How Much Did That New Customer Cost You?

33315056_sI was speaking with a new client last week and we were looking at where his clients came from the last 12 months, how much he invested to acquire them and where to focus his time and energy this year to accelerate his sales.

We had such an eye-opening discussion on the whole conversation around cost of acquisition and the effect this was having on the ROI of his time and money.

Customer Acquisition Cost (CAC) is the cost associated in persuading a consumer to buy a product or service from you. This cost includes costs associated with product development, marketing, research, and sales.

The reason this is important is so we can measure whether the investment we are putting in to attract and acquire new customers is paying off. It can be very exciting to have a new customer and we sometimes are so focused on looking at the sales that the entire cost is not factored in.

There are some costs that are kind of obvious like Direct Mail campaigns, advertisements, or Pay Per Click.

And there are others that are not so obvious and tend to be forgotten, especially for service based businesses.

Customer Acquisition Cost: A Simple Example

Here’s a way to look at an activity most business owners are involved in- networking. Let’s assume you are in a leads group, chamber or other group where you have a membership. Let’s assume the cost of the membership is $575 per year and you got 3 new clients for total sales of $10, 000. I’ve seen people say yep that’s a great investment. I spent $575 and got $10,000.

Well – maybe.

And here is the trap people fall into – looking only at the financial cost- membership.

Let’s say over the course of the year, you attended 45 meetings and each meeting is one and one-half (1 ½) hours so that’s 67.5 hours of your time.

Let’s say you had a bunch of coffee dates with members of the group to get to know them and share what you do in a deeper way. That’s an additional twenty (20) hours of your time.

Now, I know it is your time, not a physical cost. But your time is worth something, and you are an expert so it is worth a lot!

Just because I like easy math, let’s say an hour of your time for this activity is $100 per hour. So for 87.5 hours that would be $8, 750.00 for the 3 new clients ($2916.67 each). This is a lot more than $575.00.

And it may be worth it (especially after factoring in what they might buy next etc.. but we are not discussing that today).

The point I want you to takeaway is when evaluating where your clients are coming from and what are the best investments of time and money, you have to look at costs in totality. It’s not as simple as looking at sales minus hard expenses.

Items to Consider

So grab a note pad and start looking at where you made investments this past year to acquire new customers so you can identify how much it costs you to acquire a new customer. Ideally, you should account for everything you did to get that new customer so you can have a picture of the true cost so you can monitor it this year. This will also give you a picture of what you need to charge to cover all your costs and be profitable.

Here is a list of the typical costs to include (depending on your type of business):

  • Facebook ads
  • Advertisements in newspapers, journals or online publications
  • Google AdWords
  • Trade shows or vendor events
  • Giveaways like pens or water bottles
  • Direct Mail campaigns
  • Pay Per Click campaigns
  • Cost of meetings, events
  • Networking group costs, membership or dues

Here is a list of “forgotten” costs to include:

  • Time you spend on social media outreach
  • Time spent at networking events
  • Time spent converting a warm lead to a client: if you are in service based business you are most likely offering complimentary consultations- this time also adds up for the cost of client acquisition
  • Time to develop proposals and work through the procurement process if your client is an organization
  • Graphics or logos used in on-line and off-line advertising: development or purchase of
  • The time it takes to move people to your sales pipeline- this could be your time as well as time of team members involved in the sales process
  • Time to create and proof read copy for marketing

After my clients do this exercise, two things become really clear:

  • Prices may need to increase to cover all the costs,
  • Having a strategy to retain these customer’s is an absolute must (for more tips and tools on this, check out the 5 Star Customer Service Summit)

What insights or takeaways did you have after calculating the cost of acquisition for your clients? Share below!

3 Simple Business Growth Strategies You Can Start Today To Finish 2013 With a Cha-Ching

2013 year calendar. December. Isolated 3D imageWith all the articles on wrapping up the year, setting goals for next year, and the holidays around the corner, it can feel like 2013 has already ended.

Like many of you, I still have several things I want to accomplish before the year ends.

One of the questions I regularly get from busy entrepreneurs like you is “what can I do to hit my goals before the end of the year?”.

Whether it be hitting your sales goals, completing that project or injecting some cash into your bank account – it is possible.  This is the time of year when I see folks start to slow down, assume everyone else is busy or decide to wait until next year.

