Customer Acquisition Cost: An Escape Room Owner’s Secret Weapon For Making More Money
EscapeAssist is pleased to introduce our guest blogger Chris Hanson. He is the founder of EscapeFront, which includes the very active EscapeFront Facebook Group, as well as the EscapeFront website launching April 4. Chris is an escape room enthusiast who created EscapeFront as a professional resource for escape room owners. Chris is also a contributing author for the escape room trade magazine The Last Lock. Chris lives in Seattle Washington, and has a background in business, teaching & training, and financial analytics. Follow EscapeFront on Facebook, Twitter and LinkedIn
How do you know if your escape room marketing dollars are being spent wisely? How do you determine which marketing channels are worth investing more in and which ones aren’t?
The smartest escape room business owners are always looking for ways to get the best bang for their buck, especially when shelling out cash for advertising. They also understand that no two advertising channels or campaigns are alike. And what works for one escape room business might not work for another because there are so many variables at play. We can certainly make some general marketing assumptions, but a lot of times, ignoring the gritty details can mean the difference between 20 customers per $100 spent and 40 per $100.
Yes, in some cases you really can double your customers without spending a dime more on marketing. Crazy right?
But to do this, we’ll need to put on our analyst hat for a bit and dig into some numbers.
Customer Acquisition Cost (CAC) definition
CAC is a financial metric used to determine the amount you pay to get 1 customer to buy from you.
Why is CAC important for escape room owners?
CAC is a particularly important metric for escape room owners to be familiar with due to the relative newness of the industry. Because single escape rooms virtually have a replayability factor of zero, minimizing how much it costs to get customers in the door is critical.
Let’s face it, unlike bowling alleys, mini golf, and pretty much every other amusement venue, repeat business per customer is limited by the number of attractions currently in service. You know this.
Luckily, only a tiny percentage of the population even knows escape rooms are a thing so hooray for untapped potential.
And untapped potential = educating the population, which creates its own set of challenges. But I digress.
If all these factors prove anything, it’s that we’re justified in allocating a significant portion of the budget to marketing, and yes, educating. But let’s not just throw money at Facebook and call it good.
In the next section, we’ll dive into how to make sense of all the numbers when calculating your CAC.
How is CAC calculated?
Total Marketing Cost (TMC) / Total New Purchasers (TNP)
That was easy.
Let’s break it down, shall we?
Total Marketing Cost (TMC) – What should be included?
Let’s look at a mock scenario from January 2018. Note that this scenario intends to be exhaustive to give you a thorough understanding of what’s included in your marketing budget. Because of this, some of the categories may not apply to you but hang in there with me, mmkay?
|Ad campaign cost: Facebook||$250|
|Ad campaign cost: Google||$305|
|Software: CRM – Hootsuite||$129|
|Software: Email – MailChimp||$55|
|Software: booking system survey||$24 (estimated usage allocation of total cost)|
|Salaries (i.e., allocation of time/salary you and your employees spend on marketing.)||$2,125 ($8,500 combined January salary * 25%)|
|Print media, signage, physical promotional materials||$105|
|Coupons/discounts||$1,056 ((# bookings * full price ticket) – actual revenue)|
|Miscellaneous marketing expenses (e.g., logo, branding, graphics software, applicable training)||$14|
Total New Purchasers (TNP) – Where’s the data?
The second part of the formula is Total New Purchasers, or TNP. This one involves a lot less math than TMC. You’re welcome.
Basically, we need to know how many new customers actually booked your escape room for January. In case you’re not sure, here’s how to get this data:
Overall – Feature-rich booking software provides varying degrees of customer analytics, including first-time customer analysis.
Channel-specific – Survey your customers by asking “How did you find us?” as a required question during the booking process.
Note: surveys are more reliable than Facebook ad analytics because Facebook measures clicks and has absolutely no way of tracking what a customer does once they leave the platform.
Your Average CAC
Remember our original CAC formula? Let’s refresh.
Total Marketing Cost (TMC) / Total New Purchasers (TNP). Got it? Good.
$4,073 divided by 551
CAC = $7.39
That means that on average, it costs you $7.39 to get one new customer to buy from you. But that’s not very helpful on its own because there’s nothing to compare it to. Let’s fix that.
Use it as a measuring stick against channel specific CAC or plot it on a spreadsheet to show a trend over time.
Your Channel-Specific CAC
Let’s compare Facebook and Google for this example.
|Ad Campaign Cost: $250
Salary: $1,062.50 ($2,125 / 2 )
|211 (based on survey)||$1,312.50 / 211 CAC = $6.22|
|Ad Campaign Cost: $305
Salary: $1,062.50 ($2,125 / 2 )
|153 (based on survey)||$1,367.50 / 153 CAC = $8.94|
Note: Salary is divided by the number of ad campaigns currently being run. In this case 2. In your case, be sure to use the number of paid advertising campaigns.
Ok great. But now what?
By our calculations, we see that Facebook costs us less to acquire 1 customer than Google, by a whole $2.72 in fact. This is useful info to have. Now, what do we do with it?
Well, for one, we can focus more of our advertising efforts on Facebook.
Let’s assume we decide to cut our Google ad spend in half. Instead of $305, we now only spend $152.50 on Google ads. We don’t want to completely cut out Google because, like all good investing, it’s about diversifying. I mean, the 5 people not on Facebook need love too, right?
Naturally, a 50% cut in Google ad spend means a 50% drop in TNP from Google ads, so we go from 153 TNP to 76 (or 76.5 because who doesn’t like counting half people?).
The $152.50 we took out of Google will go directly to Facebook instead. And how many new customers will $152.50 net us on Facebook? Time for some fun with numbers:
If $250 nets us 211 customers (remember, mock data) than $152.5 should net us roughly 128 additional customers. Click here for the nifty proportion calculator I used because numbers are fun but not that fun.
That’s 52 (128 minus 76) more customers for the same amount of money! Magic!
And just for fun, let’s say your average profit per room booked is $10.
That minor ad spend adjustment just added $520 of monthly profit to the business. Thanks, Facebook!
Test, tweak, rinse, & repeat
Before we wrap up, I want to remind you about the danger in becoming complacent with how you manage your marketing budget. Tracking is oh so important when we’re talking about CAC. But seriously, don’t go crazy with the tracking. Keep it as simple. The more complex your tracking, the less likely you are to keep up with it and then, no one wins.
To help you keep it simple, click here for a plug and play spreadsheet created just for you. Just be sure to click File & Make a Copy.
You can also use our simple calculator here:
Before I let you go, I’ll leave you with one last tip to help lower your CAC. Mix up your ads and track the CAC for each. Try running 3 Facebook ads in parallel. Each slightly different in appearance and ad copy but DO NOT vary the demographic because this will be our control. You can do that in a later ad series. We don’t want to muddy the waters by taking consumer behavior by demographic into account just yet.
I know what you’re thinking. With Facebook’s tracking limitations, how will I track TNP if I run them all in parallel? I mean, you can’t realistically have a survey on your booking system asking customers to identify which Facebook ad brought them to your site.
When running parallel ads, you can track the click conversion and make an inference that the highest click conversion will represent the best CAC. And that’s precisely why the target demographic needs to be the same for each ad. Some demographics are more likely to click ads than others so controlling this makes the inference more plausible.
Hopefully our close look at CAC has given you something to think about. Have fun!