How Much Is A Customer Worth To Your Business?

By Sharon Worsley

Have you ever taken the time to calculate the cost of acquiring a new customer? I mean, really calculate the actual cost?

Many businesses think they know or perhaps guess the cost without ever doing the work to establish the baseline of what it does costs them to generate a new customer to their business.

If they are using social media advertising, then how many clicks on the advertisement will they need to acquire a new customer? If they get referrals, what is the cost of that referral partner making an introduction? Too often, business owners or leaders of organizations forget to add in staff time in the cost of acquisition.

Should you know the cost, then congratulations as you are way ahead of your competition.

You might wonder why it is so important to know this metric. Well, a simple answer would be, ‘are you spending your time, money and resources in the best possible way’?

For example, I know a business coach who, when I last spoke with him, was spending $3,000 a month with a digital agency advertising with Facebook ads. The first $2,000 was paid to the agency just to set up the ads, with the remaining $1,000 spent on the actual advertising costs on Facebook.

When I asked him a simple question like what type of person was being targeted with his ads, he was unable to answer. As of the last time I spoke with him, he had yet to sign a customer using this form of acquisition.

It is vital to the longevity and profitability of a business to know how they are getting their customers. This includes the cost of acquiring each customer, the value of every transaction and their lifetime value. Many of these things are not even considered by a business, no matter the size of the organization.

Here is an example of an incident experienced by a colleague of mine, Nicholas Dodge, who shared a recent experience of going to a new hairdresser. This hairdresser charged him $16 to cut his hair and after Nicholas left, he felt that the cut wasn’t as short as he would have liked.

So, the next day he went back and told them he had been in the day before but wasn’t really happy with the cut. He asked if they could take some more off. Nicholas says he was in the chair for less than a few minutes, but he was charged $16 again.

Here was an opportunity for a business to ensure the satisfaction of a new customer (that they did not have to go and acquire themselves). Even if the hairdresser could not provide a free haircut, a deep discount would have been a better way to go, to make sure the customer was happy and would be coming back again. Not to mention the possibility of him sharing the experience as a positive one with friends, family and colleagues close to this location with the potential of bringing in new customers to this hairdresser.

When you think about it, is charging $16 more important than creating a satisfied customer, especially during their first experience with the business?

One that would likely come back because he felt that the hairdresser was more interested in making sure he was happy with the cut as opposed to the next $16 that could be made.

Oh, and don’t forget all the competition out there. It rarely matters what type of business you are in these days as there is competition everywhere. As this is the first time at that hairdresser, I am sure there are at least a couple of other hairdressers within walking distance.

Let’s imagine that the person cutting Nicholas’s hair was not the owner but rather an employee. Maybe they were not given the go-ahead in the past to waive a charge for this type of request. If that is the case, then the owner should have some ‘Standard Operating Procedures (SOP)’ that would permit the employee to handle the situation in the best possible manner for all parties.

However, too often, businesses do not empower their staff so that they can take the initiative to create a good experience for the customer, thereby leaving the customer unsatisfied.

I am not suggesting that you permit employees to do whatever they want or spend whatever they choose in a case like this. Instead, by setting SOP’s, staff are aware of the parameters they can act within.

Imagine for a moment, a hotel where the staff at the front desk are permitted to spend up to $50.00 at a time to deal with a situation with a guest. They don’t have to check with a manager but can act immediately as they feel the situation requires.

For example, if a guest was told that the check-in time was 4.00 pm and their room wasn’t ready yet, then the staff member could direct them to the restaurant to have a complimentary drink while waiting. The front desk associate might also arrange for a fruit & cheese plate to be waiting for the guest in their room, should the room not be ready for a while due to high occupancy the night before.

Businesses usually only get one chance to get it right with a new customer, and by having procedures set up beforehand, there is no delay in deciding what can be done to make the experience a good one.

This, of course, also applies to existing customers as their needs should not be forgotten either. They may have been with you for some time, yet something happens, and they decide to take their business elsewhere, with you never knowing why they haven’t returned.

Points to Ponder

• Do you currently have Standard Operating Procedures within your business (even if you are a solopreneur) so that everyone understands what they can do when a customer complaint happens?

• Have you worked out the cost to acquire a new customer for your business and looked to see how effective your current methods are? Do you know the lifetime value of your customer so you know how much you can spend to acquire a new customer?

• Do you have a solid plan on how to keep customers coming back?

Sharon Worsley, The Business Development Ninja™ is the creator of the R7 System™ to Flood Your Business With Clients Today, Tomorrow and Beyond, helping businesses to ‘Wake Up, Shake Up, and Show Up.’ She also consults and coaches peak performers to excel as leaders. To learn more, contact Sharon at [email protected]