Customer Acquisition Cost: Calculate, Then Cut In Half

How to Calculate Your True Customer Acquisition Cost … and THEN CUT IT IN HALF IN 2016

“If you know how much it costs to get a new customer and you are purposeful in reducing that cost, you can accomplish anything in business.”

Most businesses start out with an optimistic plan for success, but very few start with a focus to calculate and understand their customer acquisition cost clearly. If more businesses figured out how much it will cost them to gain a qualified and profitable customer, we would see a lot more fully-capitalized businesses make it out of the start-up stage.

Investopedia defines Customer Acquisition Cost as the cost an organization incurs when convincing potential customers to buy a product/service. This cost is inclusive of the product cost as well as the cost involved in research, marketing, and accessibility costs.

Here’s a step-by-step method for calculating your TRUE customer acquisition costs and for cutting them in half:

1. Research product design, development and intellectual property protection costs for your product or service.
2. Calculate every aspect of your product/service cost from materials to material handling, direct labor, employee benefits, facility, government regulation, consulting, legal oversight, design, packaging, import/export tariffs, returns, etc.
3. Consider marketing costs such as in-house marketing labor, benefits, telecommunication system costs, travel, agency fees, materials, media placement, events, referrals, etc.
4. Define pricing for daily digital marketing, development of an e-commerce website, payment processing, shipping, etc.
5. Understand how much it costs you to re-acquire customers after their first order. What if you could simply put the budget needed to generate a certain number of responses times your sales team’s closing rate? If you could do that, then you could predictably scale your company to any size until you exhausted the universe of qualified prospects. That’s exciting stuff!
6. THEN, get to work slashing how much it costs to garner a qualified customer by doing ONE THING—Treat Your CURRENT CUSTOMERS better than any competitor in your industry.
7. Next: Invest 25+% of your Marketing and Advertising Budget on your CURRENT CUSTOMERS. Fact in the Wild—Birds of a Feather Flock Together. So you can get valuable referrals from your existing customers, if you treat them well and then ask them to refer their friends to order from you. Example: a Financial Advisor that I’ve worked with over the past five years continues to reduce his client acquisition costs every year by holding more and more client appreciation events that are a lot of fun. His clients bring their friends to great events like a Star Wars movie premier night, and he converts the clients’ friends into NEW Clients with his financial practice.
8. Referral Marketing can literally cut your customer acquisition costs in half because they cost very little, and it consistently puts you in front of qualified customers as they are direct friends of your current and qualified customers.
9. Figure out how you can earn an UNCONDITIONAL REFERRAL from YOUR TOP Client, and then repeat that process with other clients. Learn from your first case and then repeat.
10. Start a Client Advisory Board. It doesn’t matter if you have a product or service business, a Client Advisory Board is a GREAT IDEA, and it will help you improve your business, if you let it.
11. Invest in High-Energy, Fun, Different, WAY-COOL Client Appreciation Events that will get people talking about you. Everything you do in your business builds your brand, so why not put your best foot forward with the people who have helped your business launch and grow? Imagine investing just $2,000 into one Client Appreciation & Bring-A-Friend event to earn $1 MM in commission! I’ve worked with dozens of financial advisors who have done just that. You can do it too, whether it’s a high end seminar before an NBA basketball game complete with tickets to the game or an exclusive movie premier in your market, or a high-end group dinner, or a group cooking class with a renowned chef, or a backstage meet & greet at a Taylor Swift concert, you can generate new customers and make more revenue from existing customers—all you have to do is give it a try!
12. Stay in contact with your customers and ask them for help. Most business owners are satisfied with one order from a customer and never follow-up. They even stop providing value to the customer who just submitted a profitable order. If you provide value after the sale, customers will come back, and if you provide them an avenue where they can easily refer their qualified friends to you while giving them status, they will refer and you will WIN.

Your next move: Seek to understand how much it costs to get a new customer and then do everything you can to quickly reduce that cost by getting more customers to refer to you. Build a system to make it easier for you to ask for referrals and that also makes it simple for your customers to introduce their qualified friends to you while solidifying their status. Stop investing all of your marketing and advertising dollars into only trying to reach new, cold customers you and your current customers don’t know.

Wouldn’t you rather work with warm, qualified prospects instead of cold & heartless leads?

Give me a call at (404) 775-0194 to learn how you can implement these and other great referral strategies to cut your Customer Acquisition Costs in Half—THIS YEAR!