Find Your Break-even Customer Acquisition Cost (CAC) For Lead-To-Sale Journeys

Are you confident that your lead-gen advertising campaigns are profitable? If you’re not 100% sure, there’s no need to worry, we’ve got you covered! 

You need to learn about your break-even customer acquisition costs, and the key is to identify the threshold between unprofitable and profitable advertising. I’m going to use a fake catering business called “Bubble Tea Boys” to explain the three simple steps to a profitable campaign.

3 Steps to Evaluating Ad Campaign Profitability

1. Calculate Your Customer Lifetime Value (LTV) and Break-even Point:
   • LTV helps you understand how much profit you need to make per customer.
     • LTV = Average Profit per Closed Lead × Average Number of Closed Leads per Customer.
   • NOTE: Remember to be conservative in assumptions regarding average profit and average number of sales per customer.
   • Example for Bubble Tea Boys:
     • $400 (Average Profit) x 1.4 (Average Catering Orders Per Customer) = $560 (Customer LTV).
     • Analysis: Bubble Tea Boys can spend $560 on each catering customer without a loss. But, they must consider that not every lead turns into a closed lead; they have to close the deals. 

2. Calculate Your Lead Value Using Your Close Rate (this works on Google Ads, Meta, TikTok, Snapchat, etc.):
   • Determine your close rate by calculating what percentage of leads turn into closed deals. 
     • Close Rate = Closed Leads / Total Leads
   • Example for Bubble Tea Boys: 25 Closed Leads / 100 Total Leads gives them a close rate of 25%
   • Now, use this close rate to determine your lead value. This number is very important for profitability.
     • Lead Value = LTV x Close Rate
   • Bubble Tea Boys example:
     • $560 (LTV) x 0.25 (Close Rate) = $140 (lead value).
     • Analysis: Now you know you need to get leads for less than $140 to be profitable. 

3. Create campaigns that optimize for lead conversions that are cheaper than your lead value:
   • Use automated bidding strategies like tCPA to help keep your costs in check.

Always be cautious with your break-even calculations, as a wrong assumption can stop profitable advertising or lead you to spend more on unprofitable advertising. With some math and clear thinking, finding your break-even customer acquisition cost becomes a practical aspect of your marketing strategy. Now, go out there and find that sweet spot for your advertising!