Investing enough in Customer Acquisition?

June 23, 2019 Kevin McSpadden

Every business has one major source of revenue: its customers.

Customers drive profits and are the economic unit by which a business measures its success. In order to generate profit over time, our mission, therefore, is to keep our customers loyal and to acquire new ones.

 Because they’re worth it

The other day, I asked a new client what a loyal customer was worth, to his business. Initially, he didn’t know, but he was amazed to discover that each one brings in more than £500 profit per year!

I then asked a better question: ‘how much do you spend to get new customers?’ He made a quick calculation: dividing the marketing cost spent on gaining new customers by the number of new customers achieved. He was shocked to find out that they spent less than £50 per customer.

Although that might sound like good news, he recognised something important – he could afford to invest more in new customer acquisition and grow them, which would not only increase sales and profit in-year – but for many years after. And those new customers would tell others, so that his business becomes more widely known and sales grow even faster.

He realised that he had, in fact, been inhibiting the growth of his business because he didn’t understand the relationship between investing in customer acquisition and the return it gives. A very expensive mistake, considering all the extra customers and profit he could have made, if only he had he been willing to spend a little more to acquire them.

Why did he ignore this massive potential? Because he was focused on efficiency, rather than profit. Of course, you want to recruit new customers efficiently – but you don’t want to miss out on profit, surely?

This business was happily paying £1 to gain £10 but had balked at the thought of investing £2! Over time, this decision has cost him millions in profit.

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