We start with a paid search marketing program. The marketer spends $10,000 and observes these results.
|Profit And Loss Statement|
|Net Sales (80%)||$20,000|
|Gross Margin (55%)||$11,000|
|Less Marketing Cost||$10,000|
|Less Pick/Pack/Ship (12%)||$2,400|
|Cost Per Click||$0.50|
|Cost Per New Customer||$50.00|
|Profit Per New Customer||($7.00)|
There are two metrics that we commonly look at ... cost per click ($0.50), and CPA, or Cost per New Customer ($50.00).
In this case, the marketer is spending $50.00 to acquire a new customer.
The metric that really matters is profit per new customer (PPNC).
In this example, the brand loses $7.00 profit for every new customer.
Next, the brand compares this metric with the long-term value of the customer. For instance, this segment of customers might generate $15.00 profit in the next twelve months.
In total, the marketing activity is responsible for (-$7.00 + $15.00) = $8.00 profit, over a twelve month period of time.
Where possible, we want to evaluate profit per new customer (PPNC), instead of easier-to-compute metrics like cost per click or cost per new customer.