How to forecast new customers?
Forecasting the number of new customers for an internet business for a given time period can be primarily broken down into estimating it for two distinct customer sources: organic and paid channels.
Example:
A platform has a marketing budget of ₹4,00,000 for Q1 2024.
With a Customer Acquisition Cost (CAC) of ₹1,000 for paid channels and an expected organic growth of 100 customers (based on historical trend), the new customers projection would be:
New Paid Customers = ₹4,00,000 / ₹1,000 = 400
Total New Customers = 400 (paid) + 100 (organic) = 500
Explanation:
1. Organic Growth: New customers acquired through word-of-mouth, referrals, organic search, etc.
2. Paid Growth: New customers acquired through paid marketing channels.
Estimating new customers from paid growth channels, in turn, requires 3 metrics for each channel:
a. Marketing Spend: The budget allocated to that channel for paid customer acquisition.
b. Cost per Click/Lead (CPC /CPL): The cost to get a new prospective customer through that paid channel, calculated as [Marketing Spend / New Clicks or Leads].
c. Conversion Rate: The percentage of leads or clicks that convert to new customers, for that channel. Higher marketing spend can sometimes lead to lower conversion rates, increasing the CAC.
The objective of splitting new customer estimation into organic & paid acquisitions is that the former is stable in the short run, while the latter is dependent on marketing spends.
And, the objective of calculating paid growth for different channels separately is that scalability of spends, cost per click, and conversion rate varies widely from one paid channel to other.
Once all of them have been independently calculated, they can be added to give us a more accurate new customer estimate.