Have you ever thought about the value of a single customer for your business?

Understanding the importance of customer investment is crucial to master your marketing mindset.

There are three key areas to invest in within a business: time, money, and energy.

In marketing, it’s not just about dedicating time and energy to acquiring new customers; it’s also essential to recognize the value of investing money in customer acquisition and determining the worth of each customer.

While trial and error is a part of marketing, understanding customer value helps you set clear objectives, enhance retention and loyalty, and confidently strategize for future marketing campaigns.

The concept of “buying customers” involves the marketing investment made to attract customers to your business.

Customers don’t simply appear on their own; you need to take action to draw them in.

While some marketing may rely on word of mouth, many campaigns require financial resources, like signage, advertisements, or hiring someone to create and share social media content.

If your marketing efforts lead people to purchase from your business, then that investment has effectively bought your customers.

Calculating the return on investment (ROI) involves tracking the number of customers attracted to your business and their spending.

It’s crucial to understand the expenses linked to acquiring customers and the value they bring to your business in return.

Understanding marketing and customer value hinges on acquisition costs, which come in three types: average, allowable, and lifetime.

These costs reflect past efforts in acquiring customers and future investments in customer acquisition.

Average acquisition cost

The first step is to grasp the average customer acquisition cost, which shows you what your costs are of attracting new customers to your business.

This metric reveals the total investment needed to acquire a new customer within a specific timeframe.

Understanding this number, particularly within your industry, helps for budget planning, evaluating the effectiveness of marketing tactics, and ensuring your resources generate profits.

This number also demonstrates the average cost of acquiring a new customer, it does not factor in the ideal amount based on break even plus profit. 

Let’s use Facebook ads as an example: Imagine you invested $50,000 over a year, covering both ad expenses and paying someone to design and run them.

These ads attracted 50 clients, each paying $5000, totaling $250,000.

The average cost to acquire a client would be the campaign cost, $50,000, divided by 50 clients, resulting in $1000 per client.

Although $1000 per client may seem high, when you consider that each client spent $5000, deducting the $1000, your return on investment is $4000 for each client.

Lifetime acquisition cost

Lifetime acquisition value represents the total sum a customer will spend over the course of their relationship with your company.

This figure heavily relies on the customer’s satisfaction and loyalty, shaped by their experience with your business.

Recognizing patterns and improving this metric is advantageous as it ensures a steady stream of revenue for your company in the long run.

It also showcases how you can utilize resources to enhance customer satisfaction and effectively improve customer retention.

For example: after running a year of Facebook advertisements, let’s imagine that 20 of those customers come back and spend an additional $5000 per year on your service or product.

Taking the original 50 clients into account, the two-year total lifetime value would be ($50×5000) + ($20×5000) = $350,000.

This results in an average of $350,000 divided by 50, which equals $7000 per client.

If you knew the lifetime acquisition cost, what amount would you be willing to invest to acquire one client, considering that they typically spend $7000 at your business?

Understanding this, you might even consider investing more than $1000 per client in marketing efforts.

Regularly track lifetime acquisition costs for customers, including loyalty and retention, as well as how often they review or recommend your business. 

Allowable acquisition cost

Lifetime acquisition value and allowable acquisition costs go hand in hand.

First, calculate the lifetime value of a customer to demonstrate the long term revenue potential for acquiring new customers.

You can then calculate the exact amount you’re willing to spend to attract a new customer. It’s crucial to factor in both break-even and profit margins to guarantee a profitable return on investment.

Once you determine the ideal allowable acquisition cost, you can efficiently plan your marketing budget and set achievable goals.

To work with those figures effectively, start by calculating your expenses and determining your actual profit from the $7000.

Understanding your numbers transforms marketing from a gamble into a strategic calculation.

Once you have your conversion rates and return on investment from marketing, you can assess your earnings and budget.

It’s crucial to also factor in your break-even profit to ensure you’re still profiting when acquiring customers.

For instance: if your cost per client is $4500 and you aim for a $1000 profit, subtract $4500 and $1000 from $7000 to get $1500.

The limit for buying customers would be $1500, which is your allowable acquisition cost.

Rather than generalizing, like using 20% of your revenue as a budget for marketing, utilize your allowable acquisition cost to make exact calculations to invest in customers. 

The conversion rate plays a significant role in acquisition costs and lead generation.

While investing in leads is crucial, it is essential for those leads to convert into paying customers.

For example: if your staff does not grasp your unique selling proposition and fails to attract customers to make purchases, your conversion rate will suffer.

When a marketing company delivers multiple leads, your sales process must effectively convert them into paying customers.

Emphasizing the conversion rate highlights customer care and the strategies your business employs to enhance retention.

Reflect on your critical non-essentials, such as the specific actions taken by your business to create a positive customer experience.

Sometimes, low sales numbers stem from conversion challenges rather than acquisition problems.

Keep in mind an existing customer database can be as valuable as your products or services.

Acquiring a company, for example, not only means obtaining their products or equipment but also their customer database.

A database of loyal customers is advantageous as it increases the overall value of your business. It is crucial to strike a balance between acquiring new customers and nurturing existing customer relationships.

When it comes to marketing and achieving a return on investment from customers, it’s essential to have patience for testing and measurement.

Tracking data is crucial as it uncovers trends that can lead to the most profitable marketing approaches.

When experimenting with new marketing channels, focus on the metrics to determine what is effective and what isn’t.

Are people engaging with your website?

Are store visits increasing due to your signage?

Did your ad attract new customers?

If the numbers are underwhelming, consider tweaking aspects like the messaging in your marketing plan.

Patience is vital to assess whether these adjustments have a positive or negative impact.

While around 80% of new marketing strategies may not succeed statistically, the digital era allows for experimentation and adaptation.

However, avoid rapid, large-scale changes and concentrate on specific, targeted strategies.

Identify the 20% of strategies that consistently yield positive results and attract new customers.

Beginning with modest initiatives, such as a $20 ad boost, validates the effectiveness of your methods before committing to larger investments.

Focusing on this 20% will establish a reliable revenue stream and offer better control over your return on investment.

Hiring a marketing agency can significantly enhance customer acquisition and return on investment.

These agencies bring tested strategies with proven results and data to back them up.

To succeed with a marketing agency, it is crucial to clearly define your allowable acquisition costs, which will provide them with a defined budget.

The more detailed you are, including specifics like allowable acquisition cost per lead, the more reliable your profits will be from their marketing tactics.

Whether your marketing is managed by an in-house employee or a contracted agency, prioritizing data is essential for any new marketing approach.

Don’t forget to review your marketing strategies every 90 days to assess their effectiveness.

It’s crucial to implement a variety of marketing approaches, but ensure they are yielding a return on investment.

For example: if a radio ad has attracted several customers, stick with that method.

If a particular strategy isn’t generating profit beyond the break-even point, consider switching to a new approach.

By evaluating your marketing every 90 days, you can track customer acquisition and retention, setting the stage for success and profitability.