Customer Acquisition Cost

Some people look at advertising and marketing as a cost rather than an investment, and their business suffers as a result.  Smart business owners look at marketing as an investment instead because they understand that successful marketing brings in more money than it costs.  The problem is that some people don’t understand a key element of marketing – acquisition costs – and as a result they miss out on huge profits.  Let me explain.

Let’s imagine that you go out and advertise your business in a local paper and it costs you $1000.  You put a code on the ads that allow you to see that the advertising attracted 100 people to contact you and from that 100 you sold to 20 of them.

So overall you spent $1000 to get 20 new customers.  That’s a total of $50 per customer.

Then you need to measure how much each customer spent with you.  Let’s say that they spent – on average – $500 of which $90 was pure profit (after all your costs – including marketing – were taken into account).  So, you spent $50 per customer for them to provide you with $90 of profit – a worthwhile exercise!

So, if you’re able to repeat that, then how often would you keep doing it?  As many times as possible if you’re smart!

But hold on – what if that customer comes back to the store again and again?  Well, things just get better because the original acquisition cost just keeps going down as a percentage of the overall cost/benefit.  That’s where the importance of good customer service really stars to kick in.

You can only really get an understanding of how well your marketing is doing by testing and measuring your acquisition costs.  If you’re running your business properly this should be a natural thing to be doing, it should be part of your business dashboard.  If you’re not doing it?  Well, you could be passing up the opportunity for huge profits.