Customer Acquisition Is Harder Than You Think

 

Source: Customer Acquisition Is Harder Than You Think

Customer acquisition is harder than you think. That’s right, the thing that seems so blatantly obvious and crucial to business success is also the most difficult and, surprisingly, the most overlooked when it comes to evaluating business ideas.

Hypothetically, let’s say that you start up a new business that sells what you consider to be the greatest new product on the market today. Product investors have thrown boatloads of money at you to produce this incredible new creation. You have total and utter pride in your innovative product which will solve problems, make lives easier, and help others succeed at their job. Customers will surely be running to your door to get their hands on it. This product will basically sell itself. Sorry to tell you, but this is just not true.

The reality is that even if you have a great product or service to offer people (which is definitely important), this isn’t the hardest part of creating business success. The hard part is what comes next – getting the word out there and convincing people to pay for this product/service in a scalable way. This is customer acquisition.

customer-acquisition

Why is Customer Acquisition Difficult?

The important thing to remember here is that a product or service is NOT going to sell itself. Even if this service will end world hunger, your team still needs to help people know that this service even exists, remind people there are others in need of food, and get in contact with them so they can make a deal.

Customer acquisition, involves a lot of planning and strategizing in order to convince prospects to buy from your company. Ask yourself these questions:

– Who is our target audience?
– Where will we source data about them?
– How will we market our product/service to them?
– What is our social selling strategy?
– Who will be on the phones actually selling?

To be more specific, the most challenging part of starting a business is figuring out the cost of acquiring a customer – otherwise known as customer acquisition cost (CAC).

Customer Acquisition Cost

This is basically the amount of money you spend to acquire a customer. Calculating it and monitoring it will help you to optimize your sales and marketing plan to boost profits. Below is a list of common cost pressures in customer acquisition.

– Marketing
– Advertising
– Sales and sales funnel
– Hosting
– Support
– Custom development
– Setup

The number one reason why 50% of business startups fail is because they couldn’t get enough paying customers, and yet, so many companies today put little effort into figuring out their customer acquisition model.

CAC should always be one of the primary concerns in a company. What if some of your teams activities aren’t effective at all? You might be wasting money somewhere.

Costs can quickly get out of control if they are not kept an eye on. You also need to be sure that you are getting your money’s worth, and that you aren’t paying more to acquire a customer than you are receiving in return. So if I’m willing to spend $1 on getting a customer, I want to make at least $2 back in a sale. Of course, the lower the CAC, the better. If you spend more on customer acquisition than you can make money out of them, your business is not going to last that much longer. What’s great about calculating CAC is that it can empower you to optimize your business model. In order to effectively plan, implement and maintain a successful marketing and sales strategy, it is essential to know and monitor your customer acquisition cost.

Today, some of the most common methods of customer acquisition in sales and marketing plans are paid search, PR, SEO, inside sales, channel partnerships, etc. While these methods are effective, they are also just plain expensive. So figuring out where you can lower CAC will help you to make more money!

Ways to Lower Customer Acquisition Cost

Of course, there are many ways to do this, but here are two web marketing techniques that will help to lower customer acquisition cost:

Inbound marketing can be used to good advantage to get pre-qualified sales leads. Traditionally, marketing was done through paid ads, flyers, cold calling, spam — anything you had to pay for to catch the eye of potential customers.

Today, however, inbound marketing is all about producing and sharing content, both useful and insightful, that demonstrates what your brand is all about, and attracts those interested people who are likely to become future customers. Rather than cold calling a random list of people who are most likely uninterested in what your sales team are offering, web marketing can utilize search engines and social media to find and engage with people who are actually looking for your services or product. And by the time you actually reach out to them, they may already be set to buy.

Keep in mind though that inbound marketing is not easy. Your brand must consistently produce good content. Content that will genuinely intrigue your target audience. They also need to do proper SEO to be sure that they are correctly indexed and displayed for key search terms. Sharing valuable content that other sites, including social media sites, want to link to will further extend marketing reach at little or no extra cost.

inbound-vs-outbound-marketing-cost

Leveraging Social Media. No business can afford to ignore the power of social networks in today’s digital world. But hey, it is generally lower cost. It does, however, require a good bit of manual work to set up, maintain and monitor. If the content your marketers are creating is good enough, people are going to share it with others. With social media you can leverage the power of the crowd to get your name out there so your business can reach a far greater audience.

A note of caution with regards to social networking sites. It is not a platform where blatant advertising is welcome. In fact, sales pitches will put potential customers off interacting with your sales people and thus, your brand. It does take some consistent effort to join groups and interact with prospects, and it will definitely benefit your business to listen first, and then share links to your non-sales oriented content as a way to help, inform and pique their interest.

