I asked a group of business owners at a workshop recently what numbers they would like to learn about their business. An interesting one came up – how to measure the cost of getting a new customer.
What makes this interesting is that understanding how much it costs to gain a new customer is only relevant if you are also measuring the value of that customer to your business. It is the relationship between the two that gives you the context to decide whether the costs are justifiable or not.
Is $1,000 per customer a justifiable cost? It surely is if you stand to earn $50,000 from a client, but perhaps it’s not if you will only earn $1,500. There’s another consideration here, and that is that the cost of acquisition and value of each customer will typically differ for each sales channel.
A customer who is engaged via online advertising might be less profitable than one who was referred from a networking group – even though the costs to gain the customer might be higher face to face than online. Thus it’s important to segment against each channel to best understand which one is generating the most profitable customers for the lowest investment.
Calculating the costs to gain a new customer
To calculate the cost of gaining a new customer – also known as your Cost of Customer Acquisition (COCA) – combine all the expenses that go towards attracting a new client (typically your marketing costs), and divide them by the number of new clients you acquired in a given period.
For example – if you spend $100 on facebook advertising for a week, and from that had 300 clicks to the website that converted to 2 sales – then the cost of acquisition would be …
$100 / 2 = $50 per customer
It’s important to also include any labour costs associated with bringing on a new customer to complete the picture. For instance