Mike Andes walks through the metrics that matter: cost per click, cost per lead, close ratio, and customer acquisition cost. He argues that a low CAC doesn't guarantee profit if you're acquiring small-project customers. Sustainable businesses need high-value customers, not just cheap ones.
When it comes to marketing, you can understand it by thinking like a funnel. So you have cost per click, how much do I have to spend on marketing into Facebook or Google or whatever in order to get one click? And then some of those are going to convert into leads. How many clicks do I need to spend on before I get one lead? That's your cost per lead. And then you're going to have a close ratio, a percentage of those leads are going to convert into customers. Customer acquisition cost. At the bottom of the funnel, I have the cost that I have to pay, the amount of money I have to spend to get one new customer. Now the problem with this is that not all customers are created equal. If they're not good paying customers that are doing the type of projects that you want and the size of projects that you need to run a sustainable business, it's still not a good deal.