Don’t Forget about Your Sales Team’s Greatest Tool

The telephone is still the sales professional’s greatest tool. So much effort goes into effectively marketing your brand and attracting the attention of potential customers. But to turn these potential customers into actual customers, it is important to have your sales team on the phones selling. It is the most powerful device for customer acquisition when it comes to actually making and closing sales. Yet, many sales people are very vocal in their distain of cold calling. But the reality is that every year millions of people are buying on the phone. The phone is money, and everyone has one.

Of course, selling your service/product face to face is ideal and most effective, but that’s expensive and can cost as much as 8x more than making a phone call. Calls are instantaneous and powerful if you can get the right person on the phone and know how to use that time effectively.

So if you’re a business owner or manager, make sure you understand your customer acquisition cost so you can optimize your marketing and sales strategy and maximize profits. Customer acquisition and lead generation is not easy, it may be the toughest part of business – one that requires sufficient attention and consideration. Products and services don’t sell themselves. Because even with the greatest product and sales team in the world, a business will not last if nobody knows or cares about what it can offer them.

Customer Acquisition Strategy – The Bitter Business

The cost of getting customers can be the difference between success and failure no matter how good a business believes its product to be.

Source: Customer Acquisition Strategy – The Bitter Business

The customer acquisition strategy and financial cost of customer acquisition is a critical factor for any new business survival and often underestimated in a growing business. The cost of getting customers can be the difference between success and failure no matter how good a business believes its product to be.  I once read that the goal of any business is to acquire, develop and maintain customers at a profit. The develop and maintain aspects are more clear forward but let’s focus on the cost associated with acquiring new customers regardless of the channel.

Every business needs to acquire new customers to make products and businesses work. Whether the product is aimed at enterprises paying big money or getting thousands of visitors to a website, how a business gets and the cost of getting customers are the important part.

The Definition of Customer Acquisition could be defined as “The process of persuading someone to purchase a company’s goods or services”. The cost associated with the customer acquisition process is a critical measure for a business to evaluate in tandem with how much value having each customer brings to the business.

 

Is The Business Ready for Customer Acquisition?

Paper never refuses ink and this saying has been true in many a business or sales plan when it comes to putting a cost on customer acquisition. The cost is not just the marketing or sales cost but the time and resource cost to getting new customers. Has the business planned for the sales cycle, the demos, the travel, product trials or has a website planned for the cost from free signups to paid, customer or product support prior to a customer making a purchase. In other words, can a business survive while potential customers go through the acquisition cycle? While a quote like “move fast and break things” is exciting in a company start-up situation, it may not be the best advice when it comes to customer acquisition. The decision to start spending investor or shareholder money taking a product to market and begin acquiring new customers should be given the weight it deserves. Entrepreneurs or a business might have spent months or years developing the product, so the execution of the customer acquisition strategy has to be thought out very carefully.

Even before you spend a cent on customer acquisition ask the questions “is the product ready for some/many customers”? Are there still bugs that will make the customer interaction with the product flawed? While the saying “done is better than perfect” to avoid feature creep is practical; it would be a mistake to launch a broken product and fall at the first hurdle.

To take a step back into the business plan around customer acquisition, can a business tick the box on questions like; how many sales calls per day do you expect the salesperson to make, do they have a target list of suspects and prospects, how much activity on the website can the servers handle? Do you have the customer support with the knowledge required to respond to the questions from new customers? Does the product value proposition the salesperson has to sell make sense to people outside the company? In other words, have you done customer validation? These are the type of questions that you need to answer before committing money to a launch.

Being Prepared Always Matters

Any customer acquisition process is not straight forward or predictable but especially so for new companies, but that doesn’t mean a plan is not useful or necessary. The customer acquisition process is far from an exact science. There are many things that can (and do) go wrong, however there are some things that any business can do to mitigate risk and improve the chances of successfully acquiring new customers. Be clear with your team what “Cost to Acquire Customers” (CAC) means, is it paying customers, trial customers, engaged prospects or even website registrations.  In the long run it should only mean the cost to acquire a paying customer.

Estimate the Cost of Customer Acquisition

Money for new product or new business launches is hard won. The budget and time for a start-up may be tight, so the business needs to estimate “worst case scenario” the cost to acquire customers (CAC) before beginning the marketing or sales process. A businesses CAC is loosely defined as the cost of ALL the sales and marketing expenses over a given period of time, divided by the number of customers the business plans to acquire in that time frame. While no business can have a firm sense of the CAC until they begin acquiring customers, having an estimate will help the business leaders prepare to act accordingly.

Logic rules, no matter how excited a business is about getting it out there, do not underestimate the impact of starting the customer acquisitions spend before the product is ready. The greatest risk apart from alienating potential customers by launching a flawed product is the money a business can burn through before it realises it got something in the product wrong.  Every business should ask, what is the baseline product I am willing to “show” potential customers and in what target markets?

