Would you like to have an unlimited marketing budget? In this installment, I’ll discuss the first of 2 things you must measure and track to achieve this.
The first thing you need to know is what it costs you for each lead, and ultimately, each converted sale. This is your acquisition cost and is expressed as cost per lead and cost per customer. It can be total (cumulative) and can be tracked for each marketing campaign.
There are two types of acquisition cost. The first is your allowable acquisition cost. This amount is calculated by looking at your average dollar sale (by product, service, category, type, etc) and the margin associated with it. It’s “allowable” in that you can invest up to the amount of profit from first sale to “buy” your next customer. For example, if average dollar sale is $100 and margin is 40%, this results in an allowable acquisition cost of $40 to achieve incremental sales. Consider what you could offer (incentive, trial, bonus, demo, sample, etc), worth up to $40, that would entice a new prospect to buy. Remember to give away something with perceived value (never discount!) as you control the amount and the time of the offer (while supply lasts, to the next 10 customers, for the next 2 weeks, etc).
The other type of acquisition cost is investment acquisition cost. This one is a little tricky and will “bite” you without due diligence. For this one to work, you really have to know your numbers, including conversion rate, repeat business frequency, and lifetime value (discussed in next week’s column). Your investment acquisition cost implies that you will expend (invest) more to buy the next customer than you make on the first sale. Brad used the example of his dog food company to illustrate this. Because the re-purchase frequency was high (4 weeks), and lifetime value (7 years) was significant, this was a good investment. Again, you’ve got to know your numbers.
On a very timely note, Brad’s 15th book Buying Customers, is due out next month which covers this topic in more detail. I have reserved some autographed copies which should arrive soon. Contact me to reserve yours.