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:
In this case:
- Lead represents the initial form fill on the website.
- Opportunity represents the actual lead created in HubSpot, which filters out obvious junk leads.
- Customer is someone who made it all the way through to purchase.
By using offline conversion imports, you can see how much an actual customer costs.
In the example above, the cost per customer is $26,339.03 divided by 11, or $2,394.46.
Now, we have a number we can optimize toward.
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Optimizing CAC
Smart bidding in Google Ads will help you optimize your CAC. It uses conversion data in an account to prioritize users who are more likely to perform an action: a click or a conversion, depending on the bid strategy you choose.
When you use offline conversion imports, you can use value-based bidding to get the bidding algorithm to focus on the most valuable actions for your business.
In my example above, we’ve set the following values for conversions:
- Lead: $100.
- Opportunity: $500.
- Customer: $5,000.
These are arbitrary numbers intended to show the relative value of each action to the other. A customer is worth 10 times as much as an opportunity and 50 times as much as a lead.
By using a Maximize Conversion Value bid strategy, Google Ads will try to find users who are not only leads, but customers.
In this example, we’ve been able to increase the total number of leads for this client while also dramatically increasing the number of customers because the smart bidding algorithm optimizes toward them.
Solving for long sales cycles
In my example, it takes a user about 14 days to move from an initial lead to a customer. In B2B, that’s a relatively short sales cycle.
It’s not unusual for B2B sales cycles to be 12–18 months.
The challenge is, Google Ads only looks at offline conversions for the last 90 days. If your sales cycle is longer than 90 days, you won’t see many if any final customers in your offline conversion data.
There are a couple of workarounds for this.
One is to manually match up data from your CRM to Google Ads.
While you won’t be able to see data down to the keyword level or use it for smart bidding, at least you can calculate your CAC and assign values.
If you’ve captured data in your CRM at the campaign level, which is pretty common, at least you’ll be able to see which campaigns are driving the highest value for you and set bids and budgets accordingly.
Another way to deal with long sales cycles is to use microconversions.
Microconversions are hand-raising actions that don’t represent an actual lead, such as views of a key page, initiating a chat, watching a video, or interacting with non-gated content.
Track microconversions in addition to lead form fills and funnel data. It doesn’t hurt to track funnel data even if it goes past the 90-day mark.
As described above, assign values to the microconversions.
Make them tiny, if needed: a video view might only be worth $1, while a lead form fill is worth $100 or $1,000 or $5,000.
The idea is to get enough data to feed the optimization machine and generate more users taking hand-raising actions.
A side benefit of tracking microconversions is you can use these audiences for retargeting.
Retarget people who watched a video about your product with an offer enticing them to take the next step — downloading an ebook or getting a free demo, for example.
By using the features available in Google Ads, such as microconversions, offline conversion imports and Smart Bidding, you can maximize your CAC for B2B PPC.
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