Thread carefully in the world of social media and PR, spending time and money on journalists to line up business or product coverage of your launch, only to find out that the product is delayed or has issues, can put the business credibility in jeopardy . Journalists lose interest pretty quickly and are never your friends.

Do Realistic CAC calculations

While a business waits for SEO efforts to kick in, a business may utilise Google Ad Words to drive traffic for (a) for lead generation or (b) sales. Take a look at this example. The cost per click works out at 50 cents, the resulting 1000 website visitors converting to a trial rate of 5% (50) at a cost of €500. These 50 trials are then converting to paid customers at the rate of 10% which is 5. So each customer is costing €100 in just lead generation expense excluding sales/product/support costs. For many companies in the B2C space or in the B2B space with software using the web as their main acquisition channel, it can be hard to get the consumer to pay more than €100 for the product or service

Many business underestimate or do not budget for a realistic CAC, if we take the above example the cost of customer acquisition can climb rapidly if leads require a sales person to convert them. This human interaction can be as simple as email follow ups right up to inside sales people doing multiple sales calls and demos. Depending on the trial/registration rate along with sales conversation rates the cost can vary from €400 to over €5,000 per new customer acquired, depending on the level of interaction needed.

Another CAC calculation is to look at the cost of a field sales force. The fully loaded cost of a field sales executive with travel, car, expenses and salary can push the CAC into over €10,000 in enterprise sales.

In trying to address the single most important early-stage question – customer acquisition – it is easy to waste a lot of money in the wrong channels and on the wrong customer acquisition tactics (lots of companies in the graveyard from just this one failure), especially the new companies that went  toe-to-toe with the big guys and can got blown away.

Every business has to execute in a different way

A business will only thrive by marketing and selling smart; acquiring customers in an economic way and in a way that differentiates the business from the crowd. To goal is to build a customer acquisition strategy for paying customers the business does not have to keep paying for every month.

Create Demand

In larger companies with deeper pockets while the customer acquisition isn’t exactly simple, they do have more resources. The process of customer acquisition is more challenging for newer companies. Established business’s will utilise bigger budgets, have greater brand awareness, and an ever growing community of influencers. Most new businesses will not launch with a partnership with an established brand like Microsoft, Apple or Google where the demand for the product already exists. Instead a new business has to allocate sales resources and money wisely to fight (and a fight it is) to let potential customers or audiences know that you exist, explain to them why they should show interest, and initially even offering to go the extra mile by holding their hand through the sales process.

The focus of everyone in a new business is not only to create the brand but also the demand. Sales and marketing are not two different departments,  the person leading the marketing drive needs control spend on brand marketing and really understand how to execute lead nurturing, content marketing, web demand generation programs and work hard at marketing efforts that require time but not money. Marketing and sales need to work at the hip to generate a steady, growing stream of leads each and every month.”

Acquiring new customers means understanding what makes your customers tick and investing in inbound marketing strategies such as content and quality articles, got onto the forums, become a subject matter expert and invest in search engine optimization (SEO) as a longer term tactic.

The Business Model

Business model viability, in the majority of new companies, will come down to balancing two things:

Cost to Acquire Customers (CAC)

The ability to extract value from customers, or LTV (Lifetime Value of a Customer)

Web based companies have long understood these metrics as they have a much easier easy way to measure them. However there are huge benefits for all businesses to look at these same metrics.

To repeat the message from a few paragraphs back, to calculate the cost to acquire a customer, CAC, a business needs to take the entire cost of sales and marketing over a given period, including salaries and other headcount related expenses, and divide it by the number of customers that a business has acquired in that period.  (In pure web plays where the headcount does not need to scale as customer acquisition scales, it is also very useful to look customer acquisition costs with/without the headcount costs.)

To compute the Lifetime Value of a Customer, LTV, you would look at the margin that you would expect to make from that customer over the lifetime of your relationship. Margin should take into consideration any support, installation, and servicing costs.

Manage Optimism with Reality

To be in business requires huge optimism, and in a belief in how much customers will want to buy your product. Unfortunately this can lead businesses to believe that customers will be kicking down the doors to purchase the product. This has the effect of grossly underestimating the cost it will take to acquire customers. In too many companies there is little or no focus on how much it will cost to acquire customers. Vague strategies along the lines of web marketing, and/or viral growth with no numbers is not what you call business!

To finish, a well thought out CAC plan outlines the need to acquire customers through a series of steps like SEO, SEM, PR, Social Marketing, direct sales, channel sales, etc. with the cost of each step worked out. This planning brings honesty to the real cost of customer acquisition.