This is a game theory/marketing question. Lets say you have two possible advertising campaigns to run. Your lifetime value of a NEW customer is $150.
Normally, you spend $100 to acquire a new customer. While acquiring these new customers, you gather data on everyone that was interested, but ultimately didn't buy(call them prospects).
But you can also spend $70 to target these prospects again, and convert them into customers.
Does it make financial sense to do so? From my perspective the answer is absolutely because you effectively have three options
1. No advertising spending(obviously bad)
2. Only do the first advertising, in which case your benefit is $50 from the first customer
3. Do both advertising, in which case the benefit is $80. $50 from the first customer $30 from the second customer.
I was told by someone, that the cost of acquisition for the second customer is $170, and since the lifetime value is $150 it's not worth running the second campaign. But from a math perspective, you have already spent the $100 either way because you are ALWAYS going to run the first campaign because it is profitable.
Am i missing anything here? Who is right?
Normally, you spend $100 to acquire a new customer. While acquiring these new customers, you gather data on everyone that was interested, but ultimately didn't buy(call them prospects).
But you can also spend $70 to target these prospects again, and convert them into customers.
Does it make financial sense to do so? From my perspective the answer is absolutely because you effectively have three options
1. No advertising spending(obviously bad)
2. Only do the first advertising, in which case your benefit is $50 from the first customer
3. Do both advertising, in which case the benefit is $80. $50 from the first customer $30 from the second customer.
I was told by someone, that the cost of acquisition for the second customer is $170, and since the lifetime value is $150 it's not worth running the second campaign. But from a math perspective, you have already spent the $100 either way because you are ALWAYS going to run the first campaign because it is profitable.
Am i missing anything here? Who is right?
