Part 1 - The 5 Step Formula to Determine Your nCAC
Jan 28, 2025
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Discover the importance of New Customer Acquisition Cost (NCAC) as a key metric for business growth. Learn how to measure it effectively without getting lost in vanity metrics. Unpack the complexities of customer segmentation and its impact on digital advertising. Dive into the five-step formula for calculating Customer Lifetime Value (LTV) and why it matters for your strategy. Lastly, grasp the hidden costs that come with acquiring new customers and how to ensure profitability while optimizing marketing efforts.
Understanding your New Customer Acquisition Cost (NCAC) is essential for informed marketing decisions and sustainable business growth.
Calculating customer Lifetime Value (LTV) accurately allows businesses to determine proper investment levels for acquiring new customers.
Deep dives
Elevating Top Funnel Strategies
Connecting TV advertising with display retargeting offers a comprehensive approach to attract quality leads. This strategy allows advertisers to reach audiences effectively without the high costs associated with traditional media, such as Super Bowl ads. By utilizing platforms like Ad Critter, businesses can engage potential customers through custom audiences with ease, simply by uploading files in various formats. This streamlined process significantly improves the ability to connect with leads and facilitate conversions further down the sales funnel.
Understanding New Customer Acquisition Cost (NCAC)
Understanding the New Customer Acquisition Cost (NCAC) is crucial for making informed marketing decisions. It reflects the total cost incurred to acquire a new customer and is essential for evaluating the efficiency of marketing strategies. The discussion highlights that businesses must be aware of their NCAC to truly scale operations, as relying solely on metrics like Return on Advertising Spend (ROAS) can be misleading. By defining clear benchmarks and calculating NCAC, businesses can ensure profitable customer acquisition strategies.
Calculating Lifetime Value and Its Importance
Calculating a customer's Lifetime Value (LTV) is essential for determining how much can be invested in acquiring new customers. The calculation involves looking at unique customers and total revenue over a specific period, yet the appropriate look back period can vary based on product type and purchasing behavior. Setting the right expectations for LTV helps in assessing customer profitability and crafting effective marketing strategies. Businesses that understand their product cycles and customer behaviors can strategically plan their customer acquisition efforts.
Key Elements of Cost Management
Accurate financial management involves understanding and subtracting critical costs like refunds, cancellations, shipping, and the cost of goods sold (COGS) from revenue. It's important to factor in these costs to get a realistic picture of net profitability. The insights shared emphasize how many entrepreneurs overlook these figures, leading to misguided financial expectations and potential business failures. Establishing precise calculations ensures that marketing strategies remain sustainable and profitable over time, preventing costly mistakes as businesses scale.
In part one of this two-part episode, Ralph and Lauren are talking about New Customer Acquisition Cost (NCAC). Sure, the mention of math might send some of you running for the hills, but hold on—this is the math that matters. Ralph compares finding your NCAC to searching for buried treasure, while Lauren reminds us that chasing vanity metrics like ROAS alone is as useful as an umbrella in a hurricane.
Learn why NCAC is the North Star of scaling a business, how to measure it effectively, and what tools can make the process manageable. Ad platforms love to boast about their results but your bottom line—and how much it costs to add a new customer to it—never lies.
As Lauren puts it: “Fake numbers might make you feel good, but they won’t pay your bills.”
Chapters:
00:00:00 – Math That Matters: The Secret Ingredient for Scaling
00:00:24 – NCAC: The Metric That’s Cooler Than ROAS
00:01:42 – Why Calculating NCAC Feels Like Cracking a Cold Case
00:02:42 – Scaling Secrets: Unlocking Business Growth with Math
00:03:47 – The Real Cost of New Customers (No, It’s Not What You Think)
00:06:10 – Lifetime Value: Measuring Love from Your Best Customers
00:09:28 – Practical Math: When Numbers Lead to Dollars
00:12:45 – Refunds, Returns & Regrets: Subtracting the Pain Points
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