Cost of Customer Acquisition and Retention

Sales Specialists

Cost of Customer Acquisition and Retention

Craig McAlpine discusses 5 key areas to consider when assessing customer acquisition and retention costs.

If you haven’t dealt with the 5 key points below – chances are you’re missing opportunities – and more than likely you do not understand the true cost of your customer acquisition and retention program.

  1. Customer Sales and Marketing Costs
  2. Customer Acquisition and Retention Return on Investment (ROI)
  3. Customer Care and Profitability
  4. Customer Relationship Management (CRM) Investment
  5. Customer Sales Channels
  1.  Customer Sales and Marketing Costs
    Whoever you sell to; acquiring their business has and will continue to incur direct or indirect costs.
    These costs will vary and are made up of numerous activities.  They must be calculable, measurable, visible to your sales team, and reportable.  Sales and marketing costs should be part of your sales and marketing manager’s responsibility and certainly a KPI tied to their at risk remuneration.  It must be part of your business plan and needs to be calculated to ascertain true cost of sales and true margin. There are any number of CRM and financial systems that will facilitate the true cost of sale, and the associated return on investment (ROI).  The trick is to ensure you are capturing as many of the customer engagement and activities as you can to make the data meaningful.
  2. Customer Acquisition and Retention ROI
    Sales and marketing activity needs to demonstrate ROI – no different to any other investment you make in your business.  Collecting information from your CRM and linking this data to your financials should provide you with sufficient data to enable best estimate per customer group (or product) spend.  Linking this investment with sales activity per customer will provide ROI per customer.  The acquisition and retention costs and cost of sale (cost of production) per customer are linked to provide Customer Profitability (ROI per customer).  Sounds complex – but done properly you will know exactly what your customers are returning to your business and your sales and marketing teams will focus on what matters most.
  3. Customer Care and Profitability
    Once a customer has signed on, how much customer care is needed to keep that customer? What margins have you signed up for? The cost of servicing customer requirements must be added to the cost of acquisition in order to estimate the profitability of each new customer relationship.  Obviously the passive internet / self-service business has enabled the cost ratio’s to reduce in some areas – but increase in others.   Web site maintenance (e.g. content) if not effectively designed can incur significant overhead, as will the servicing of customer inquiries.  The internet sales channel has empowered prospective customers to fire off questions more readily than ever before.  Answering all customer queries – no matter how trivial they may seem to you is essential.  Build customer care costs into your forecasting.
  4. Customer Relationship Management Investment (CRM)
    CRM comes in many forms and the degree to which you invest in CRM is very much dependent upon your customer attraction, acquisition and retention strategy.  Also consider the stickiness of your product and the expectations of your particular customer / product demographic.  i.e. frequency, type of contact, product gap etc.  CRM technology may mitigate significant cost and risk, automate customer touch and provide valuable customer analysis.  However, implementation of appropriate CRM technology can require significant investment, and if incorrectly implemented can even damage your business.  So, make sure you map your customer base, your growth strategy, and customer demands to determine a best fit CRM technology solution.  Don’t just buy the cheapest, easiest option available – it could turn out to be the most expensive.  You may also need to invest in an agnostic CRM specialist who will provide pragmatic advice, work with you to design an appropriate solution, and implement and execute your CRM strategy across your business.
  5. Customer Sales Channels
    I’ve touched on the internet sales channel already (3).  There are many others.  However the on-line channel is probably the one most talked about, but ironically the one few seem to understand or implement successfully.
    An old saying springs to mind; “If you always do what you’ve always done, then you’ll always get what you’ve always got”.  Doing what you’ve always done and transferring it to the internet sales channel wont necessarily deliver the best results.  So think laterally, and be prepared to change systems and processes – but do it in a considered way.  Recent MYOB (www.MYOB.co.nz) surveys found that businesses with a web presence achieved considerably better sales results.  However the findings also uncovered the challenges presented to businesses to focus on what matters most in the on-line space.    MYOB Survey References:    http://alturl.com/ykk42  and  http://alturl.com/betgx .    If you’re in business chances are you’ve had a call from one or more web site developers saying they’ve got the best deal for you.  Really?  How do they know?  How do you know?  What are the success measures / KPI’s?  Do they have some skin in the game? Are they prepared to back themselves to deliver ‘improved sales’?  There are a plethora of opportunities for you – and it’s definitely not a one size fits all exercise.  Think about what you need to achieve and what your customers demand.  Match your sales channel(s) to deliver to the requirements of your business and customer base.  Set up a series of KPI’s to track benefits.  Ensure each channel delivers to the required KPI, and does so profitably.  Do not underestimate the cost of the passive channel.  There is no channel that requires zero investment.

Next Steps

If profitable, stepped sales growth is important to you, then take a look at these 5 key areas.

If you would like to explore these areas in more detail, you can contact me at: craig@mcalpineconsulting.com

McAlpine Consulting

New Zealand

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Contact: www.MyCareerBrand.net Phone: +64 21 666 807, +64 9 5222802 e-mail: info@mycareerbrand.net Craig McAlpine's Linked In profile: http://goo.gl/OxFOKZ MISSION Working with Job Search Candidates to build their go-to-market strategy, develop powerful marketing collateral such as their CV, LinkedIn profile and social media presence, and ultimately to secure a new role that is not only rewarding but also assists them on their career journey. EXPERTISE Career Coaching - LinkedIn Training - LinkedIn Optimisation - Personal Branding - Job Hunt: Go to Market Strategy and Collateral - CV design and preparation - Interview skills INDUSTRY EXPERIENCE - Professional Services - Information Technology - Banking and Finance - Recruitment

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Posted in CRM, Customer Acquisition, Customer Retention, Sales, Sales Channel
2 comments on “Cost of Customer Acquisition and Retention
  1. Pacifiq Mass Media Services says:

    Very insightful perspective/spin

    Like

  2. […] Cost of Customer Acquisition and Retention Craig McAlpine discusses 5 key areas to consider when assessing customer acquisition and retention costs. If you haven’t dealt with the 5 key points below – chances are you're missing opportunities – and more than likely you do not understand the true cost of your customer acquisition and retention program. Customer Sales and Marketing Costs Customer Acquisition and Retention Return on Investment (ROI) C … Read More […]

    Like

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