Customers are king. But how much is it costing you to build the kingdom? In other words, what does it cost you to acquire your customers?

This is an important metric that the best companies monitor and manage. With this you can answer some key questions such as:

·         Are your marketing efforts productive?

·         Are your acquisition costs going up or down?

·         How do the costs match up against the expected profit contribution from the customers?

·         How do these costs vary?

o   Product line?

o   Type of customer?

o   Channel?

·         How long does it take before you recoup your marketing costs?

·         Have you budgeted enough for these costs going forward?

 To calculate this number, you would look at:

1.       Your acquisition costs. This includes all marketing and sales costs directly tied towards generating new customers. Some marketing costs could have residual effects on existing customers and you might need to do some allocations. While the allocation may be arbitrary, you are still farther along than not doing any acquisition cost analysis at all.

2.       The number of new customers generated.

Divide the acquisition costs by the number of customers to see the cost per customer.

Then compare the costs against the expected contribution. Clearly the contribution needs to exceed the acquisition costs. In some cases, the opposite is true- acquisition costs could be very low. It might then be worthwhile to invest more in marketing and pick up additional business. If not you, then someone else could. Beat them to it.

Dig deeper if you can, if the costs appear too high. There could be certain customers or product lines that are too costly to pursue. If those customers were dropped, will the numbers look more attractive for the rest?

Where do you get the most return for your bucks out of marketing? Are there nonproductive areas that don’t generate much volume? Prune here and your acquisition costs can get back in line.

Take a look at the cost of acquisition.  You could see marketing in a whole new light.