What is Traffic Acquisition Cost?
The Traffic Acquisition Cost (TAC) is one of the most relevant KPIs (Key Performance Indicators) for a digital company. Digital companies, like traditional ones, seek potential customers to use / purchase / rent their products or services. The main difference, however, is that these potential customers are called “users” and digital companies have no physical contact with them.
One of the advantages of a digital business is that there are many ways to get your brand out there and attract new customers to your site. Some of them are free such as search engine optimization (SEO), social media marketing, backlinks, etc. while others are paid sources like search engine marketing (SEM), affiliation, retargeting, etc.
The aggregation of these costs is called the Traffic Acquisition Cost (TAC), or the cost for attracting new users. The traffic acquisition cost should account for the higher share of costs a digital business incurs and is one of the key factors for a digital company to succeed.
Lowering the Traffic Acquisition Cost (TAC)
As the digital landscape gets more and more competitive and the cost of acquiring new customers rises, it is critical for companies to try and lower their traffic acquisition cost.
There are many ways to do so, for example by reducing and optimizing your investment in paid traffic sources while increasing your investment in organic ones. (i.e. reducing and optimizing SEM campaigns while improving SEO and launching social media campaigns). However, considering that SEO is a medium/long-term traffic source while SEM is a shorter-term one, a healthy mix between both sources should be maintained. Reducing the investment on PPC (Pay-Per-Click) sources will inevitability cause a decrease in the number of new users in the short term. The ideal option is to improve the optimization of your campaigns on paid channels, either internally by hiring a specialized team for each source or, in a more affordable and efficient way, by hiring a digital agency to do it for you.
Another way to lower the traffic acquisition cost is to improve conversion. As you spent a significant budget to send traffic to your site, you need to make sure that this traffic converts. The higher the conversion rate, the lower your TAC. Improve the user experience by trying several options (A/B testing) and find what makes a visitor turn into a customer. Retarget users who visited your site in the past without checking out, as these are more likely to convert on their second visit. (Read our post on Retargeting)
Increasing the Customer Lifetime Value (CLV)
However, traffic acquisition cost is not the only metric to take into account. Attracting new customers is one thing, but what happens to users once they become customers? Even with an excellent customer acquisition strategy, if your new customers don’t generate enough revenue to cover your cost and generate profit, your business model won’t be sustainable. When users convert and become customers, how much will they spend on your product or services in the future?
The Customer Lifetime Value (CLV) is the value attributed to an entire relationship with a customer. This metric helps assess the financial value of each customer, and it is said the CLV should be three times superior to the TAC. In simpler terms, your new customers should generate a value of three time what it cost you to acquire them in the first place.
So, it is simple. The key to success is to try and lower your Traffic Acquisition Cost as much as possible while increasing the Customer Lifetime Value of your new customers.
Easier said than done, right? Stay tune for follow-up articles on how to make this happen.