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Jorge Zuñiga Blanco discusses how to calculate customer acquisition costs

Jorge Zuñiga Blanco / Blog /

Something that worries all companies a lot are numbers, especially when they begin to add expenses. In addition to talking about expenses, there are plenty of investments. One such investment is the acquisition cost per customer. A concept that helps us to understand if the recruitment strategy we are using is the most successful, as well as to assess the price of our products or services. Jorge Zuñiga Blanco, an entrepreneur and business expert from Costa Rica, provides an overview of how to figure out customer acquisition costs.

Attracting a new customer is much more expensive than retaining those you already have. Therefore, it is always recommended to implement loyalty strategies in all companies. In this way, the profits obtained on the one hand can be compensated with the investment made on the other.

However, these are not the only reasons why a company needs to know the amount of this investment. As they say, information is power and, in this particular case, it is a resource that will help you better define your ideal customer, determine the success of a campaign and identify the most profitable channels.

All this would be impossible to carry out if the customer life cycle is not taken into account. A concept that is closely related to what we have been talking about so far. In fact, it directly influences the calculation of the acquisition cost per customer.

The customer acquisition cost (CAC) refers to the sum of all those amounts that a company has invested in attracting customers divided by the total amount obtained. Asserts Zuñiga, “These amounts must include team salary, external hiring, advertising expenses and implemented tools, supplies, as well as all the resources that are necessary to capture leads and convert them into customers.”

Typically, customers who buy once at a business repeat. And this can happen for months or years. The revenue generated by the customer over the time they are relying on the same company is called the customer lifecycle. A concept that, in turn, is made up of different stages.

The first is the acquisition, capturing those potential customers who may be interested in your products or services. This is where greater efforts are required, and where the investment referred to in the acquisition cost formula must be made.

In the conversion phase, the goal is to convert those leads you’ve captured into real customers. That is, to get sales. The investment you need to make in this phase is very similar to the previous one: retargeting advertising, emailing software, human resources that implement strategies, phone calls, videoconferencing applications and more.

Once we have closed sales and obtained customers, the purpose of the next phase, growth, is to cultivate the relationship between brand and user, strengthen it and launch proposals with new products or services through cross-selling and up-selling strategies.

Here, there is no longer investment in advertising as strong as in the previous phases. However, there will be an investment in strategies through email marketing and telemarketing.

Next, it’s time to explore loyalty. After all the investment made, what most interests a company is to retain those customers so that they do not leave with the competition and, in this way, continue to add value to it. “For this, it is very important to carry out loyalty actions such as offering gifts, discounts, special and exclusive products. Again, the expenditure on tools and personnel is the most prominent,” adds Zuñiga.

For those customers who bought, but have not done so again, you must implement actions that reactivate them. It is convenient to bet on this type of strategy before the acquisition, because its cost is lower. Although as in everything, there must be a balance and act according to the metrics obtained.

The difference between the sum of the investment in each of the stages of a client’s life cycle minus the income they generate, result in the benefits that the company obtains from each client. Those benefits are key to calculating lifecycle value, which is calculated by multiplying the profit by the number of transactions made by the number of years that the client remains in activity.