Customer acquisition cost can be the biggest reason why most start-ups never make it for the long-haul in the market place. Underfunded, as well as not having a well fitted product for their target market, they eventually run out of money and options. While one can quote many business scholars stating, “That the only thing that matters is getting to product/market fit.”, it is quite another to make it all work for oneself. Product/market fit means placing oneself in a good market with a product that can satisfy that market in a profitable manner.
And without question, it is of vital importance to know when your product/market fit isn’t working. The indicators and signs are hard to ignore: Your customers do not feel or sense a value from your product or service, word of mouth has not been occurring, usage isn’t growing fast enough to sustain your own interest, gestation for sales requires too much time, and too many of your offers never close.
When The Product/Market Fit Is A Home Run
The customers are buying the product just as fast as you can make it. Sales and profits are piling up. You’re hiring support staff as fast as they apply for a job. Industry bloggers and reporters are calling you because they’ve heard about your hot new product/service and they want to generate and publish content (blogs, videos, articles, case studies, etc.) about your endeavors. Friends and business contacts want to go into business with you and are talking about franchising. Product/market fit means being in a good market with a product that can clearly satisfy that market’s needs and wants.
Your Biggest Customer Acquisition Cost
What differentiates a successful entrepreneur and a moderately plugging success is how they view the same challenge or problem. Your biggest customer acquisition cost is not what you are spending to acquire the customer, but the money you are losing by NOT acquiring more customers.
I find too many business professionals locked on and focsed at expenditures versus unclaimed opportunity. The big profits are where the unclaimed opportunities exist in a market place. In other words, “How much should you be making if you had your s#!t together?”
I commonly ask people that I am coaching, “Ideally, how much would you like to see your company make each week/month/year?” Believe it not, most have not set an actual goal of what they would like to generate. They usually have some vague idea, but have never established an IDEAL amount of revenue to generate. And so as a result, they never reverse engineer the processes and marketing required to reach that stellar goal.
Working Backwards & How To Generate Ideal Levels of Revenue
If a dental practice was generating an average of $60,000 per month, and it was also generating 20 new patients per month, then one could easily deduce that each new patient was worth an average of $3,000 per. Now if the Dr. wanted to generate an additional $30,000 in revenue per month, one could easily conclude that 10 more new patients would have to be acquired per month.
Even if the profit margin per new patient was $1,500, expending an additional $500 as their customer acquisition cost would represent good business. Yet, when I tell most dentists that we should spend an additional $5,000 in marketing, they stare at me like I am crazy. This is when I hear such nonsense as, “keeping costs down” and “That’s too much money to be spending on marketing.”
This rampant level of SMALL THINK is what cripples the expansion of most businesses in America and abroad. In fact, lost opportunity is their biggest cost. The $5,000 spent on customer acquisition is much less than the $30,000 in additional monthly revenue.
Customer Acquisition Cost – The New Strategy
The new approach to calculating your customer acquisition cost needs to begin with establishing the value of that new customer, as well as the long-term value when the customer repurchases and refers even more new customers.
With proper research and homework, one can clearly not only establish the costs of acquiring new customers, but also establishing the best marketing programs that will procure them in a profitable manner.
Contact me for a free evaluation on how to best achieve your ideal levels of revenue and establish your customer acquisition cost for each marketing initiative.