Measuring The Impact of Branding on Customer Acquisition & Lifetime Value
Let’s be frank. Sometimes talking about “branding” or “marketing strategy” can sound like talking about fluffy unicorns. It sounds pretty and nice, but is it really going to move your business forward?
The answer is “yes.” The right marketing strategies and brand frameworks are necessary elements to driving customer acquisition and building revenue. Thankfully, you don’t have to take our word for this. You can actually measure it.
What Is Customer Acquisition Cost (CAC)
Customer acquisition cost, generally shortened to CAC, is one of the fundamental marketing metrics businesses use to determine if they are being efficient with their marketing spend. On the surface, it’s a fairly simple concept that looks at the amount of money required to acquire a single new customer. The higher your CAC, the more money you need to acquire a new customer. The lower your CAC, the less money you need.
One thing to always keep in mind is that a high CAC isn’t necessarily bad. In some businesses, especially in businesses with long sales cycles that result in high-ticket purchases or recurring subscription revenue, CAC numbers can be very high. So long as the amount of money spent does not exceed the amount earned over time, high CAC numbers can be sustainable.
Regardless of whether or not you do have high or low CAC numbers, there is often a desire in marketing teams to lower CAC. After all, a lower CAC means you’re doing more with your money. Or, said another way, lower CAC numbers mean you can acquire more customers with the same amount of money. Who doesn’t want that?
Measuring Branding & Customer Acquisition Cost
The most common route organizations take to decrease CAC is to review their marketing channel mix and evaluate opportunities to either increase the value of their earned and owned channels (e.g. SEO, email, PR) or optimize their paid marketing efforts (e.g. Facebook or Google Ads).
What is less frequently discussed is how marketing and brand strategy work can actually impact CAC. This is truly short-sighted! After all, if you 1) don’t have a crystal-clear view of who your core customer is and what drives them, 2) don’t have a handle on the competitive environment and how you fit in, and/or 3) don’t have an understanding of how positioning, messaging or visual design will influence prospective customers, your actual tactics will never reach their full potential.
Of course, it’s not enough to just say this is true. Any organization going though a branding or marketing strategy overhaul is going to want to actually put procedures in place for measuring results. Here’s how it’s done.
Measuring The Impact Of Branding On CAC
First, we need to set up a measurement approach. We recommend the following process which lets you capture CAC at different points in the branding process:
Fixed Time Period Before Brand Work: Total Spend / Total New Customers
[Allow strategy, branding, design, and creative work to be executed]
0-1 Months After Full Brand Work Hits The Market: Total Spend / Total New Customers
3-6 Months After Full Brand Work Hits The Market: Total Spend / Total New Customers
6-12 Months After Full Brand Work Hits The Market: Total Spend / Total New Customers
Keep in mind, executing brand strategy takes time. Depending on the scale of the rebranding efforts, it can take months, if not years, to fully re-brand your business. That’s why a longitudinal approach to CAC measurement matters. It’s the only complete way to assess the short- and long-term impacts of brand work on CAC.
Determining What Spend Numbers To Put Into CAC
A common question during this process is to ask if the amount of money spent on strategy and branding should be put into the CAC calculation. There is no right or wrong answer here. Rather, it’s more about how you want to approach measuring CAC:
Super Liberal Approach: You don’t include branding and strategy spend in your CAC calculation. This approach says you should only include money spent on direct acquisition efforts. Because brand strategy and design sets the stage for acquisition but isn’t actually an acquisition tactic, this approach says keep it out of the calculation.
Super Conservative Approach: You include all marketing and branding spend in your CAC calculation. This approach says you should spread your brand strategy and design spend across the span of time that it’s happening in, and then measure CAC. It assumes that the strategy and branding work was crucial for acquisition and therefore should be part of your CAC measurement.
Obviously, the liberal approach will result in a lower CAC number while the conservative approach will result in a higher CAC number. If you use the conservative approach, you’d want to make sure you’re spreading your branding and strategy costs over time to avoid driving unrealistically high short-term CAC measures. Of course, there’s a middle ground that blends these two approaches.
Regardless of which path your pursue, just be sure to stay consistent! So long as your measurement approach is the same time after time, you’ll be sure to measure apples to apples.
Don’t Forget About Brand Impact on Lifetime Value
While the fastest way to measure brand impact is on CAC, brand will also have an impact on customer lifetime value, or LTV. LTV is a measure of how much gross revenue you earn from customers during their full lifespan with your business.
Sure enough, getting your brand “right” can have a huge impact on LTV. Consider, after all, that “brand work” goes well beyond marketing. It covers your organization’s mission, vision, and values, it contributes to how you build your operations and your sales structure, and it can even have an impact on your recruitment process.
Because your brand is the overarching thing that your business stands for it means that it impacts every part of the customer experience. Putting a new brand strategy in place results in improving customer targeting and using messaging that resonates better, driving more initial revenue per customer at the onset. Further, giving customers a great experience drives loyalty and retention, resulting in more revenue from each customer for a longer span of time. Said another way, a strong brand drives improved LTV!
This is why brand work is so important. It has the power to lower CAC for boosts to your bottom line while having a positive impact on LTV, contributing to topline health for years to come.