The customer acquisition cost to a business will include such metrics as
“cost per lead” “cost per click” or “cost per qualified customer
engagement”. The cost of customer acquisition in terms of marketing
spend and sales effort is often underestimated in business plans yet to
is critical for any new business growth. Controlling the customer
acquisition cost as part of the sales process directly impacts business
success and ability to scale regardless of how good a product is.
“cost per lead” “cost per click” or “cost per qualified customer
engagement”. The cost of customer acquisition in terms of marketing
spend and sales effort is often underestimated in business plans yet to
is critical for any new business growth. Controlling the customer
acquisition cost as part of the sales process directly impacts business
success and ability to scale regardless of how good a product is.
Whether it is clicks, visitors, sales leads or prospecting, every business
strategy depends on the ability to acquire new customers at a target
cost to make that business work. It does not matter whether the product
is targeted at large enterprises or focused on attracting visitors to a
website, how a business gets and the cost of getting those customers is
the critical part.
strategy depends on the ability to acquire new customers at a target
cost to make that business work. It does not matter whether the product
is targeted at large enterprises or focused on attracting visitors to a
website, how a business gets and the cost of getting those customers is
the critical part.
Customer Acquisition definition can be expressed as “The process of persuading a
buyer to purchase product or services from a company”. The customer
acquisition cost associated with the sales or marketing process is a
critical measure for a business to evaluate how much value or profit
having a customer brings to the business.
buyer to purchase product or services from a company”. The customer
acquisition cost associated with the sales or marketing process is a
critical measure for a business to evaluate how much value or profit
having a customer brings to the business.
Planning for Customer Acquisition?
Take a look at the business or marketing plan, what cost of customer
acquisition is in these? The true customer acquisition cost is not just
to do with marketing or sales but has to include the time and resources
involved with acquiring new customers. What about the sales process
costs, the sales cycle, the online or face to face product
demonstrations, the travel costs, product trials, the cost from free
signups to paid on a website (freeium model), product support prior to a
buyer making a purchase.
acquisition is in these? The true customer acquisition cost is not just
to do with marketing or sales but has to include the time and resources
involved with acquiring new customers. What about the sales process
costs, the sales cycle, the online or face to face product
demonstrations, the travel costs, product trials, the cost from free
signups to paid on a website (freeium model), product support prior to a
buyer making a purchase.
“Can the business survive while potential customers go through the acquisition cycle?”
The decision to start spending money on marketing and sales getting the
product to market and in so start the process of acquiring new customers
should be given well thought out. Lots of money can be spent with
little or no sales pipeline or sales. A business may spend months or
years not to mention money developing a product, so the customer
acquisition strategy has to be thought out very carefully.
product to market and in so start the process of acquiring new customers
should be given well thought out. Lots of money can be spent with
little or no sales pipeline or sales. A business may spend months or
years not to mention money developing a product, so the customer
acquisition strategy has to be thought out very carefully.
Before a cent is spent on customer acquisition ask the questions “is the
product ready to sell to customers”? Are there flaws or bugs that will
make the effect the customer experience? While the saying “something is
better than nothing” to avoid feature creep, too many business’s have
made the mistake of launching a below par product and fallen at the
first hurdle.
product ready to sell to customers”? Are there flaws or bugs that will
make the effect the customer experience? While the saying “something is
better than nothing” to avoid feature creep, too many business’s have
made the mistake of launching a below par product and fallen at the
first hurdle.
So revisit the assumptions in the business plan around customer
acquisition costs, can a business answer with authority questions like;
how many sales leads can the business generate per month?, how many
sales calls per day can a salesperson make, where do you source a list
of suspects and prospects, how many visitors to the website do you need
to get a sale or lead? Do you have the knowledge required to respond to
questions from new customers? Does the product value proposition make
sense to people outside the company? To put it bluntly “have you done customer validation?” These are the type of questions that you need to answer before committing money to a launch.
acquisition costs, can a business answer with authority questions like;
how many sales leads can the business generate per month?, how many
sales calls per day can a salesperson make, where do you source a list
of suspects and prospects, how many visitors to the website do you need
to get a sale or lead? Do you have the knowledge required to respond to
questions from new customers? Does the product value proposition make
sense to people outside the company? To put it bluntly “have you done customer validation?” These are the type of questions that you need to answer before committing money to a launch.
Prepare, Prepare, Prepare
The process of customer acquisition is never straight forward or
predictable and especially so for newer or smaller companies, but
that doesn’t mean a marketing plan is not useful. The customer
acquisition process is far from an exact science. There are many things
that can (and will) go wrong, however there are some things that any
business can do to reduce risk and improve the chances of successfully
acquiring new customers. The first step is to clear with yourself and
your team so to what “Cost to Acquire Customers” (CAC) means to the
business, is it paying customers, trial customers, engaged prospects or
even website registrations. However in the long run it should only come
to mean the cost to acquire a paying customer.
predictable and especially so for newer or smaller companies, but
that doesn’t mean a marketing plan is not useful. The customer
acquisition process is far from an exact science. There are many things
that can (and will) go wrong, however there are some things that any
business can do to reduce risk and improve the chances of successfully
acquiring new customers. The first step is to clear with yourself and
your team so to what “Cost to Acquire Customers” (CAC) means to the
business, is it paying customers, trial customers, engaged prospects or
even website registrations. However in the long run it should only come
to mean the cost to acquire a paying customer.
Understand Customer Acquisition Costs
Getting money or a budget to push out a product or launch a new business can be
tough. The budget and time to start producing revenue can be tight, so
the business really needs to plan “worst case scenario” in the costs for
acquiring customers (CAC) before ever beginning the marketing or sales
spend. A businesses CAC is defined as the cost of ALL sales and
marketing expenses over a given period of time, divided by the number of
customers the business plans to acquire within that time-frame. The
reality is no business can have a true sense of customer acquisition
cost (CAC) until they actually begin acquiring customers. So having an
estimate of customer acquisition will help the business prepare so it
can respond accordingly.
tough. The budget and time to start producing revenue can be tight, so
the business really needs to plan “worst case scenario” in the costs for
acquiring customers (CAC) before ever beginning the marketing or sales
spend. A businesses CAC is defined as the cost of ALL sales and
marketing expenses over a given period of time, divided by the number of
customers the business plans to acquire within that time-frame. The
reality is no business can have a true sense of customer acquisition
cost (CAC) until they actually begin acquiring customers. So having an
estimate of customer acquisition will help the business prepare so it
can respond accordingly.
Head
rules the heart, regardless of how excited a business is about getting
it out there, do not underestimate the impact of starting customer
acquisition spend before the product is ready. The greatest risk apart
from driving away potential customers by launching a flawed product is
the amount of money a business can burn through before it realises it
got something in the product to market fit wrong. Every business should
ask, what is the baseline product I am willing to “show” potential
customers and in what target markets?
rules the heart, regardless of how excited a business is about getting
it out there, do not underestimate the impact of starting customer
acquisition spend before the product is ready. The greatest risk apart
from driving away potential customers by launching a flawed product is
the amount of money a business can burn through before it realises it
got something in the product to market fit wrong. Every business should
ask, what is the baseline product I am willing to “show” potential
customers and in what target markets?
Be Realistic with Cost of Customer Acquisition calculations
While the holy grail of many a business is to be in the top 2 or 3 positions
for keywords on Google, in the meantime a business might have to rely on
Google Ad Words to drive traffic (a) for lead generation or (b) sales.
Take a look at this example. The cost per click works out at 50 cents,
the resulting 1000 website visitors converting to a trial rate of 5%
(50) at a cost of €500. These 50 trials are then converting to paid
customers at the rate of 10% which is 5. So each customer is costing
€100 in just lead generation expense excluding sales/product/support
costs. For many companies in the B2C space or in the B2B space with
software using the web as their main acquisition channel, it can be hard
to get the consumer to pay more than €100 for the product or service
for keywords on Google, in the meantime a business might have to rely on
Google Ad Words to drive traffic (a) for lead generation or (b) sales.
Take a look at this example. The cost per click works out at 50 cents,
the resulting 1000 website visitors converting to a trial rate of 5%
(50) at a cost of €500. These 50 trials are then converting to paid
customers at the rate of 10% which is 5. So each customer is costing
€100 in just lead generation expense excluding sales/product/support
costs. For many companies in the B2C space or in the B2B space with
software using the web as their main acquisition channel, it can be hard
to get the consumer to pay more than €100 for the product or service
Many business underestimate or do not budget for a realistic customer
acquisition cost, if we take the above example the cost of customer
acquisition can climb rapidly if leads require a sales person to convert
them. This human interaction can be as simple as email follow ups right
up to inside sales people doing multiple sales calls and online
demonstrations. Depending on the trial/registration rate along with
sales conversation rates the cost can vary from €400 to over €5,000 per
new customer acquired, depending on the level of interaction needed.
acquisition cost, if we take the above example the cost of customer
acquisition can climb rapidly if leads require a sales person to convert
them. This human interaction can be as simple as email follow ups right
up to inside sales people doing multiple sales calls and online
demonstrations. Depending on the trial/registration rate along with
sales conversation rates the cost can vary from €400 to over €5,000 per
new customer acquired, depending on the level of interaction needed.
Another customer acquisition calculation is to look at the cost of a field
sales force. The fully loaded cost of a field sales executive with
travel, car, expenses and salary can push customer acquisition costs to
over €10,000 in enterprise sales.
sales force. The fully loaded cost of a field sales executive with
travel, car, expenses and salary can push customer acquisition costs to
over €10,000 in enterprise sales.
In trying to address the single most important early-stage question –
customer acquisition and costs – it can be all too easy to waste a lot
of money in the wrong channels and on the wrong customer acquisition
tactics, believe me there are lots of companies in the scrapyard from
just this one failure.
customer acquisition and costs – it can be all too easy to waste a lot
of money in the wrong channels and on the wrong customer acquisition
tactics, believe me there are lots of companies in the scrapyard from
just this one failure.
Every business has to execute in a different way
A business will only thrive by marketing and selling smart; acquiring
customers in a cost effect way according to their market and in a way
that differentiates the business from the crowd. To goal is to build a
customer acquisition strategy for paying customers the business does not
have to keep paying for on a constant basis.
customers in a cost effect way according to their market and in a way
that differentiates the business from the crowd. To goal is to build a
customer acquisition strategy for paying customers the business does not
have to keep paying for on a constant basis.
The Demand Generation
In larger companies with deeper pockets when it comes to customer
acquisition they probably will have more resources to measure and refine
tactics. The process of customer acquisition is more challenging for
smaller or newer companies. Established business’s will utilize bigger
budgets, have greater brand awareness, and an ever growing community of
influencers. Most new businesses will not launch into a market where the
demand for the product outstrips suppliers. Instead the business has to
allocate sales resources and invest marketing money wisely to fight
(and a fight it is) to get potential customers attention or audiences
know that they exist and explain to them why they should show interest.
acquisition they probably will have more resources to measure and refine
tactics. The process of customer acquisition is more challenging for
smaller or newer companies. Established business’s will utilize bigger
budgets, have greater brand awareness, and an ever growing community of
influencers. Most new businesses will not launch into a market where the
demand for the product outstrips suppliers. Instead the business has to
allocate sales resources and invest marketing money wisely to fight
(and a fight it is) to get potential customers attention or audiences
know that they exist and explain to them why they should show interest.
The focus of everyone in a smaller or new business is not only to create
the brand but also the demand. Sales and marketing are NOT two different
departments,think SMarketing where the person leading the marketing
drive needs to really understand how to execute lead nurturing, content
marketing, inbound marketing, web demand generation programs and work
hard at marketing efforts that require time but not money. Marketing and
sales need to work as a team to generate a steady, growing stream of
sales leads every day.
the brand but also the demand. Sales and marketing are NOT two different
departments,think SMarketing where the person leading the marketing
drive needs to really understand how to execute lead nurturing, content
marketing, inbound marketing, web demand generation programs and work
hard at marketing efforts that require time but not money. Marketing and
sales need to work as a team to generate a steady, growing stream of
sales leads every day.
Acquiring new customers is about understanding what makes customers buy and
investing in social selling, lead generation tools, inbound marketing
strategies such as content marketing, articles, subject matter expert on
forums and search engine optimization (SEO) as a longer term tactic.
investing in social selling, lead generation tools, inbound marketing
strategies such as content marketing, articles, subject matter expert on
forums and search engine optimization (SEO) as a longer term tactic.
Business Model Viability
The business model viability, in the majority of newer to small companies, comes down to a balancing act in two areas:
Cost to Acquire Customers (CAC) and Value of a Customer
This is concerned with the ability to extract value from customers, or LTV
(Lifetime Value of a Customer). Internet or SaaS based companies have
long understood these metrics as they have a much easier easy way to
measure them. However there are huge benefits for all businesses to look
at these same metrics.
(Lifetime Value of a Customer). Internet or SaaS based companies have
long understood these metrics as they have a much easier easy way to
measure them. However there are huge benefits for all businesses to look
at these same metrics.
To
repeat, to calculate the cost to acquire a customer, CAC, a business
needs to take the entire cost of sales and marketing over a given
period, including salaries and other headcount related expenses, and
divide it by the number of customers that a business has acquired in
that period. (In pure web plays where the headcount does not need to
scale as customer acquisition scales, it is also very useful to look
customer acquisition costs with/without the headcount costs.)
repeat, to calculate the cost to acquire a customer, CAC, a business
needs to take the entire cost of sales and marketing over a given
period, including salaries and other headcount related expenses, and
divide it by the number of customers that a business has acquired in
that period. (In pure web plays where the headcount does not need to
scale as customer acquisition scales, it is also very useful to look
customer acquisition costs with/without the headcount costs.)
To work out the Lifetime Value of a Customer, LTV, you would look at the
margin that you would expect to make from that customer over the
lifetime of your relationship. Margin should take into consideration any
support, installation, and servicing costs.
margin that you would expect to make from that customer over the
lifetime of your relationship. Margin should take into consideration any
support, installation, and servicing costs.
Always Manage Optimism with a Dose of Reality
We all know to be in business requires massive optimism, and in a belief
in how much customers will want to buy our product or solution.
Unfortunately this can lead businesses to believe that customers will be
kicking down the doors to purchase the product. This has the effect of
grossly underestimating the cost it will take to acquire paying
customers. In too many companies there is little or no focus on how much
it will cost to acquire customers. Vague strategies along the lines of
web marketing, and/or viral growth via PR with no numbers is not what
you call a business plan!
in how much customers will want to buy our product or solution.
Unfortunately this can lead businesses to believe that customers will be
kicking down the doors to purchase the product. This has the effect of
grossly underestimating the cost it will take to acquire paying
customers. In too many companies there is little or no focus on how much
it will cost to acquire customers. Vague strategies along the lines of
web marketing, and/or viral growth via PR with no numbers is not what
you call a business plan!
To finish, a well thought out CAC plan outlines the need to acquire
customers through a series of marketing steps (SEO, SEM, PR, Social
Marketing), Sales tactics (direct sales, channel sales, etc.) and tools
to help sales like social media lead generation.
Important thing is the cost of each step is worked out. This process of
thinking and planning should bring a degree of honesty to customer
acquisition cost for your business.
The original article was published here: customers through a series of marketing steps (SEO, SEM, PR, Social
Marketing), Sales tactics (direct sales, channel sales, etc.) and tools
to help sales like social media lead generation.
Important thing is the cost of each step is worked out. This process of
thinking and planning should bring a degree of honesty to customer
acquisition cost for your business.
Customer Acquisition Cost | Instant Lead Generation For Social Selling
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