In this video, Bell Media CEO Scott Bell walks you through how to determine your Customer Acquisition Cost. Video transcription can be read below.
Hey folks! Welcome to Bell Bytes. My name is Scott Bell and I hope that I can bring you some very practical tidbits that you can take away and use for your business that will better your sales and marketing efforts and quantification of the hard-earned dollars that you invest, in particular in digital marketing, which is where our experience lies.
The Shift in Quantifying Results
So, we’ve really made a shift in the last 5 to 10 years in quantifying ad results for customers. We’re looking at return on ad spend. Traditionally, 10 to 15 years ago, it was really hard to do. But now the data exists for us to really quantify. So, what we’ve really tried to push with our customer base is to understand their business on a granular level so that they can understand how their sales and marketing efforts are trending, improving or declining over a given period of time.
The Value Equation
The first place to start is something that we call the Value Equation. So, what is the Value Equation? It’s looking at your sales and marketing efforts and seeing if they’re providing more value for your business.
Customer Acquisition Cost
The first place to start is understanding your Customer Acquisition Cost. It seems like a rather simple formula. It actually IS a rather simple formula, but you really need to start somewhere if you haven’t done this for your business yet.
The question that we get asked a lot is “where should I start?” Our recommendation is start by establishing some standard baselines from which you’re going to collect data. One of those baselines could be the time period. If you’re collecting data and you want to analyze this information to understand your customer acquisition cost, you need to say “okay, I’m going to look at the last 12 months. That’s my established time period.” So first, establish the time periods in which you are going to look at.
Next, you need to understand how much you’ve actually invested in your sales and marketing expense over that same time period. Add all of that up.
The third, during that same time period, how many new customers did you secure? Maybe you have a CRM, a POS system or maybe you just keep it on spreadsheets. There’s no right way or wrong way to do it, but just understanding how many new customers you secure during that time period is hugely important.
This example is of a customer that spent $200,000 over the course of a year on all of their sales and marketing efforts. What was included in that? Advertising campaigns (traditional and digital), they also had outside sales teams that they were paying and some other miscellaneous expenses that went into securing new customers. So, $200,000 spend over the course of a year.
Over that same time period, they secured 150 brand new customers for their business. So, just knowing that, you’re actually able to understand what your customer acquisition cost is. In this case:
Total Invested Money in Sales & Marketing (divided by) Brand New Customer Count.
200,000 / 150 = $1,333.34
In this case, their customer acquisition cost is $1,333.34.
A quick tip that I want to provide, especially if you’ve never gone through this exercise before, is to start broad. Just like we look at digital marketing, start broad, see what’s working, refine the process and continue to narrow it down to become more sophisticated. Maybe you start with last year. Then you start narrowing it down and ask “what was my customer acquisition cost for the third quarter, and then the fourth quarter?” Then maybe you can get to a point where you’re starting to look at it on a monthly basis so you can see some trending averages.
Bell Media is a leading digital marketing agency that is focused on delivering desired business outcomes for clients. We are a Google Premier Partner, and a 3X Inc 5000 Company, with offices in Montgomery, Birmingham, Nashville, and Houston. We consult with businesses to determine where they want to go with their businesses, and then recommend the best product mix to help them achieve their goals. Check out more of our thought leadership in the Blog section of our website.