Marketing Essentials: How Much Does it Cost Your Business to Find New Customers?

Posted on: May 17th, 2010

There are some questions that immediately confuse business owners. One of them is to ask what their costs are of acquiring new customers. It’s surprising to think that companies don’t know, but a number of businesses simply have no clue, much less where to start. A business could have a fantastic product, with huge growth and profit potential, but if the costs of finding new customers far exceeds the profit generated, then it’s a complete waste of time. In addition, it’s not just about knowing the cost, but about taking steps to reduce those costs. Why are so many companies unable to figure out the costs of getting new customers? More importantly, how does a company figure out these costs and what can be done to lower them? We’ll look at the how and why, and provide insight into how to reduce the cost of getting new customers.

How does a company figure out its cost of getting new customers?

When it comes to figuring out the cost of securing new customers, there really is only one way to figure it out. Better yet, there is only one method to both figure out the cost, and lower that cost. Marketing is the one and only source a company has to figure out its cost of new customers. In addition, marketing is the tool by which companies can use to lower costs, and improve their abilities to secure new customers, and win business. So, how does marketing help find new customers, explain the cost of finding those customers, and ultimately show the path to reducing those costs? Well, it’s all about how efficient a company’s marketing plans are, and how that company goes about tracking the performance of their plans. At the end of the day, the methods are pretty straightforward. It’s the application and follow through that some companies do better than others. It’s this follow through that distinguishes the best enterprises.

How does a company track its marketing initiatives?

There really isn’t any secret to tracking the results of a company’s marketing initiatives. It’s a simple calculation to figure out the cost of each new customer that arises from a marketing plan. For example, let’s assume that a company spent $2,500.00 on an advertising campaign and found that it resulted in the acquisition of 50 new customers. The cost per customer for this marketing initiative is simply $2,500.00 divided by 50 customers, or $50.00 a customer. Now, this is merely a simple example, and the analysis if far more involved than that. The company would then want to know how many customers actually ordered, and what the growth potential would be for those customers. However, the principles still apply. It’s merely taking the total spent on a marketing initiative, and then tracking the results of that initiative. For the above example, if the gross profit generated by the sale of the product was only $60.00, then the cost of this marketing initiative was perhaps not as good as it could be. So, changes would need to be made, and new marketing plans adopted. However, over time, those marketing plans could be modified to produce far better results. A company wanting to know the best and least expensive way to find new customers, would make it a point to track the results of their initiatives. In fact, this is how companies both increase their marketing effectiveness, and reduce their costs of acquiring new customers. Consider the following table below. It shows the different types of marketing initiatives a company may use, with the number of new customers resulting from each initiative, and their appropriate costs. The best companies constantly update and modify each new plan, finding new ways to both reduce costs, and improve results.

Customers Amount spent Cost Per Customer
Marketing plans 80.00 $           3,000.00 $                  37.50
Advertisement 50.00 $           2,500.00 $                  50.00
Word of mouth 120.00 $                       – $                         –
Web-site 50.00 $           3,200.00 $                  64.00
Company blog 35.00 $           1,600.00 $                  45.71

What’s the cheapest way to find new customers?

What’s the easiest and least expensive way to find new customers? Well, looking at the table above, it’s rather obvious that word of mouth advertising costs absolutely nothing and produces solid results. If you’ve ever wondered how well your business is doing servicing your existing customers, then take a look at the number of new customers your business secures through word of mouth advertising. If your business is doing a good job, has a solid market presence, and is number one in your customer’s eyes, then you’ll see the results of your efforts in the number of customer references your business receives. This is perhaps the single greatest endorsement of having a good sales and customer service team. If your business is servicing clients well, you’ll see the results.

Tracking the results of marketing initiatives is nowhere near as difficult as it might seem. The easiest way is to simply ask customers how they found your business, and make sure to track their answers accordingly. Other methods include tracking the number of inquiries through your company’s web-site or blog. It is incumbent upon businesses to track the performance of their marketing initiatives and set plans to both improve their performance, and lower their costs. Marketing is not black magic, and the results of marketing initiatives can help put your business in front of customers, and ahead of your competition. Being a strong market presence in the industry your business services, will help position your company for years to come.

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