Controlling Customer Acquisition Cost
There’s a lot of disagreement on the part of marketers today regarding customer acquisition cost (CAC). Some say acquiring customers is expensive, so they attempt to generate new customers by minimizing costs at every opportunity. I disagree.
Sure, customer acquisition is difficult, takes time, and is expensive. Anything worth doing takes time, effort, and resources. I don’t agree there, but I take a view of acquisition from the perspective of Value.
What is the Lifetime Value of your customer, client, or patient? How do you calculate CLtV?
CLtV is derived from calculating the amount of contribution the average customer generates over the length of time they remain a customer. For instance, if the average customer stays with you for 6 years, and produces on average $100 a month, the CLtV = $7200. While calculations vary between gross revenues or profit, as long as you stay consistent in your calculations along the same line it’s an easy metric to track.
The next metric to check is how the cost of acquisition is compared to customer lifetime value. The typical rule is 3:1, meaning the CLtV should be at least 3 times that of what the average CAC.
Who’s Right?
Which approach is better, spending the least amount to attract new leads, or outspending the competition? While the argument most prevalent on the internet and in the business books states emphatically it is best to control the spending to as little as possible (cheaper is better), it is the best approach?
I say that is completely wrong. Why? Because you get what you pay for, and you don’t get what you don’t pay for. What do I mean by that? It’s simple really.
If everyone in your niche is spending as little as possible, it only makes sense (at least to me) that going in the opposite direction will win more new leads and customers.
After all, it’s not the cheapest acquisition that wins the day, it is the best marketed. It only makes sense that if you spend more than all your competition, you should win the day.
