing consultancy based in Melbourne, Australia. They’re passionate about helping businesses reach the right customers with the right message at the right time. The Unusual Pea is a pseudonym for DataSauce’s client, who asked to remain anonymous. Despite the bit of mystery, we do know some key facts: They are an online food seller that services multiple locations in Australia, and are known for their insistence on food quality and the best ingredients.
The Challenge: Low margins. Low customer acquisition.
The Unusual Pea hired DataSauce to help them bring in more customers through advertising on Google AdWords. DataSauce’s first hurdle was The Unusual Pea’s low profit margins. Their average order is for a single diner who spends around $20, with The Unusual Pea’s profit amounting to $5, a slim margin. What this meant for DataSauce was that they could only justify a $5 or less Cost Per Acquisition (CPA) through Google AdWords to acquire new customers.
The Solution: Looking beyond the first order.
The lightbulb moment for DataSauce was when they turned to Custora to unlock the power of repeat purchasers and customer lifetime value (CLV). Armed with information about CLV, as well as the average repeat rate for their customers, DataSauce saw that instead of spending under $5 to acquire each customer, they could actually spend as much as $20.50 to profitably acquire a new customer.
The Results: Investing double and tripling revenue.
With Custora’s predictive CLV modeling, DataSauce felt confident setting their target at $10 CPA – double their initial investment. They assumed that spending twice as much on AdWords would double revenue. Happily for everyone, revenue tripled. In hindsight, that made sense: The higher CPA put them above the competition by ensuring that their ads were displayed more often, and allowed them to get better at identifying the keywords that brought in new orders.
According to Tzvi Balbin, Founder of DataSauce, “I can now say with conviction that the most important metric I measure is the CLV. For any direct marketer, it’s critical in guiding your data-driven decisions.”
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