This article throws light upon the four ways by which cost of acquiring customer should be used in analyzing the value of your customers. The ways are: 1. Determining Customer’s Lifetime Value 2. Optimizing Cost of Acquiring Customers 3. Analyzing Cost of Acquiring Customers 4. Determining Worth of Current Customer.
Way # 1. Determining Customer’s Lifetime Value:
Customer acquisition is not just about getting customers; it is about getting loyal customers who not only buy from you but also spread the word to their acquaintances about your business. Hence you need some way to measure the value of a customer to your business; without any such measure, the cost of acquiring customer is meaningless.
In general, you calculate a customer’s lifetime value by analyzing the revenues that each customer generates for your business and comparing it to the cost of acquiring him or her. The aim should be to ensure that each customer has a positive lifetime value.
Way # 2. Optimizing Cost of Acquiring Customers:
Once you calculate the cost and lifetime value, you might find yourself spending more on acquiring customers and gaining less profit/revenue or return on investment. You might need to look into ways to reduce the amount you spend on acquiring customers.
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Hence, look for low cost methods, like word of mouth marketing, and use of online campaigns and social media websites. Also, look for ways to ensure greater customer satisfaction, because happier customers will spread the word about your business much more effectively.
Way # 3. Analyzing Cost of Acquiring Customers:
The idea of calculating, analyzing and keeping track of the cost of acquiring customers is one that is frequently ignored by businesses, especially smaller firms. However, it is crucial to understand and apply the idea to your business, in order to maximize your profitability and understand just what a customer is worth and how much you should spend on them.
Way # 4. Determining Worth of Current Customer:
We’ve all heard the saying that it costs more to acquire a new customer than to maintain an existing customer. But Flow town actually did the math. The beautiful info graphic showing that new customers cost six to seven times as much to acquire as maintaining existing customers.
The most valuable part of this graphic is in the value we often don’t consider: existing customers are less sensitive to price than new customers and are more likely to be a source of future referrals. If there was ever a strong case for investing in and financing customer service, this is it.
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How much have you invested in sales and marketing over the last few years? Thousands? Tens of thousands? Millions? Tens of millions?
Customer retention is about keeping the customers you’ve spent that money to acquire.
And if you’re in an industry where they make multiple purchases over the years, your entire team should be very focused on retaining those customers:
(a) Delivering service that’s consistent with your value proposition and brand;
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(b) Cross-selling, up-selling and asking for referrals from existing customers;
(c) Developing programs to increase customer loyalty and decrease turnover;
(d) Knowing the lifetime value for different segments and using that data to improve your marketing;
(e) Prioritizing retention as a major focus in your annual marketing plan.