What is the cost of acquiring a new customer?

23 January, 2015

Customer Acquisition Cost is the cost of convincing a customer to buy a product/service from your business.

This cost is inclusive of the product cost and the cost involved in research, marketing, and accessibility costs. In this post, you will find some tips on optimizing the cost of acquiring a new customer.

This is an important business metric. It plays a major role in calculating the value of the customer to your company and the resulting return on investment (ROI) of acquisition. The calculation of customer valuation helps you decide how much of its resources can be profitably spent on a particular customer. In general terms, it helps you decide the worth of your new customer to the company.

It doesn’t take a genius to understand that business failure comes when it costs your business more to acquire new customers than the lifetime value, which is the gross margin you expect to make from that customer over the lifetime of your relationship.

For example, according to Optimize Magazine, at one point, CDnow Online was spending about $40 to acquire each customer, although the average lifetime value of a customer was only about $25. The Optimize article suggests that it is not good business sense to spend more acquiring a customer than the amount that customer will net the company in return.

Failing to control the cost of acquiring a new customer can kill your business. To avoid this pitfall, your digital marketing program needs to be carefully planned and monitored. The costs can quickly get out of control if they aren’t monitored. In other words, you need to be certain that you are getting your money’s worth and that you aren’t paying more to acquire a customer than you are receiving in return.

To properly plan, implement and maintain an effective digital marketing program, it is vital to know how to calculate your customer acquisition cost and constantly monitor it.

Tips to lower your customer acquisition cost.

  1. Align your sales and marketing objectives and efforts to produce more sales-ready leads
  2. Tie every process in your business to revenue
  3. Drive through the customer’s buying journey
  4. Generate awareness of the value your product or services offer
  5. Automate your marketing efforts such as lead nurturing process
  6. Constantly measure and analyze your marketing efforts and spend time figuring out the causes of results
  7. Test & Analyze, A/B testing is a great way for doing this
  8. Revise, Improve and repeat
  9. Identify your buyer persona and constantly refine it by research and interviewing your customers.
  10. Identify and target key players (Influencers) that will influence your buyer's persona.

I hope I've managed to answer your question of what is customer acquisition cost? And I would love to know your thoughts and experience on how you calculate the cost of acquiring a new customer. Share your ideas in the comments below.

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My name is Izzy and I am a co-founder of IDS, an award-winning HubSpot Solutions Partner. I lead our team of consultants who provide professional guidance to help businesses implement the HubSpot CRM platform migrate, integrate their tech stack to HubSpot to create a seamless environment for sales reps to use. There is nothing I love more than solving the challenges that come up when someone wants to migrate an old system or integrate their tech stack with HubSpot - it's like a puzzle!

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