Estimating the cost of customer acquisition

Can you acquire customers for less than the average $20–$30 cost of finding a new retail customer offline? Maybe, but it depends on what you’re selling. Generally, the more expensive your product or service, the more you must spend to acquire a new customer.

The cost of lead acquisition equals your marketing cost divided by the number of customer leads that the activity generates:

cost of lead acquisition = marketing cost ÷ # of leads

If you spend $100 for pay per click ads on Google to get 20 people to your site, your cost is $100 divided by 20, or $5 per lead. If only two of those 20 people buy, your cost of customer acquisition is actually $50. That’s fine if they each spend $250 on your site, but what if they spend only $25? You can compute acquisition cost for any single marketing campaign or technique or across an entire year’s worth of marketing expenditures.

The average cost of acquiring a new customer approximately equals the profit derived from an average customer’s purchases in the first year. In other words, you might not make a profit on your customers unless they spend more than the average or you retain them for more than a year. Yes, indeed, it’s a cold, cruel world. However, if you take advantage of the many free and low-cost techniques in this guide, you can reduce your dollar cost of customer acquisition and stand a better chance of making a profit.

It takes three times as much money to acquire a new customer as it does to keep an existing one.

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