What is Your Cost of Acquiring Customers?

Subscribe to Dave's Blog!

Get Dave's weekly blog post delivered to your email inbox.

What is Your Cost of Acquiring Customers?

Encourager-In-Chief: March 21st, 2018

How to figure it out.

I recently watched an episode of Shark Tank in which an entrepreneur was asked how much it cost to acquire customers. He admitted that he did not know the answer and he was immediately branded as unprepared to earn the Sharks’ investment money. Hopefully, he learned from that experience. How about you? Do you know how much it costs for you to acquire new customers?

Let’s assume you don’t know the cost right now. How do you find out? As Tony Robbins says, “success leaves clues." Go look at some of your recent customer acquisitions and determine what was involved in bringing them on board with you.

For example, let’s say you run an ad in a printed periodical that costs you $500. If it generates five new paying customers, your cost per acquisition is $100 per customer. If you are selling automobiles for $6,000-$30,000 a piece, $100 per customer is an excellent return on investment for the cost of your customer acquisitions. However, if you are selling ice cream cones for three dollars apiece, $100 per customer is a terrible cost of acquisition.

If this is a new concept for you, I suggest you start out by figuring how much you expect to make per customer. If you have a low-priced item, such as an ice cream cone, deodorant, or a ream of copy paper, it’s in your best interest to try and increase the entire purchase value before designing your acquisition method. For example, you could offer a free ice cream cone when you buy an ice cream cake. You can offer a free stick of deodorant after you purchase $50 or more of others related items. You can offer a free ream of paper when you buy a case. In these examples, your initial return will be significantly higher. Now, you will be in a much better position to afford the cost of acquiring new customers.

Please keep in mind that if your customer acquisition cost remains at $100 per person using the new method, you’ll need to sell more than that amount per customer in order for this method to pay off. Using the paper example above, let’s say you make $27 per case. You will have to sell at least four cases per customer to the first five customers in order to get a return on investment.

I recommend that you try several different methods in the beginning, in order to determine what your true cost of a customer acquisition should be and how effective each method is. Start with low-cost methods until you determine which ones are the most effective. This is a worthy investment of your time. Once you get this down, you will pave the way for more effectively forecasting your sales results.

Half of the money I spend on advertising is wasted; the trouble is I don’t know which half.
- Attributed to John Wanamaker

This excerpt is taken from my Survive and Thrive IV: Shark-proof seminar.

Survive And Thrive IV: Shark Proof!

VIEW SEMINAR

Let me hear from you!