Customer Acquisition Cost
If you truly want to have a good understanding of customer acquisition, it is important to know the math behind this concept. When it comes to customer acquisition, successfully gaining new customers is only half the battle. The goal is to gain new customers without spending too much money during the process of conversion. Therefore, it is important to keep track of customer acquisition metrics like lifetime revenue and average customer acquisition cost.
Fortunately, it is very simple to calculate the customer acquisition cost. This metric will help you decide whether your customer acquisition efforts are proving to be worthwhile and whether you should scale up or scale down your efforts or even change up your customer acquisition strategies in CRM. The importance of customer acquisition cost calculations cannot be overstated.
The formula is as follows: customer acquisition cost = sales and marketing costs / number of customers acquired. This number only has meaning when you use the earnings of your business as context. For example, let us say that a company spends $1,000,000 on customer acquisition efforts and manages to acquire 100,000 new customers. This means that the customer acquisition cost is $10. If you notice that your company has made $50 from each customer, on average, this suggests that your company’s customer acquisition efforts are cost-effective.
Of course, you should also keep in mind that the amount of money you make from your customers will increase over time. The lifetime value is the amount of value a customer provides a company in the long-run. This is where customer retention comes into play. It is not simply enough to acquire customers. It is also important to invest resources into turning these new customers into loyal customers.
Customer Acquisition Definition
Customer acquisition refers to the process of acquiring new customers. Gaining a new customer involves persuading said customer to purchase your products and services. This customer acquisition definition can apply across all industries and verticals. However, there are some key differences between industries in terms of their approach to customer acquisition. For example, it is probably going to cost far more for a B2B business to acquire a new customer than a fast food restaurant or retail store. However, while a B2B business will invest more to acquire a customer, they can also expect said customer to spend more. Overall, companies in different industries are going to employ different strategies.
The customer acquisition cost also differs by industry. For example, according to Propeller, the average customer acquisition cost for the travel industry is just $7 while the average customer acquisition cost for technology is $395. Therefore, it is important to consider your calculated customer acquisition cost in the context of your company’s business or sector. You want to compare your customer acquisition cost to that of the average for your respective industry.
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Customer Acquisition Funnel
The customer acquisition funnel is a process where you turn prospective customers into current customers. If this sounds familiar to you, it should. The customer acquisition funnel is essentially the same thing as a sales funnel.
The different stages of the customer acquisition funnel are lead generation, lead acquisition, and lead conversion. Lead generation refers to the process of informing a prospective customer about your business and the products and services you offer. Lead acquisition refers to the process in which a prospective customer begins to seriously decide whether to do business with your company. Finally, lead conversion is when a prospective customer becomes a current customer by deciding to spend money on one of your products or services. You can find a customer acquisition funnel template online that will help you remember each element of the funnel.
It is essential that you keep track of each and every stage of the customer acquisition process. Calculating and recording acquisition funnel metrics will help you predict the future growth and the future sales of your business.
Customer Acquisition and Retention
As noted above, there is a key difference between customer acquisition and customer retention. Customer acquisition refers to the process of marketing to potential customers to encourage them to purchase the products or services being sold. In contrast, customer retention involves the conversion of new customers into loyal customers through loyalty programs, quality of service, and customer satisfaction.
The most important goal of customer acquisition is to attract new customers. Therefore, the heart of the customer acquisition process is marketing, which involves the use of targeted messages to reach out to new customers. Customer acquisition strategies often include components like the identification of a target audience, the development of marketing strategies, following up on prospective customers, and tracking the effectiveness of marketing strategies.
Common marketing strategies include commercials or advertisements to invoke the interest of the target audience. Some companies opt to use direct marketing as a strategy. An example of direct mail is when clients are contacted directly by the marketers of a business by sending them something in the mail. This strategy is particularly common among B2B businesses.
The focus of customer retention is to improve the relationship between the business and current customers. The goal is to encourage customers to continue purchasing products and services from the business. The typical customer retention strategies will focus on loyalty programs, customer service, and the quality of the products and services offered. As stated above, customer retention is typically less costly in comparison to customer acquisition. This makes sense, because the company already has the interest of the customer. All the company needs to do is figure out a way to keep the interest of the customer. Customer retention increases the average lifetime value of customers for a business.
Overall customer acquisition and retention strategies are the key to success for any business. All companies should understand the difference between customer acquisition and retention and should have customer acquisition methods.
Customer Acquisition Channels
In this section, we will walk through some of the most popular channels that B2B teams use today to acquire new customers. Some acquisition channels examples include social media, direct mail, online digital advertising, email, web, and events.
Social media websites like Facebook, Twitter, and Instagram have a huge number of users already. Therefore, much of the work has already been done for you. If you play your cards right, you can potentially gain exposure for your products and services among hundreds of thousands, if not millions, of users. The best customer acquisition techniques for social media websites focus on the quality of content.
Email is one of the most direct channels for customer acquisition. In fact, you can also use email marketing for customer retention. When it comes to customer acquisition, email marketing works best when you tailor your messages to the individual. This is easier to do for certain types of companies, such as B2B businesses.
Events like trade shows make it possible for you to take your customer acquisition strategy offline. A trade show or conference will give you the opportunity to show off your products and services in person.
It is important to diversify your customer acquisition channels. Using different customer acquisition channels will allow you to maximize the number of customers you acquire. Also, diversification will ensure that you have a back-up in case one of your customer acquisition channels ceases to be effective. Consider having an offline customer acquisition strategy. Many businesses focus their customer acquisition strategy online. While this is not a bad thing, you can gain an advantage against your competitors by taking your customer acquisition strategy offline. Customer acquisition channels vary in terms of cost and effectiveness. Different companies will rely on different customer acquisition techniques and different inputs for customer acquisition.
In general, it is a good idea to focus on one customer acquisition channel at a time. Once a customer acquisition channel has become effective, you can move on to making another customer acquisition channel work for you. You should also take the time to monitor your customer acquisition channels to ensure they remain effective and not too costly. Make changes to your channels and your techniques for customer acquisition from time to time.