Excuse me, may I buy that customer please?

Have you ever just put an advertisement out there, whether it is on the radio, on TV, in a newspaper or even a flyer, hoping that somehow it would magically bring new customers in? Don’t be startled if you answered yes. As a matter of fact, stand up and give yourself a big pat on the back because you are like 95 per cent of business owners I speak with about their marketing. Pat yourself on the back because what you are about to learn is the key to getting better customers and probably getting them at a discount!

“What’s all this about buying a customer,” a client recently asked me. “I can’t just go out and buy customers, they have to come to me. Don’t they? ” Isn’t that an interesting question? When I speak with business owners, the idea of investing in inventory or machinery is common. When we talk about Marketing investment, the only thing we can buy is new customers. The question then is, how much do new customers cost you? How do you figure this out? Let’s take an example. 

You have put Rs 1 lakh into an ad campaign. As a result, you had 100 people call you. Let’s say that 1 out of 5 of these ‘Leads’ actually comes in and buys from you. Working out the numbers, it cost you Rs 1,000 to get each Lead. It cost you Rs 5,000 (5 x Rs 1,000) for a sale. In this example, it cost you Rs 5,000 for a new customer! This measurement is called ‘Customer Acquisition Cost’.

Now this is where it gets exciting. Imagine now that you knew that your specific marketing campaign was going to cost you Rs 5,000 for every new customer it brought in, and that every new customer would eventually spend Rs 50,000 with you, of which Rs 10,000 was profit. How many times would you invest that Rs 5,000 to buy more customers? Let’s see… spend Rs 5,000 and make Rs 10,000, spend Rs 5000 more and make another Rs 10,000 and so on and so on… I think you can see that it makes sense to repeat that one as much and as quickly as possible.

It sounds too good to be true? It really is that simple. Once you know how much it costs you to buy a customer, and as long as you are making more per customer than your Customer Acquisition Cost, you are ready to start reaping the profits. To know your true acquisition cost, test and measure every marketing campaign. If you have trouble figuring this out, call me or write to me and I will show you how.

When you see that your whole business is a marketing entity, not just a production, service or retail entity, you will begin to see why the amount you pay to buy a customer is your biggest expense. It gets very exciting when you then discover new ways to buy customers for less than your profits on your first sale. What if that first sale came within days of your marketing? What if you put in place low-cost strategies to get those customers coming back over and over while buying even more per visit from you?

That’s where a business really starts ticking along generating an ever increasing revenue stream for the owner.

( Sanjay Chaturvedi is the CEO and Managing Director of ActionCOACH India.
Readers can revert to sanjaychaturvedi@actioncoach.com )