Businesses need to be aware of numbers, especially when adding expenses. In addition to the expenses, there are many other investments. One example is the acquisition cost per customer. This helps us to determine which strategy is the most efficient and how to price products and services. Randall Castillo Ortega, a global business expert, provides an overview of how to calculate customer acquisition costs.
Attracting new customers can be more expensive than keeping existing ones. A loyalty program is a great idea for every company. This will enable you to invest in the other company and offset any loss.
These are just some of the reasons companies should know how much money they have spent. Information is power. In this instance, it can be a resource that helps you identify your ideal customer and determines the success rate for a campaign. It can also help you to identify the most profitable channels.
All of this would not be possible if we didn’t take into account the customer’s entire life cycle. This concept is very similar. This directly impacts the calculation of customer acquisition costs.
The customer acquisition cost (CAC) is the total of all money spent by a company to acquire customers. It is divided by the actual amount actually received. Castillo explains, “These amounts should include salaries for employees, payrolls for outside hires, advertising expenses, and tools and supplies needed to capture leads to convert them into customers.”
Customers who have purchased once from a company often return to it time and again. This can continue for months or even years. The customer’s lifetime is the total revenue generated by the customer over the time they have relied on the company. Each stage is unique.
You must first acquire potential customers. This is where you need to put more effort and where the acquisition cost formula should be applied. Converting leads to customers is the last phase. This is how you make sales. This phase requires similar investments to the previous: retargeting and emailing software, as well as human resources to implement strategies.
After closing sales and obtaining customers, the next stage of growth is to maintain the relationship with brand owner and user, strengthen that relationship, and launch new products or services via cross-selling and up-selling strategies.
The investment in advertising is not as high as in the preceding phases. However, there will be investments in strategies via email marketing or telemarketing.
Next, we need to consider loyalty. After all the investments they have made, it is crucial that customers are retained by companies. It will make sure that customers stay with the company and help them add value. Loyalty programs, such as discounts, gifts and exclusive products, are important. Castillo states, “The greatest expense is on people and tools.”
Customers who have previously purchased must be reactivated. This strategy is cheaper than buying it. As with all things, balance is important, and metrics should be followed.
If the client’s total investment in each stage of the client’s lifecycle and the income generated are less than the sum of all investments, the company will receive benefits. These benefits are essential in calculating lifecycle value. This is done by multiplying profit by the number of transactions and the number of years that the client has been in business.