Allocating a Limited Online Acquisition Budget
LinguaBridge runs an online language school and has €15,000 to spend over three months on enrolments for a €450 course. Search advertising costs €1.20 per click and converts at 4%. Social advertising costs €8 per thousand impressions, has a 1.2% click-through rate, and its landing page converts at 1.5%. The school also has an email list of 6,000 opted-in leads; a campaign costs €600, gets a 25% open rate, an 8% click rate among openers, and converts 3% of clicks. Its referral scheme pays €30 per enrolment. The course has no capacity constraint in the next quarter. The marketing manager wants to spend the whole budget on search because it has the lowest cost per click, but the finance director notes that click price is not the same as acquisition cost. The school has never run a holdout test and currently attributes every enrolment to the last click.
1. Calculate cost per enrolment for search, social, and email. Show the formulas and rank the activities by acquisition cost.
Read the worked answer
Search: cost per enrolment = CPC ÷ conversion rate = €1.20 ÷ 0.04 = €30.00.
Social: first get CPC from CPM and CTR. CPM €8 means €8 per 1,000 impressions. CTR 1.2% = 0.012 clicks per impression. CPC = €8 ÷ (1,000 × 0.012) = €8 ÷ 12 = €0.6667. Cost per enrolment = €0.6667 ÷ 0.015 = €44.44.
Email: opens = 6,000 × 0.25 = 1,500. Clicks = 1,500 × 0.08 = 120. Enrolments = 120 × 0.03 = 3.6. Cost per enrolment = €600 ÷ 3.6 = €166.67.
Referral: €30 per enrolment by design, before any course delivery cost.
Ranking on acquisition cost: search €30, referral €30, social €44.44, email €166.67. But email is cheap in absolute spend and may have a retention role; referral may not scale beyond the existing base.
2. Recommend a €15,000 allocation across the four activities and justify it using acquisition cost and scale. Include one measurement safeguard.
Read the worked answer
Allocate €8,000 to search, €4,000 to social, €2,400 to referral (capped at 80 referrals), and €600 to email. Expected enrolments: search 8,000 ÷ 30 = 266.7; social 4,000 ÷ 44.44 = 90.0; referral 2,400 ÷ 30 = 80; email 3.6. Total ≈ 440 enrolments; revenue ≈ 440 × €450 = €198,000.
Why: search has the lowest proven CAC and scales with demand; social is a test with acceptable CAC and reach; referral is high-trust but should be capped so it does not become an unbudgeted liability; email is too expensive per enrolment to scale but can nurture leads at low absolute cost. The finance director is right that CPC is not CAC.
Safeguard: run a geo or audience holdout for two weeks and measure incremental enrolments, not last-click. Track CAC payback and refund rate. If social CAC exceeds €55 after the test, move budget to search. If referral exceeds 80 in the quarter, pause or lower the incentive rather than overspend.