A Look at LinkedIn: Cost per Acquisition vs. Customer Lifetime Value

By Sebastian Jespersen, CEO Vertic

It’s a common scenario: the pursuit of quality instead of quantity. Many marketers focus on developing a high number of leads because of a lower cost, rather than on the quality of leads, which initially cost more. When the time, energy and money spent focusing only on numbers doesn’t convert to customers, companies learn the hard way that not all customers are created equal. Quality always wins over quantity when it comes to achieving business goals and long-term success.

Over time, we’ve noticed that most brands have the right intentions when it comes to generating traffic, but their Key Performance Indicators (KPIs) lead them to focus on driving CPM costs down and increasing traffic – usually however possible. This leads to a lot of traffic, but not always the right traffic. To add to the complexity, the different departments responsible for managing the customer progression usually have completely different KPIs to track against. This creates a gap in how success is measured across the organization.

I’m here to encourage Heads of Digital to switch from focusing on acquisition to thinking about true ROI. Instead of concentrating solely on driving down CPA by lowering CPC/CPM costs, we need to shift our focus to those customers not monetizing over time because that can impact Customer Lifetime Value (CLV) and reduce ROI. CLV has to be greater than CPA or your company won’t be able to scale or, for that matter, survive.

CPA only tells you how much it costs to generate a new lead but it doesn’t indicate if you will be able to generate a profit from that customer. And as we know, not all new customers are profitable customers. By layering CLV with CPA, companies can help determine if a new lead could potentially be a profitable one. Vertic has been helping its clients design and implement customer acquisition programs that are heavily focused on acquiring quality leads to improve their ROI. We’ve found many of these quality leads are on LinkedIn.

Looking solely at acquisition cost versus other platforms, LinkedIn does not appear to be an efficient investment. For example, Facebook sees an average CPC of $.80 while LinkedIn CPC can be over $2. However, LinkedIn has unique targeting propositions that distinguish it from AdWords and Facebook, particularly in a B2B context, which can be extremely powerful. You incur a higher CPC on LinkedIn because you are able to narrow the search criteria, which produces more qualified clicks. LinkedIn’s unique target criteria options produce, on average, a visitor-to-lead conversion ratio of 2.74%, which is outstanding and greatly outranks the conversion rates of Facebook and Twitter. Vertic has created numerous solutions for our clients using LinkedIn that focus on quality leads over quantity, and have set our clients up for a successful CLV.

Now the next natural question might be ‘why?’ – Why does LinkedIn cost more? And what exactly is the effective cost vs. benefit proposition of using LinkedIn to target quality leads? Of course, they can effectively pin-point user’s profession, interests, and geography, but the most important point that differentiates LinkedIn lies in how customers use it.

Studies show that over half of all users rank LinkedIn as being their most important social network. Keep in mind that this does not mean it is the most used social network; simply the most important. Due to the nature of LinkedIn being a professional network, users tend to ‘invest’ time on the site reading industry relevant articles, updating their professional status, connecting with clients and co-workers versus other platforms where individuals tend to ‘spend’ time commenting on photos, posting to friends’ and family’s walls, and consuming relevant information.

There is a grand dichotomy in how you speak to and engage with a user who is focused on spending time vs. one that is focused on investing time, and therefore approaching both users with the same strategy is simply not enough to ensure you continue to keep a profitable CLV and CPA. Targeting the user is only a piece of the pie, but what you do once you know who you’re targeting is where you can really differentiate a campaign.

Understanding where the user is coming from allows your marketing team to tailor the content and messaging to speak in a consistent voice. A campaign being run on Facebook and LinkedIn should not have the same banner-ad messaging nor landing page messaging. To do so is to dilute the value of segmentation and defeats the purpose of paying for a more qualified audience base in the first place.

The ability to understand the customer, and where they’re coming from allows you to decide where they’re going. Personalized creative, messaging, and a compelling story that tells the customer you understand them better than they might understand themselves is how to build a great marketing strategy and fully take advantage of the rich set of information that LinkedIn and other social sites have to offer.

To understand your customer is one thing, finding the right way to speak to them is another. We encourage brands to focus on finding the right mix that shifts our mindsets from quantity to quality. Focusing on targeting the right customers and ensuring they are monetizing overtime by normalizing certain CLV KPIs across departments will ensure that everyone within marketing and sales organizations are tracking against the same goals. This strategy is not limited to sales and marketing, but also extends to creative teams as well. Although the initial investment in targeting customers with specific criteria is greater through platforms like LinkedIn, the long-term impact on CLV can be significant if performed correctly.

To see how Vertic used LinkedIn to target qualified users, leverage personalized data to tell a relevant story, and drive conversion, read our case study on Microsoft’s Office 365 global campaign by clicking here.

Leave A Reply

two × one =