In B2B PPC lead generation, the goal of most advertising campaigns isn’t to drive sales but leads.
These leads eventually turn into sales, but it often takes 12–18 months.
There are multiple touchpoints along the journey from initial identification of need to finally signing a contract and there are costs involved in each stage.
Understanding your customer acquisition cost is important, as it can help you determine how much you can invest in advertising and still be profitable.
What is customer acquisition cost?
Customer acquisition cost, or CAC, is defined as the total cost to acquire a customer divided by the total number of customers.
“Cost” can include marketing costs or overheads such as wages, software and other tools to acquire new customers.
Setting an ideal CAC
Many businesses will already have established their ideal CAC. If you haven’t, you should do so before investing in PPC advertising.
While it’s always possible to simply optimize for the lowest possible cost per acquisition, to be profitable you’ll want to know how much you can afford to spend to acquire a customer.
To do that, you’ll need to know what the lifetime value of a customer is.
The formula for calculating lifetime value is:
Lifetime value (LTV) = Average order value x Total transactions / Unique customers
Once you know your LTV, you can decide how much of that LTV you’re willing to spend to acquire a customer. It could be 10% or 50% or even 100%. Make sure your business leadership agrees with the percentage.
When setting the percentage, make sure it’s realistic.
If you decide that your CAC should be 10% of LTV and LTV is $1,000, that’s $100. If you’re in a competitive PPC space where CPCs are in the $50 range (and that’s not at all unheard of in B2B), you’d need a 50% conversion rate to meet your goal. That’s probably not realistic or achievable.
Measuring CAC in-platform
You might be thinking, “It’s easy to measure CAC in platform! It’s just cost per conversion.”
And you may be right.
You might also be wrong.
If you’re selling products directly online, such as in ecommerce, then your CAC probably is your cost per conversion, plus any associated costs like overhead.
But in B2B, a conversion doesn’t equal a customer.
A conversion, as measured in Google Ads or Microsoft Ads, can be any action that can be tracked with a pixel.
It could be a page view, a video view, a button click, a Google Maps location visit or a form fill.
Just because someone viewed a page or a video does not mean they’ve become a customer, or even a lead. There is no mechanism to follow up with these users and they’re probably not ready to be followed up with anyway.
Even a user who fills out a lead generation form is not a customer yet, so it would be premature to assume that the cost per form fill is the same as your CAC.
The bulk of the B2B lead generation effort takes place outside of advertising platforms, in the form of salespeople following up directly with prospects. However, it’s still possible to measure PPC CAC in ad platforms.
This is where offline conversion imports come in.
One of the most helpful innovations from Google Ads for B2B advertisers is the ability to import conversions from CRM platforms.
There is a built-in import to Google Ads from Salesforce and HubSpot and you can connect just about any other CRM by using Zapier.
Once you’ve connected your CRM to Google Ads, you can see not only initial form fills, but multiple funnel stages such as:
Lead.
Opportunity.
Customer.
Here’s an example of a client who’s pulling HubSpot data into Google Ads to measure conversions in the funnel: