How much does it cost you to buy a customer?
Posted on December 19, 2011 by Steve Goranson, One of Thousands of Business Coaches on Noomii.
Marketing is Math! Learn your acquisition cost of a customer and create an unlimited marketing budget
Knowing the answer to this question will help you to create an unlimited marketing budget.
When I ask business owners if they know where their leads are coming from they usually say, “Yes, we ask every customer where they heard about us”. I then ask to see the data of their results.”
After squirming a bit, they tell me that the information is just in their head. Let me be clear about this! It is impossible to accurately measure this information in your head. To get a clear picture of what media, headline, or offer is working, it is not enough to only ask how they found out about you, but you must also record the results. If you don’t measure it you can’t improve it!
When you understand that marketing is all about “buying customers” you begin to change they way you look at your advertising and marketing. By understanding and knowing the acquisition cost of a customer, you can begin to create an unlimited marketing budget and buy as many customers as you want.
So, how do you turn your marketing from an expense to an investment? Meaning, that for every dollar you spend on marketing more should return. You must measure and test your results. Let’s look at an example…
The concept is simple, you invested $1000 on advertising, and you get 50 phone calls, then you are paying $20 per lead. Now if you close 20% or 1 out of 5 of those leads, you’re paying $100 (5x$20) per customer. If your product sells for $200, you’ve just made $1000.
50 (Calls) x 20% (Closing %) = 10 New Customers
10 (new customers) x $200 (cost of product) = $2000 Revenue
$2000 (Revenue) – $1000 Advertising Investment = $1000 in Gross Profit
If you knew that on average that every time you invested $1000 in advertising you got 10 new customers and a return on your investment of $1000 you’ll begin to see how you can create an unlimited marketing budget. Once you understand your customer acquisition cost it will change your mindset and how you think about marketing forever.