Client Acquisition Cost (CAC) is one of the most important metrics to measure a business’ success. It is basically how much it costs for your company to make someone buy your product or service. It can consider all costs of all operations, and goes for either brick and mortar stores, or online ones, including your e-commerce.
And it is also possible to split the CAC rate, and think about specific areas of a company. For instance, the marketing CAC, a rate that is the result of a division: the marketing cost to acquire customers in a time period by how many people bought from your company during that time. Basically, if your e-commerce store did a two-weeks campaign, spending $2,000 US dollars, and got 10,000 consumers buying in those two weeks, your marketing CAC was $0.20 US dollar.
For e-commerce store owners, this metric should be one of the guidelines for marketing efforts.
If there are two equally interesting markets to invest in, the one with the lower marketing CAC can be ahead on the run. This means that you will acquire more clients with the same marketing budget.
Latin America is one of these markets.
If Latin America is not on your expansion plans, think again. Two of the three fastest-growing e-commerce markets in the world are Latin American countries: Argentina and Colombia. The region’s e-commerce market as a whole is expected to double in value by 2021, reaching $118 billion.
And guess what?
In comparison with US, Canada, and Europe, Latin America has a much lower marketing CAC. This has much to do with the fact that in the US, Canada, and Europe, the online shopping culture is in a more advanced step.
Let’s take the United States as an example. Yes, the country alone sold online only in the first quarter of this year more than the $118 billion US dollars predicted for Latin America in 2021. But the thing is that in Latin America, online consumers represent a much smaller percentage of the total population of the region.
By 2019, Latin America is expected to have over 155 million online consumers. Considering it has a total population of more than 650 million, it means that over 23% of Latin Americans are consuming online. Whereas in the US, almost 69% of the population is buying online (considering a total population of around 325 million and an expected number of 224 million online shoppers by 2019).
This means that in Latin America, there is much more room to grow.
Latin American market is not saturated yet, which makes the costs for online campaigns be lower than in a more saturated market such as the US, Canada, or Europe. You can reach more people with the same budget.
The methodology
In order to calculate marketing CAC in Latin America, and prove it is cheaper than in the US & Canada and in Europe, the performance team of EBANX, fintech company that offers Latin American payment solutions for global e-commerce stores, conducted a study during September and October 2018, that considered these three markets. Also, it considered the buying journey and the costs to advertise on the most accessed channels in Latin America.
For the buying journey, we considered the steps of the simple purchasing funil:
- Reach
- Clicks
- Visits
- Orders
By following the logic of this funil, you can have this kind of information:
- How many clicks you can normally have during campaigns for these markets
- How many of these clicks turn into visits on the website
- How many of these visits turn into orders
- How many of these orders are actually paid for
Talking about the reach
Then, we simulated campaigns for audiences in the US & Canada, Europe, and Latin America, on Google and Facebook, the most used search engine in the region and the most used social media in Latin America, respectively. The fixed budget for this simulated campaigns was $100,000 US dollars for each one of the three markets. Among the chosen industries were Fashion and Electronics.
The total amount of users that were looking to buy something from Fashion or Electronics industries reached with the $100,000 US dollars budget during the campaigns was:
| US & Canada | Europe | Latin America | |
| Fashion | 11M | 37M | 57M |
| Electronics | 11M | 38M | 58M |
Take a look at this chart. It shows that you can reach around 54% more people in Latin America than in Europe when targeting Fashion or Electronics consumers. And 418% more people in Latin America than in the US & Canada. With the Exact. Same. Budget.
Talking about the clicks
Once the reach for each one of the three markets were analyzed, we started looking at the clicks. How much does a click on these regions cost to a company. It’s the Cost per Click (CPC) metric.
An internal research conducted with EBANX data shows that the average CPC for e-commerce, considering all industries from the three markets, is $1.13 US dollars in US & Canada, $0.45 US dollar in Europe, and $0.15 US dollar in Latin America.
The lower the CPC, the higher the number of people your campaign will have clicking on it, considering the same budget. In our simulated campaign, with the budget of $100,000 US dollars, there will be 101,000 clicks in US & Canada, 256,410 clicks in Europe, and 714,286 in Latin America.
Talking about visits and orders
We considered the average of 75% of clicks in campaigns that generate visits on a website.
In order to analyze the next conversion rate – how many visits on the website turn into orders – with the budget of $100,000 in the three regions, we used retail market data from Statista, E-commerce Europe, and EBANX internal data.
This conversion rate was 2.63% for US & Canada, 1.86% for Europe, and 2.33% for Latin America.
Now, let’s consider that, for our simulated campaign, 70% of orders are actually paid for in the three regions. With these numbers, we were able to calculate the marketing CAC in these three regions:
| US & Canada | Europe | Latin America | |
| Budget | $100,000 US dollars | $100,000 US dollars | $100,000 US dollars |
| Cost per Click | $1.13 US dollar | $0.45 US dollar | $0.15 US dollar |
| Clicks | 88,496 | 222,222 | 666,667 |
| Clicks to Visits | 75% | 75% | 75% |
| Visits | 66,372 | 166,667 | 500,000 |
| Order over Visits | 2.63% | 1.86% | 2.33% |
| Orders | 1,746 | 3,100 | 11,650 |
| Order Payment Rate | 70% | 70% | 70% |
| Paid Orders | 1,222 | 2,170 | 8,155 |
| CAC | $81.84 US dollars | $46.08 US dollars | $12.26 US dollars |
*You can use this chart to calculate your company’s marketing CAC, by filling in with your company’s rates.
Conclusion
When a business expands internationally, advertising is very important to reach the new audience. And if advertising in a place is cheaper than in others, the opportunity is huge: it probably means that the market is less saturated and it also means that you will attract more customers with the same budget.
Besides having great room for growth, Latin America has a lower marketing CAC than the US & Canada and Europe. So, when you think about expanding your business, you might want to seriously consider Latin America.