Merchant Advance Blog

Blog Article: Customer Acquisition Costs for Small Business

There’s a saying: “make new friends, but keep the old. One is silver, the other gold.”

Chintzy, right?

If you’re a small business owner, however, there’s an enormous grain of truth in this statement. Consider this: your business invests in marketing and outreach in order to bring a steady flow of customers through the door, helping to create relationships that last over time. Yet, sometimes, there’s such a thing as a customer that costs you money.

customer acquisition silver gold robot

Growing businesses tend to focus so intently acquiring new customers that they often overlook their best source of growth: retaining and increasing support among their existing customer base.

You can do a simple calculation to find out roughly what each new customer is costing your business. All you need to do is to divide your total marketing expenses for a given time period by the number of new customers acquired over that time. In a strictly numerical sense, the figure that you obtain here may not look so prohibitive at first. However, there are other dimensions and metrics that play into the real value and cost of customer acquisition. One of the worst miscalculations that many business owners make involves the ease with which they will attract customers.

The vast majority of businesses fail to account for one of the biggest cost elements involved with new customer acquisition – time. Even if you can acquire new customers with free marketing tools like social media campaigns, consider the investment of activity and time spent on the part of your business as equally important. You might feel as though you have ‘acquired’ your new customer for ‘free,’ but when you account for the time that it took and some of the additional efforts you need to put in to administer the new marketing effort, you might find that your new user is costing you more than it’s worth to acquire.

Balancing short and long-term perspectives can be a challenge for many small businesses, especially with the fluctuating demands of cash flow and seasonality. To truly get a sense of the value of your customer acquisitions, you not only need to know what it costs you to bring them in, but what their expected value might be over the long term. For example, if your average customer spends $30 every 6 months and stays with you for 5 years, their lifetime value = $300.

The investment you make in acquiring a new customer will only pay off if you can maximize their lifetime value to your business in a time frame that makes sense for your goals and business model. This is achieved by creating meaningful relationships and communicating effectively with your customer base, going beyond marketing to offer truly memorable and desirable qualities that make your business stand out in the crowd.

 

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