The Startup Advantage: The Cost of New Customers

Analytics is more and more a crucial component in the sales process. The older, mainline companies are finally getting that point while the startups have been using analytics for almost a generation now – certainly since the advent of Facebook, Google ads, and LinkedIN.

But even a company that understands the importance of the data that it is collecting probably doesn’t fully understand the cost of the different acquisition channels.

Before I expand, I want to mention something that is important to understanding this information. The figures I am using come from research posted on Chrono.com and are based on overall averages. Different industries and companies will, of course, see different results. But I also firmly believe that the relationships between the channel costs are more or less consistent regardless of the business you are in.

We all want to believe that our product or service is so good and revolutionary – because of features, price, or whatever – that anyone who gets wind of it will buy. Unfortunately, that is far from the truth. Whoever said “build a better mousetrap and the people will beat a path to your door,” never tried it.

The truth is that, in most industries, the percentage of buyers actively looking for what you have is in the single digits and probably the low single digits. Chet Holmes in The Ultimate Sales Machine puts the number at 3%. So if your ad is viewed 1000 times, about 30 people really care. And you won’t get all of those either as your competition will absorb some of them. So that 1000 exposures may truly result in 5 or 10 leads. (I use 10 in the examples below.)

So, while keeping the pipeline (or funnel if you prefer) stocked is crucial, doing so becomes a numbers game. If, across marketing channels, the numbers in the paragraph above hold true, and your closing ratio is 10% (compared to leads, which, by the way would be pretty good), and your sales goal is 1000 units, you have to reach 100,000 users!

So, what does it cost to do that?

According to the Chrono.com research, the cost per lead (not sale!) for different marketing channels include:

Direct mail: $51.40 per lead ($514.00 per sale)

Email marketing: $55.24 per lead ($552.40 per sale)

Search engine ads: $52.58 per lead ($525.80 per sale)

And while many companies rely heavily on outgoing sales calls, the research put the price per lead at a staggering $190.24. That’s $1,902.40 per sale!

So, again, with a target of 1000 units, using direct mail, what would it cost to get the 100,000 leads that would convert to 1000 sales?

Direct Mail: $514,000

Email marketing: $552,400

Search engine ads: $525,800

Sobering numbers!

For outgoing sales calls the number would be almost $2,000,000.

As discouraging as those statistics may seem, they also present an opportunity. By being acutely aware of which channel(s) is producing the best results, a business can first concentrate efforts on those channels that are the least expensive. In addition, it can then diligently examine the potential reasons the other channels are so expensive and develop ways to get better results at lower costs.

Certainly that is easier said than done. But without that information, any company could be marketing itself into bankruptcy!

Tom Faulconer is an attorney, CFP?, and marketing professional in Indianapolis, Indiana. He is also a contributing author to Startus magazine.

He can be reached at [email protected]