from Jack Heape – Download his free book here – http://www.tradeshow.sibaweb.com/home/documents/doc_download/7-guide-to-google-for-bookstores

Customer Acquisition Cost

I recently spoke at the Southern Independent Booksellers (SIBA) conference. During my presentation, one of the concepts I discussed was that of “Customer Acquisition Cost“. When I questioned the audience members as to whether they knew what this cost was in their business, only one individual responded affirmatively. The rest had no idea.

Customer Acquisition Cost (CAC) is a measurement of your sales and marketing strategy. Simply put, it is the cost you incur to get a new customer to patronize your business. It is not a measurement of the effectiveness of your marketing strategy, but rather an indicator of the total investment incurred to gain that customer.

Notice I said investment. Not expense. An expenditure to gain a new customer is an investment. if you are spending $20 to get a new customer, shouldn’t make every effort to hold onto that customer so that you get a return on your investment. Customers are an asset. An asset than can keep putting money into your pocket long into the future.

Here are some other examples. The Intermarket Group is an organization that conducts research about most everything having to do with the internet. Recently, they completed a study on customer acquisition cost. Some examples on the cost to sign up a new customer from the study are as follows;

• Barnes and Noble.com $42
• Amazon.com  $27.60
• Priceline   $32.30
• Beyond.com’s $29.30

Don’t you think that companies that are spending this kind of money to gain a new customer are interested in keeping that customer? if not, they are just wasting that money.

One of things I stress in my talks is the necessity of thinking of marketing as not just advertising, but as a tool for building customer relationships. If your business is incurring real costs in gaining a new customer, then that business needs to maintain and nurture a relationship with that customer. if they do not do so, then they are not going to recoup the expense of that investment.

As a business owner, you really need to track this cost and make sure that you are recouping it. Here are some areas that you need to measure.

Customer Acquisition Cost by marketing segment

How much money are you spending in each area of your marketing. Furthermore, what is the value of the customer that you are obtaining from that segment? If you are spending $300 a month on the Yellow Pages, but only getting 10 customers a month from it who only spend $15 on a book, are you getting your money back? Maybe, if they are continual repeat customers. Unless you track this you will not know if this expenditure is paying off for you.

Cost Trend

The cost of gaining new customers should go down over time. The decrease would primarily have to do with increased sales volume, and the increased brand awareness that every dollar expended promoting your business should bring. If the trend is not downward, then your business is not allocating its marketing budget properly and some changes need to be made.

Special Promotions

Some areas of your marketing do not necessarily require an ongoing expenditure. For example, your website is basically a one time expenditure. is it gaining customers? Are they valuable customers? if the answer to those questions is a No, then a website makeover might be necessary. A simple change can bring big benefits if done properly. Same thing with discount coupons. or promotional giveaways.

Long Term Value of a Customer

Keep track of where that customer came from and how much he/she spends. If you find that some customers are generating continued revenuw over the course of time, then determine which marketing channel you acquired them from and concentrate your marketing expenditures in that area.

Knowing your Customer Acquisition Cost is a necessity for a profitable business. Only if you know what a new customer costs you, can you determine if you are getting a return on your investment in the acquisition of that customer. One of the big advantages of the internet as a marketing medium, is that it can be easily tracked. You know if you are getting results. And results (profit), and return on investment, is what business is all about.