Give away a free CD

On customer acquisition cost for music audiences.

Give away a free CD

(My later issue, "The best music download price", is the digital-download version of this.)

Customer acquisition cost (CAC) is a common figure in internet business, but it rarely enters the conversation around music audiences.

Imagine you sell a CD for $20, a healthy price.

You spent $2 to make each CD, and it costs $1 in payment fees plus another $2 to ship each one within your country. If you subtract those costs, you have (20 - 2 - 1 - 2) = $15 gross profit per CD.

That would shrink if you spend more for postage, but let's stick with $15.

But how do you bring someone to buy the CD — how do you acquire that customer? You probably spend money on things like ads, discounts, and content.

Imagine you spent a total of $2,000 on all that stuff in a year, and you sold 200 total CDs that year. Your average customer acquisition cost (CAC) would be $2000/200  = $10.

Remember, you had $15 in gross profit per CD. So now after CAC, you have only (15 - 10) = $5 in profit this year per sale.

Fortunately, there's one customer behind every $5 earned this way, and that customer is likely to go on and buy more things from you in future years.

You won't have to spend another ten dollars to acquire that customer again. It'll be less, or zero.

But wait...the cost of each CD copy is two dollars, and another two dollars gets it mailed. That's $4.

What if you can acquire a customer for only $4 (instead of $10), by giving away the free CD?

It would depend on whether your CAC is truly as high as $10 (that would be high), and how confident you are that someone who wants a free CD from you would go on to become a customer (attending shows, etc.) after enjoying the record.

But it's worth considering.