Here is what I know to be true: what you accomplish in the next 6 weeks is going to be reflected in your bank balance next year AND getting them off your plate now will allow you to focus on 12 months of business growth, and more importantly, revenue in 2014, not 10 or 11 (which is what will happen if these uncompleted goals linger any longer).

I do have some tried and true business growth strategies that will help you finish 2013 with a bang and ensure you are poised to make 2014 the best year yet.

Here are three to get you started:

#1: Leverage the holidays to drive sales!

December and January are big sales months for business (if you let them be). Everyone is making and breaking resolutions (lose weight anyone?), making life-changing decisions (new house, new career, make more money) and they need your help to make it happen.

I hear you saying but Kim, everyone is so busy and people don’t want to spend money. Here’s the thing, helping your prospects make the decision and commitment NOW will enable them to go into the holidays with that weight off their shoulders knowing that when the New Year starts and the kids are back in school- you, your system, your product are there to support them in accomplishing their goals.

Think about how the holiday season plays into your business plan. What does your target market want more than anything else around this time of year? Speak to their desires and their pain, and help them achieve their goals.

#2: Cross a major project off your to-do list.

Carrying around unfinished projects weighs you down physically, mentally, and emotionally. Don’t let your to do list get in the way of serving the people you are meant to serve and being more profitable.

Pick one item from your to-do list and use the next 6 weeks to get it done. Here are some project ideas to consider:

– Create marketing calendar

– Launch (or relaunch) your website

– Set up your entity

– Create your product funnel

– Hire a virtual assistant

– Plan for 2014

– Create a new course or product

– Start your blog or newsletter

It can be anything. Just choose one project to complete within the 6 weeks and commit to getting it done. Crossing even one thing off your to-do list will reflect in your bank account next year (and make you feel awesome that is done and not nagging you anymore)!

#3: Express your gratitude to your clients.

The holidays are a great time to communicate your gratitude to your clients, colleagues and team members. Send a handwritten note to thank them for working with you and being in your life (sending chocolates or other goodies is a nice touch!).

Stand out from other business owners by eschewing a card featuring your company’s logo or your business card (they usually end up in the trash and make it about YOU when it really is about THEM) in favor of a more personalized card or note.

So, there you have it: 3 powerful action items that – if implemented correctly – will help you make December and January your most profitable months yet.

What strategies have you used to keep up the momentum during the holiday season? Please share them here.

3 Mistakes Business Owners Make When Asking for Referrals, and How to Avoid Them

network of people3 Mistakes Business Owners Make When Asking for Referrals, and How to Avoid Them

As discussed in a previous article, Referral Marketing can result in serving more people, more satisfied customers, and more revenue. It can also free up your time by eliminating cold calling and chasing pseudo leads. This business building strategy can also save money on advertising and marketing.

All of that is possible, but only if it is done right. Unfortunately I’ve seen business owners make some serious missteps when trying to leverage referrals to build their business:

1) Asking for a referral to soon after a close.

Asking for a referral before your new client has had an opportunity to really experience your product or service is like asking someone to marry you on the first date. You don’t really know each other well, it feels awkward, and the person being proposed to is trying to figure out how to get out of there 🙂

People want to be comfortable recommending someone to their family, friends and colleagues. It takes time to build that comfort level and you work will speak for itself. Be patient, let the client get results and then make the request. Chances are they will connect you to their community because of the great service and benefits they get from working with you.

2) Asking everyone you’ve worked with for a referral.

It’s not about mass marketing. With referral marketing, you want to pick the top 20% of your fan base. Their enthusiasm is genuine and they often are happy to help! Chances are if they are your top raving fans, they know other potential clients who would be a good fit for you and whom you could effectively serve.

3) Not having a system or process in place to follow-up with referrals and referees.

You’ve been given a referral from someone. Now what? How do you contact the referral? What do you do with them? Are they a name on a slip of paper that gets filed away? Is the referee left wondering whatever happened? Create a system for contacting the referral within 24 hours of receiving their information, and for following up with the referee (even if it just an email to let them know you called and left a voicemail). Provide quality follow-up and service to those who do refer you – they are doing you a favor and helping to grow your business!

Avoiding these 3-referral marketing mistakes will support you in building a more profitable business (and even more raving fans). What is one step you can take to strengthen your referral marketing strategy?

Did you miss my 5 Strategies for Using Referral Marketing Techniques to Boost Your Bottom Line? Check it out here.