OK, we all know that user acquisition cost is how much money you spend in order to get 1 customer. But my question is how do you get to that number?

Let's assume a real case scenario:

Bob is in the industry that has 3 major competitors. The service they sell costs (on average) $15/month. Top keyword bids are $0.10 per click.

Bob has $100 to spend on targeted keyword advertising every month. He bids $0.10/click and receives 1,000 targeted clicks per month. Question is - how can you safely estimate what percentage of those visitors will sign-up for a service? Is it 1 (0.1%)? Is it 5 (0.5%)? Is it 10 (1%)? In other words, what I am trying to understand is how do people estimate their conversion on targeted traffic they buy on AdWords, etc? Will gaining 1 client take 250 targeted clicks? 500? 1000?

If you were to estimate revenue projections for 12-36 months ahead in your business plan, you would need that information as its critical to see what client growth is. So how do you get that conversion percentage? Do you just guess it?

Thanks for any insight. I asked this on the "other" forum, but no one seems to have any guesses.

A typical affiliate program can be used for this purpose, with the owner acting like his own affiliate. For each campaign a different affiliate account can be used, though affiliate tracking software does usually allow campaign tracking too.

I believe that Google Analytics had a convertion tracking system too, that can be used to find out which source of traffic brings what amount of sales.

You never really know until you test it.

Set up your website and offers in the way you think will convert the most. Do a test run with Adwords or whatever method you use to get targeted traffic for 100 clicks. If 3 people convert out of 100, you have a 3% conversion rate.

If you're happy with the percentage, try a test with 1000 clicks. If you consistently get the same conversion rate, then you can estimate for the future with those numbers. You really can't estimate until you have done some testing first. Then you can start testing to improve that ratio.

Tweak something about your offer and then do another test run. Does it get a better conversion or worse? If it's better, then go with it. Tweak again, test again. Never be satisfied with your current conversion because there is almost always improvement that can be made.