Target cost is the maximum amount of money a business is willing to pay in order to acquire a customer. Target cost could be thought of as CAC (customer acquisition cost) or CPA (cost per acquisition).
Each funnel you create in Lightning AI should have a target cost associated with your desired conversion event.
Why does the target cost matter?
Providing target cost is an important metric to have in order for the app to make educated decisions about budget allocation and ad spend. In most cases, target cost is simply the average revenue that a first-time customer brings in to your business.
By determining the average revenue generated by a customer, you learn what your upper limit of acquiring a customer will be while maintaining profitability (i.e. you should not spend more on acquiring a customer than a customer is likely to spend).
Your overall target cost will be influenced by many factors unique to your business. For example, your business might generate revenue based on e-commerce single transactions, in-app purchases, subscriptions, ad-view revenue, or a myriad of other payment options for customers.
All of these models will impact the target cost you and your business are able to aim toward. Similarly, customer retention plays an important role. If you have a subscription model and an average customer stays subscribed for 3 months, this will give you a much higher upper threshold for target cost than if they stay subscribed for 1 month.
Not sure what your target cost should be?
If you’re not sure what your target cost should be, reach out to your account manager or email@example.com and our team will help you get started.