As a business owner, you are constantly managing expenses.  But have you given much thought to your hidden expenses, the ones that don’t send you an invoice every month?  In order to truly maximize your potential, there are two key metrics you need to be aware of.

Cost of customer acquisition vs. retentionA path paved with gold

The first often overlooked number is your true cost of bringing in new customers.  You may be casting a broad net to attract them or you may have a more targeted approach, but customer acquisition is costing you something and you need to know what that figure is.

Knowing how much you spend to bring in each one of those new customers will allow you to:

  • better align your marketing and advertising programs with your profitability goals
  • easily know which of your marketing and advertising approaches are winners
  • determine how much of your profits can be wisely reinvested to meet your growth goals
  • motivate staff by giving them a tangible monetary value for each customer

Find your number

If you want to figure out your cost of customer acquisition, you’ll need to start keeping track of different expenses.  Beyond the basics of how much you are spending on your marketing and advertising materials and campaigns, you should also factor in any graphic design costs, sales software you might utilize, salaries or wages to marketing or advertising staff, and the hidden wage costs of anyone beyond sales and marketing staff who are involved with any customer acquisition efforts.  This last piece is crucial because time is money.

For example, if you are the CEO and take a salary of $200,000 annually, every hour that you personally invest into customer acquisition has a cost of $125 an hour. Once you’ve collected all of your data, add it together and divide by the number of leads that were actually converted to paying customers.  This is your price of customer acquisition.

The math of customer service

How does the cost of customer acquisition factor in to the value of customer service?  Customer service derives value not only from an ethical standpoint, but also a monetary one.  You see, the cost of customer retention is nearly always far lower than the cost of attracting a new one.  The delta between acquisition and retention will reveal to you how truly crucial an effective customer service strategy is to the profitability, growth, and longevity of your organization.

Empire’s like have been built by recognizing this fact, and they have even converted their customer retention costs into customer acquisition costs:

“In March of 2003, we made a decision to be about customer service. We view any expense that enhances the customer experience as a marketing cost because it generates more repeat customers through word of mouth.”

—Tony Hsieh, Zappos CEO

Start digging into the numbers of your company and discover new ways to accelerate your success by better focusing your acquisition investment and slowing your customer attrition rate.  Both your ledger and your customers will thank you.