Start-up Math: Cost-Per-Acquisition

Some business models require special acquisition-cost calculation methods.

Andrew Chen has the math you need to make sense of acquisition costs if you are using a freemium, subscription, or virtual items business model. By understanding your true cost per acquisition, and comparing it to the lifetime value of that acquisition, you will get a more accurate estimate of profitability.

Chen presents detailed examples and charts to help you track your traffic sources, click through rates, sign-up %, and cost-per-acquisition in the full post. Chen also presents key factors to take into consideration before you get started.  Two of these include:

• Be sure to “break down your funnel into as small of steps that make sense.”
• “In addition to tracking source of traffic, you may also want to track important factors like what campaign it was in, what creative it corresponded to, and banner ad size.”

In order to better understand your cost-per-acquisition and the factors that influence ad performance, follow the link below to the comprehensive, graphically-rich post.