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Simplify Your Marketing Decisions

Ever wonder which marketing strategy you should undertake to supercharge your lead generation efforts? Imagine how much easier that decision would be if you had tracked the results from prior efforts. If you know your average cost to acquire a new client, would that make your decision easier? You bet it would. So let’s spend a few minutes highlighting a couple key metrics you need to know about your marketing.

When developing marketing campaigns, it’s important to recognize the difference between Customer Acquisition Costs and Lifetime Value. The former is simply your cost to acquire a new customer. For example, if you spend $1,000 on a direct mail campaign that results in 10 new customers, then your Acquisition Cost for that campaign is $100.

The tendency is to decide whether to embark on a campaign based on the amount of the marketing campaign rather than looking at the outcome of that investment, based on past experience. Most business owners don’t measure the results of specific marketing campaigns so they are not able to identify their Acquisition Cost across all of their marketing efforts. If they did, deciding which campaign to use becomes easier…which has the lowest Acquisition Cost.

There are two kinds of acquisition costs.

  1. Allowable Acquisition cost is the amount a business can spend to acquire a new customer based on only their first purchase. In other words, the cost of acquiring the customer is less than the profit made on your first sale. Using this number allows a business the possibility of unlimited growth…why wouldn’t you continue investing in marketing if your profit from the new customers exceeded the cost of the campaign?
  2. Investment Acquisition cost is when the profit from the first sale to a new customer is less than the cost to acquire that new customer. However, over time the accumulated profits from that customer exceed the cost to acquire that customer. Some companies can afford to use Investment Acquisition strategy, because they have the resources to absorb the costs.

Either strategy can be effective depending, on the financial condition of the business. For a business with a tight cashflow, investment acquisition cost strategies can wreck financial havoc on the business.

Regardless of which acquisition cost strategy you use, it’s important to know your Lifetime Value – the value of your average customer over the average tenure. When calculating Lifetime Value consider:

  • the number of times the typical customer buys from you
  • what is the average amount spent on a typical transaction
  • how many referrals does the average customer generate
  • how many of those referrals become buying customers

Knowing your average Lifetime Value of a customer allows you to make more informed marketing decisions. Would you spend money on a marketing campaign that has a $350 Acquisition Cost knowing that on average your clients generate profits of $5,250 from using your services or buying your products?

If you haven’t been tracking the results from your marketing campaigns, begin immediately asking new customers how they heard about your business. If you need help developing the other key metrics we have discussed, reach out to me.



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