20 April 2017 | 26 Comments
A few months ago I was watching Shark Tank, reveling in the art of the pitch, when Mark Cuban asked an entrepreneur a question: “What’s your customer acquisition cost?”
Without hesitation, the entrepreneur had an answer. They knew exactly how much they spent on marketing (e.g., $1000, and they knew how many customers they had gained from that marketing (e.g., 250). The result was their customer acquisition cost (e.g., $4).
I paused the show, because I realized I had no idea what our customer acquisition cost is for Stonemaier Games. I made a note about it, but I didn’t act on it, as I wasn’t sure what I would do with that information.
Flash forward to a few days ago when I heard from James Campbell at Gut Shot Games. James will soon be launching a Kickstarter campaign for his game, H.E.A.D. Hunters. Over the last 9 months, in preparation for the campaign, he’s gone on a quest to build a crowd, and he took the initiative to write a detailed analysis of the results of that quest. You can download and read the entire document here, and I’ll talk about key points below.
James decided to use a very specific strategy: He would demo his game at conventions to build an e-newsletter list. James targeted 5 conventions, and after each one he calculated his subscriber acquisition cost:
- Gen Con: $44.17/customer
- PAX West: $4.44/customer
- PAX South: $19.50/customer
- Emerald City Comic Con: $9.19/customer
- PAX East: $12.11/customer
It’s important to note that these costs aren’t necessarily a direct reflection of the cost of demoing at these conventions. They depend on a lot of factors, such as the location of the convention, the type of space held by Gut Shot at the convention, time spent at the convention, etc.
But I think James answered my question about what I would possibly do with the information if I knew Stonemaier’s customer (or subscriber) acquisition cost: I would know which marketing methods are worth continuing, revising, and cutting. Now that James has this information in hand, if he can only attend 1 convention next year, he can make an informed decision.
In total, Gut Shot spent over $13,400 to acquire 890 subscribers who are specifically interested in H.E.A.D. Hunters. That’s a lot of money. Is it worth it? We’ll know for sure when Kickstarter campaign launches on May 23, but for now let’s say that 30% of those customers spend $40 on Kickstarter for the game. That’s $10,680–less than he spent on subscriber acquisition–but many of those people could be Day 1 backers, providing a big boost that will impact the rest of campaign.
James’ article details a lot of lessons learned by demoing at conventions, so if that applies to you, I recommend you read the whole thing.
The other way this information is useful is that it’s another data point to plug into calculations for MSRP and Kickstarter reward prices. If you know that a distributor is going to buy your $60 game for $24 and that your manufacturing cost and freight shipping costs per unit are $14, it makes a big difference if your customer acquisition cost is $2 or if it’s $8. That’s could make a big difference in your ability to afford a new print run.
Two other things I like about James’ article and strategy:
- James only collected information from people who are specifically interested in his game. This is a focus on quality over quantity–I’d much rather have 1000 people who genuinely want to know more about Stonemaier than 10,000 people who signed up because they wanted to win a free game.
- James focused on e-newsletter subscribers, not Facebook fans or Twitter followers. There’s merit in all forms of social media, but I think an e-newsletter is by far the most powerful of them. Only a small percentage of Facebook fans will see an unpromoted post, but your e-newsletter will end up in every inbox.
So where does that leave Stonemaier? The truth is, it’s pretty nebulous, as we do very little direct marketing. When I’ve run campaigns in the past, I’ve shared the data, so there’s some information here (particularly about conversion rates for BoardGameGeek ads).
Also, I rarely sell directly to individual consumers these days. Rather, my customers are distributors, a few retailers, and international partners. I haven’t gone to any trade shows, so the only marketing expense is my time, which is hard to calculate.
The closest I can come to providing any data is Gen Con 2016, where we sold 1000 copies of Scythe through another company’s booth. We sold 1000 copies of Scythe and spent $10,029, so that’s roughly $10 per customer. For Scythe, at least. In the conference room where we operated, we demoed all of our games and met a ton of people–it was more relationship-driven than sales-driven.
To summarize, there are two key ways to use customer or subscriber acquisition costs:
- To provide a threshold to compare against other strategies (or to repeat/tweak existing strategies).
- Make informed decisions about pricing strategies and budgetary practices.
Do you calculate customer and subscribers acquisition costs? What have you learned from doing so?
Also read: This article about Facebook Ads.