Price determines if sales, marketing, Or viral is right for you

One of the most complex decisions any business needs to make is understanding how much they need to pay to acquire new customers. A lot can depend on whether your business is more transactional, like a retailer, or whether you sell a recurring product or service, like Netflix which charges you a monthly fee.

The general rule is that you can spend more -- as a percentage of your sales price -- to acquire a recurring revenue customer than someone who is a one-off. But how much should you spend? And?just as importantly, when is it appropriate to involve your sales and marketing team? Or?maybe, even try to find a way to get the word out about your product or service virally?

What's Your Number?

When it comes to how much to spend, and who to get involved in acquiring new customers, your starting point is how much you charge for your product or service.

My guideline is that you can spend more on a recurring product or service, maybe 40 percent?of your selling price, than on a one-off -- where you should target 20 percent?of the selling price. You can develop similar math if you want to set your cost baseline on a percentage of margins instead.

Let's walk through some examples of customer acquisition costs.

High Ticket

Let's start with a big?product or service that costs $100,000. This is a significant investment on the part of a customer, and your cost to convince them that you have what they need should reflect that. Based on our guidelines, you should be prepared to spend up to $20,000 to acquire this customer. To do that, it's more than just giving them information -- you'll need the ability to build a relationship with the customer. They need to trust you; you can't do that through e-commerce. Sure, some people might spend that buying a Tesla online, but can your business do that? If not, this investment should tell you that you can afford to hire a salesperson to build the kinds of relationships you need -- in addition to spending on the marketing campaigns required to build awareness and leads with the right customers.

Moderate Value

Now,?let's lower your product or service price to $1,000. That means you can spend up to $200 to acquire a new customer. Maybe you can rely on a call center to help you close deals in this range, but more likely, you'll need to rely heavily on a digital marketing campaign to do the dual work of both generating leads and closing sales for you to make a decent margin. That means you should focus heavily on strategies like Facebook ads, TikTok videos, and finding influencers to help drive people to your website. The point is that you should rely heavily on marketing, rather than on salespeople, to close these kinds of sales.

Bargain Bin

If you have a product or service that retails for $10,?then, to be frank, you have no business spending any money on marketing or sales. Our model says you can spend just $2 to land a new customer. So how can you do that? A great strategy is leveraging what's known as viral marketing, using the content you or others create to generate traction with free and earned media. In other words, you want to find ways to make your content go viral.?If you can find ways to get stories about your product or service out to thousands of potential customers (or more) for less than $2 a pop, then you have a chance to hit it big.

Pick an Approach That's Best for You

So?when it comes to deciding how much you should spend on acquiring new customers, think about your sales price and how much that gives you to work with. That will go a long way in helping you understand what channel might work best financially for you -- sales, marketing, or viral.