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Long-term Strategies for Profitable Customer Acquisition
Prospecting for new customers is risky business. It’s especially risky if you don’t evaluate your prospecting efforts thoroughly. Slice the numbers one way, and you won’t grow your business as quickly. Slice the numbers another way, and you may not yield a profit from new customers.
Evaluating your prospecting efforts accurately and with precision requires a minimum of five steps:
Step #1: Identify your tolerance level for time between acquisition and breakeven.
Step #2: Develop a long-term value (LTV) model.
Step #3: Properly allocate unknown order sources back to prospecting.
Step #4: Use the LTV of your customer to determine where to draw a line in the sand for your future circulation profitability.
Step #5: Identify ways to increase response from mailing lists performing below par.
Before you can start down this five-step path, you have to gather some information.
Basic Foundation
It’s vital that you know how every sales dollar your business generates is allocated. Every sales dollar must cover costs and yield a contribution to profit. But in the case of prospecting, it is likely you must identify the maximum loss you can accept from a newly acquired customer, with the projection that you will recover those losses in future sales.
Broadly speaking, every sales dollar should be allocated to cover a few categories:
Cost of goods sold (COGS)—all costs related to your product or service.
Fulfillment—all operational costs required to deliver the product or service to your customer.
Overhead—salaries, rent, utilities and dozens of other items that must be accounted for somewhere.
Contribution to profit and marketing—the amount remaining after COGS, fulfillment and overhead are deducted from your sales dollar, which goes to: 1) Marketing—all cost related to promoting your product, and 2) Profit—what is left over after all cost obligations have been paid.
Contribution to marketing and profit is the portion of the sales dollar that every marketing professional is responsible for managing. COGS, fulfillment and overhead are for the most part fixed costs; the variable numbers are marketing and profit. If you require greater profit, it will come from a reduction of marketing costs. If you can accept less profit—or a loss—you can spend more on marketing.
For most marketers, profit comes from customers. A portion of that profit often is invested to acquire new customers for future growth. Because you may be losing money on the initial customer acquisition from prospecting, it is vital you define and understand your future break-even point.
Prospecting for new customers is risky business. It’s especially risky if you don’t evaluate your prospecting efforts thoroughly. Slice the numbers one way, and you won’t grow your business as quickly. Slice the numbers another way, and you may not yield a profit from new customers.
Evaluating your prospecting efforts accurately and with precision requires a minimum of five steps:
Step #1: Identify your tolerance level for time between acquisition and breakeven.
Step #2: Develop a long-term value (LTV) model.
Step #3: Properly allocate unknown order sources back to prospecting.
Step #4: Use the LTV of your customer to determine where to draw a line in the sand for your future circulation profitability.
Step #5: Identify ways to increase response from mailing lists performing below par.
Before you can start down this five-step path, you have to gather some information.
Basic Foundation
It’s vital that you know how every sales dollar your business generates is allocated. Every sales dollar must cover costs and yield a contribution to profit. But in the case of prospecting, it is likely you must identify the maximum loss you can accept from a newly acquired customer, with the projection that you will recover those losses in future sales.
Broadly speaking, every sales dollar should be allocated to cover a few categories:
Cost of goods sold (COGS)—all costs related to your product or service.
Fulfillment—all operational costs required to deliver the product or service to your customer.
Overhead—salaries, rent, utilities and dozens of other items that must be accounted for somewhere.
Contribution to profit and marketing—the amount remaining after COGS, fulfillment and overhead are deducted from your sales dollar, which goes to: 1) Marketing—all cost related to promoting your product, and 2) Profit—what is left over after all cost obligations have been paid.
Contribution to marketing and profit is the portion of the sales dollar that every marketing professional is responsible for managing. COGS, fulfillment and overhead are for the most part fixed costs; the variable numbers are marketing and profit. If you require greater profit, it will come from a reduction of marketing costs. If you can accept less profit—or a loss—you can spend more on marketing.
For most marketers, profit comes from customers. A portion of that profit often is invested to acquire new customers for future growth. Because you may be losing money on the initial customer acquisition from prospecting, it is vital you define and understand your future break-even point.
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