It is more and more expensive to
acquire new
customers on
a web site

Design & programming: 33% of the web functioning budgets

With Christmas only a few weeks away, American Research companies are multiplying surveys about B2C sites, in order to determine their cost structures but also their customer acquisition costs.

According to Shop.org, e-tailers spend an average of $250 on marketing and advertising to acquire one single customer.

To appreciate such figure, you need to know what kind of income can be generated from these new customers… The gross income from a typical customer is $24.5 in the first quarter and $52.5 in every quarter that he or she remains a customer… provided that he or she keeps on making purchases on the site.

Let's make an optimistic assumption first (which is that once a customer has been "acquired", he remains faithful to the site for a few months at least). Considering that such was the case, an eRetailing site will still need 5.2 quarters to generate as much income from that customer as the money that has been spent to get him on the site.

Please note that we're talking in terms of gross income here, not net margin.

McKinsey also revealed that two-third of buyers failed to make a repeat purchase.

Basing our opinion on those two elements, which are the net margin and the repeat purchases, we can say that the return on investments of a customer acquisition cost that is estimated to 5.2 quarters is greatly underestimated.

And yet, another research company called Intermarket Group, followed closely by the Boston Consulting Group, claims that the acquisition costs are much lower than that: it would represent $27.6 for Amazon, $42 for its competitor Barnesandnoble.com and only $20.4 for Autobytel.com.

Such a gap between the figures released by Shop.org and the ones released by Intermarket Group (ratio that goes from 1 to 10) can be explained by the fact that these two groups did not take the same criteria into account when they calculated the customer acquisition cost.

Indeed, it is rather difficult to know where communication and image costs cease and where direct marketing costs really begin.

The advertising banner is a typical example of such ambiguity.

The banner is a communication tool, in the same way as a TV add, with an expected effect as far as the positioning, the brand and the fame are concerned, but it also represents a generation tool measured by the clickthrough rate.

But both logics can be in complete opposition.

The first surveys that were conducted in the United-States about the impact advertising had on customers, revealed that more sales were generated by visitors who had greatly visualized the advertising banner but had not clicked on it than by visitors who had come to the site by clicking directly on the banner.

And yet, there is a way to make the difference between marketing and communication costs. Comparing the acquisition costs that are paid by pure-player companies and the ones that are paid by click-and-mortar companies could solve the difficulty.

According to Boston Consulting Group, the acquisition costs would be three times cheaper for the brick-and-mortar companies than for the pure Internet players.

Such difference could well be the investment new comers are required to make if they want to make up for lost time in terms of fame and capital security in order to satisfy their customers.

The actors that have been on the market for a while might well have got a real asset. And yet, such lead won't last long since visitors are now becoming customized on a lot of new sites.

Starting from there, the Internet retailer start-ups, that were being praised to the skies at their beginning, and are now being unanimously condemned, might well find a real competitive advantage, that would be based on their Internet customer knowledge.

It is quite possible that this customer knowledge proves itself just as difficult to achieve by the brick-and-mortar companies as it has been for the start-up to get famous, especially in a world where brand loyalty is no longer what it used to be.

Nevertheless, the acquisition costs mentioned in all those American surveys, prove that those sites are now facing a budget deficit.

Source : Emarketer

ActiveMedia Research just released the 2000 edition of its survey concerning website maintenance and development costs in the United-States.

Even for such a mature market as the American one, great part of a website budget (33%) is still being allocated to its development strategy (website design and computer programming).

Such observation matches my day-to-day experience and well proves that websites always require new funds if they want to keep up with technological evolutions and customers' demands.

That figure (33%) represents a key point for the decision-makers who are convinced, just as we are, that websites should not always seek the help of web agencies but should have, within their own team, people dedicated to the development of their websites.

Indeed, since you'll be bound to invest time and money to develop your web strategy in the coming years, you might as well have your own internal web team which won't only prove more profitable but also more flexible.

It goes without saying that the part played by web agencies is just as important as it used to be, but this only applies to given operations (when a specific technology is required or when your load work suddenly becomes too important). To cut a long story short, web agencies should no longer be used to look after your web strategy from A to Z.

As far as website hosting and Internet access are concerned, they use up 27% of website budgets. What's left of the budget is used up by hardware and software investments.

After finalizing its survey, AMR reached the following conclusion: all those investments might well represent $22 billion for 2000 in the United-States, and such amount would represent 17% of the total expected turnover in the eCommerce sector ($132 billion).

Source : ActiveMedia Research