Customer Acquisition: How Much Should You Spend?

It’s not easy making friends. It takes an effort from both parties to make the relationship work. Out of seven billion people on this earth, there are few people you would consider as your closest friends. It takes time and effort to have quality friends.

Just like a small business. Replace friends with customers, and you now have small business 101 knowledge.

Entrepreneurs build their start-ups by finding customers who will buy their product. This process is called ‘customer acquisition’. Any good start-up needs customers, how you acquire customers depends on your product or service, target market and business model.  Of equal importance is how do you retain those customers?

Let’s start with the basic business components for entrepreneurs:

1. Get Noticed by People (Customer Acquisition)

2. Get People to Pay (Monetization)

3. Get People to Pay Forever (Customer Lifetime Value/ Customer Retention)

In the beginning, small business owners need to focus on relationships. It’s great to have a product or service that everyone is clamoring for from inception, but a predominant reason most businesses fail is because they forget to establish a healthy relationship with their customers. The person who tries to have the most friends has the least amount of quality friends. Good business plans focus on win-win relationships with each customer.

But how do you get those new customers? Here are a couple of ideas:

  • Quality Product, Responsive Service, Great Content. – Without this equation  your customers will move on to the next company who will provide these facets. The dirt will wash away, but gold lasts forever. Create gold for your customers.
  • Give Away for Free – Many startups give away their products for free, then up-sell their products with additional features. Giving away something for free will attract more customers in the beginning while also retaining loyal customers for years to come

For start-ups, acquiring customers will be a long and slow process. There will be marketing costs to consider as well as the cost for paying each employee who works for you. Are you employing a variable cost or fixed cost model? You can click here, here, and here for ways to calculate customer acquisition cost for your small business. by David Skok is a terrific resource for new and expanding businesses.

After calculating the customer acquisition cost (CAC), you should make sure that your customer’s lifetime value is three times more than the CAC. Successful small business owners can recover their CAC within 12 months.

When entrepreneurs focus on the long-term success of the company, they spend more of their resources on customer retention. The most loyal customers will always come back for more. This takes more time and effort to create these quality relationships, but your profitability will continue to grow.

If you would like to learn how our business development experts can improve your customer acquisition and customer retention, contact us today.  

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