Do you know what your cost per customer is?
Calculating and understanding your cost per customer can be vital in maintaining profitability and planning for the growth of your business. It is also surprisingly easy to calculate and shouldn’t leave you wishing you had paid more attention at school.
Did you know that cost per customer is also referred to as Cost of Customer Acquisition or CoCA.
What is your cost per customer?
Your CoCA, or cost per customer, is basically the amount of marketing expenses and sales you invest in order to acquire a customer.
IMPORTANT: Cost per customer is a really good actionable metric, as it is made up of smaller metrics which can be very helpful in influencing improvements for your business.
These smaller metrics include the cost of each customer visit, otherwise known as the Cost of Visitor Acquisition (CoVA), the percentage of visits which result in leads (CoLA or the Cost of Lead Acquisition), and the number of leads which are then converted into customers. Combined, this gives you your cost per customer or CoCA.
Easy to understand example
If you spent £1,000 for a Pay-Per-Click marketing campaign, and this resulted in 500 people visiting your side, your CoVA would be £2, as this is £1,000 divided by 500. This amount is often called the Cost-Per-Click or CPC.
If five per cent of these website visitors become leads, you will have a CoLA of £40 (25 divided by £1,000). This is because you will have ended up with 25 leads for your £1,000 initial investment, equating to £40 per person.
If ten per cent of these leads result in a sale, your CoVa or cost per customer is £400.
How can these figures help?
You can identify leverage points which can be improved.
If you want to lower your cost per customer, you known that you need to boost your lead conversion rates.
Knowing that you need to improve conversion rates can spark specific marketing activities, such as testing your company’s website landing pages or adding extra calls to action.
IMPORTANT: You also need to factor in additional costs when looking at your cost per customer analysis. This could include sales rep salaries and commissions, or marketing software. If you are spending £2,000 each month on these, for example, and you manage to get 10,000 customers, you must add an extra 20p to your cost per customer.
Things to do
Calculate your Cost of Visitor Acquisition (CoVA).
Determine your Cost of Lead Acquisition (CoLA).
Work out your Cost of Customer Acquisition (CoCA)
Add any additional costs
Decide if your cost per customer is worth your investment, both in the short and long term.
Consider the Lifetime Customer Value (or LCV) ratio, which is the predicted profit which can be attributed to a customer.
Implement measures to improve your cost per customer, by boosting conversion rates for the benefit of your business. Look at your website, for example. Does it make it easy for potential customers to buy your products or are you losing them before they have had a chance to put an item in their basket?