Customer acquisition cost


The customer acquisition cost is defined as the total amount of money that you spent on your total marketing eg your advertising plus your promotions plus your event costs, product giveaways, extra salaries etc divided by the number of new customers that you got. 

This is one cost that every business needs to know. 

Let us say that I spent $200 to get a professionally designed advertisement and then $1,000 this month to display it in a newspaper. As a result, I got ten sales. My customer acquisition cost here is $1,200 / 10 sales = $120. 

Conversely, if I spent $200 on a Facebook advertisement and got one sale, then my customer acquisition cost here is $200 / 1 sales = $200. 

If I experimented with someone else and I spent $800, and I got five customers, well my customer acquisition cost here is $800 / 5 sales = $160

All things being equal, it would make more sense for me to advertise in the newspaper.

To get these figures is not hard. Your point of sale system can tell you what your new sales are. Looking at a similar time last year and comparing it to this year adjust with the trend and you can get a rough answer. For example, last year about now we did an average of 100 sales a day, this year we did 105 customers a day during the promotion, business is up 2% on last year so it is about three new sales. The cost to the company to the development was $300, so our customer acquisition cost here is $300 / 3 sales = $100

Professional marketers will often say things like the rent on the new shop is $200 a month more. How many new customers will you get? If you reply four new customers a month, well he would say customer acquisition cost is $50. How does that compare? In this case the extra rent is worth it.

This, of course, is only part of the story. A person that comes into a shop and buys giftware which has a high margin is a very different customer to the one that comes into the shop and buys dog food, an item with a meager margin, but this can be discussed in another post.

The other issue is that as you have already invested in acquiring them what you need to do is give them reasons to stay with you.

Have a shot, and give me some figures please.

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