Are you scrimping and saving in your customer acquisition process and is it harming your business? 

Ryan and I moved house in May.

In truth, I never thought it would actually happen.

It was one of those moves that just seemed to destined to fail, with red tape and human error holding things up at every stage.

And then one day, just as everyone involved was reaching the end of their tether, something miraculous happened:

We completed.

We tootled down to the estate agent, scarcely believing our luck, and then drove over to our brand-new home.

Which was beautiful.  Apart from a couple of things, namely the porch and a few of the windows.

The porch was the first on the ‘to-do’ list, so I quickly jumped on it.

I called Sam’s Windows – a local company run by none other than “Sam” – Smithy’s brother.

They came over, quoted, at a price we were happy with, and that was it: job done.

Except it wasn’t job done.

Don’t worry, I’m not about to tell you that Smithy’s brother did a terrible job on my porch.

Quite the opposite.

You see, they did sucha good job that when it came to selecting who was going to do my windows, I didn’t even consider anyone else.

No Google searching.

No soliciting of referrals on Facebook.

No thumbing through the last ever issue of the Yellow Pages, and no conversations with the Everest sales reps in the shopping centres.

I just picked up the phone and gave Sam a call.

He came around again, quoted, and won the work.

I could make a number of points here, not least the fact that if you do a fantastic job for a customer once you’ve acquired them, the chances of them buying from you again increases.

But what the story really drums home is the importance of understanding the lifetime value of your customer – I’ve turned into a pretty lucrative customer for Sam’s Windows, with one transaction turning into several.

In a lot of conversations I have with business owners, and I ask what they’re prepared to pay to get a lead or a customer, I get an answer something along the lines of, “As little as possible”.

It’s an understandable answer, but it betrays a dangerous mindset.

You see, when you start to view the ‘customer getting’ process as an expense rather than an investment, you tend to make bad decisions about the marketing you do.

You scrimp and you save.

You set a low daily budget on your Google Ads account.

 You remove the direct mail step out of your followup process.

 You cut out the remarketing ad spend.

You try and close on the phone, even though you know getting a salesperson out there is way more effective.

In short, when your motivation is to spend as little as possible, you’re placing yourself at an immediate disadvantage, because by cutting out spend, you’re making the process less effective than it could be.

As a result of scrimping and saving, you generate less leads.

And because you generate less leads, you make fewer sales.

And because you make fewer sales, you have less opportunity to maximise the value of each customer, by ensuring that they transact from you again and again and again.

You might have “saved” money at the front end, by trying to win customers as cheaply as you can, but it’s a false economy, because that “saving” has resulted in less customers, less revenue and less profit as a result (assuming your business model is actually profitable of course!).

So, if you’re in this boat at present, what can you do?

 

#1 Understand your average customer value

How much is your average customer worth to you?

Get clear on exactly how much profit each transaction generates you, and how many transactions an average customer makes with you.

The key there is “average” – you’ll have customers with wildly different figures, but by adding up both the number of transactions and the total revenue and profit achieved from each transaction, you’ll start to build a picture of what a customer is really worth to you.

 

#2 Understand how quickly you’re into profit in the customer journey

It’s no good resolving you’re going to spend £1,000 to acquire a customer, if it’s going to take so long for them to repay your investment and make you profit that you go out of business before that happens.

 

#3 Work out what you’re prepared to pay to get a customer

Armed with these figures, you’ll hopefully arrive at a clearer picture of what you can actually spend to acquire a customer, and the figure might well be a lot more than you think!

But until you do the sums, you won’t know!

 

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *