How much does it cost to obtain a customer?

We often deal with the value which our products and services bring to our customers. From marketing point of view the value which customers bring to the business is also an important issue.

What is the cost to obtain and keep a good value customer?

If one works as recommended by the textbooks, one can easily calculate that cost.

You should have a target group of clients, relatively constant for a given marketing period. You should have planned marketing activities for communication with the target groups – mailing campaigns, advertisements, telephone communication, meetings and presentations, seminars… The aim of all these marketing activities is of course to come to the point of deal negotiation and contract signing.

Knowing the number of potential customers to whom each separate marketing activity is targeted and the total cost for carrying out the activity, you can calculate the average cost for the company to attract a new customer.

Here, of course, some dependencies exist:

  • The size of the target group can optimise the cost for obtaining a new customer
  • The longer the period of persuasion of the client, the higher the cost of attracting
  • The bigger the investment in a new client, the higher the expected earnings from the new customer.

These are just some dependencies. If you monitor the costs for attracting new customers, including planned against real costs for a new customer and if you gather your own statistics for a longer period, you will find a lot of interesting facts. Such observations can help you optimise costs and improve the efficiency of your marketing activities.

What is the value of your customers?

For a given period of time, at least for one year, your need to monitor the marketing costs for maintaining the interest of an existing customer and what revenue the customer generates for you during that time.

If you make these measurements for a longer period, you can calculate the value brought by your customers for each separate phase of the customer life cycle: initial interest generationfirst purchaseproduct exploitationnext purchase.

Here we will review the dependence between your marketing and the value / cost related to your customers in the phases of first purchase, product exploitation and next purchase.

First purchase phase

In the period after first contract signature usually clients generate the highest value at lowest marketing costs. This is a period of happiness.

It should be noted that we have into account your first bigger contract with your customer and not a pilot project or a small deal for the purpose of testing the quality of your product and service. In some industries, such as software development services, an initial test of the company is often made by undertaking a small-scale, low-value pilot project. The same is observed in the consultancy business and also with any other new company in the service sector that is not yet well known on the market.

Product or service exploitation phase

Then you move to sustainable relationships with your customers. With the purchase, usually a maintenance contract with your customers is signed.

During this phase, the customers occasionally buy things that they have forgotten or have not had the opportunity to purchase at the beginning. In this phase, the best marketing can be made by your support team. If your support team does not do its job well enough or the customer has frequented or serious problems with the quality of the purchased product, your customer could decide to reduce or completely cease the relations with your company.

During this period, it is necessary to periodically activate the marketing efforts towards the customers. You can invite them to seminars and training, send them newsletters and materials for new versions of products, or information about your new products and services.

In this phase, the mean marketing costs for an existing customer is slightly increased and the you get revenues from the customers in a more or less stable way.

Next purchase phase

If you have worked with the desired quality, you will come with part of the clients to the next phase – buying new products, expanding the volume of orders or starting to use more of your services.

However, these are the most difficult customers because they know you well and can assume what your weaknesses are, so you could expect that they would insist for better deals.

Therefore, the marketing tasks in this phase are more complex and are comparable to the acquisition of a new client.

For better marketing results, it is necessary to have a real idea of what your customer wants and what the level or your customer satisfaction is. You can make calls to selected clients or annual customer satisfaction surveys. If the customers have reasonable suggestions for changes in your services or products, you should also inform about this the design and development departments.

In this phase, the marketing costs are growing, and there is a high likelihood that the revenue from the client will decrease, and the marketing cost for you will increase. If customers do not come to this phase, their value usually starts to decrease rapidly. It’s time to think if while staying focused on a client stuck in the phase of product exploitation, you lose more than you win, and if you don’t have to replace the customer with a new one.

The growth of the business is due mainly to customers that are newcomers or continue buying from you.

Thanks to the clients in the phase of product exploitation your revenue is stable, and you can precisely predict the revenues of the company in the subsequent periods.

At each such intermediate stage, some customers naturally fall out.

If you have observed how customer behaviour had been changed, if you have monitored the value they had generated to your business, you will be able to predict which customers will continue to buy from you in the future and which of them could only give you more worries without return for you.



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Pavlina D. Kozarova

Pavlina has worked for 20+ years as marketing specialist and business development manager in several Bulgarian and international IT and consulting firms. Her expertise is in the fields of project planning and management, business development, marketing & sales, innovation development and commercialization. Pavlina runs consultancy business with www.primavera88.com