How to Lower Customer Acquisition Cost and Improve Conversions

What’s your customer acquisition cost? I’ve been accused of being a bit of a maniac when it comes to lead tracking and making sure that we know where everything is coming from. I was a bit of a tyrant about that in previous businesses that I had, because you have to know what’s producing and what’s not. Otherwise, you can waste enormous amounts of money.

David: Hi and welcome to the podcast. In today’s episode, cohost Jay McFarland and I will be discussing what it costs to get a new customer. Welcome, Jay.

Jay: Hey, it’s so good to be here, David. And customer acquisition cost is a very important metric that all companies need to know. It’s almost as though it’s part of your cost of goods sold.

And if you don’t know this answer, you may think you’re making money and you might not be.

David: Yeah. It’s really funny when I ask audiences that question, if I’m in front of a group and I say, “What does it cost you to acquire a new customer?” I get some blank looks, I get some smiles, some nervous laughter, some looking around.

It’s generally a very small percentage of any given audience that actually knows their customer acquisition cost. And I think it’s interesting because if you don’t know this, or if you don’t even have an idea of what that cost might be, then you really have no idea not just what you’re putting out, what you’re getting from it, but you really have no idea how to continue to build from there.

And I think to the extent that I do get answers when I ask the question, a lot of it is just generalities. It’s like, “well, I spend a lot, Oh, it’s a lot, it costs a lot.” But what is it? And some people are like, “Well, I don’t spend anything because I get referrals.” And whenever someone tells me that, that tells me that they’re probably doing 10 to 25% of the business they could be doing.

Because if they’re getting a lot of referrals, that’s awesome. But if they’re just relying on referrals alone, there’s a lot that they’re leaving on the table.

What is Your Customer Acquisition Cost?

Jay: Yeah, I think that’s a great point. If you don’t know what your customer acquisition cost is, you can’t impact it.

And it should be a goal to try and drive it down if you can. And if you can’t, work it into your sales costs, work it into your systems so that you can make sure that you’re profitable.

David: Yeah. I think something else that people often don’t think of, particularly small businesses, they may go to Chamber of Commerce functions, they may do different things, go to different networking events and that sort of thing.

And they don’t really think of that as a customer acquisition cost. Because they don’t value their time enough in a lot of cases. And so even if you’re not putting out actual cash in the form of advertising, marketing, things to get you noticed like that, there are acquisition costs.

It’s going to cost you a certain amount of time out of your day. It’s going to cost you in terms of energy. It’s going to cost you in terms of effort. It’s going to cost you in terms of what could I be doing instead of what I’m doing now that could potentially produce a higher return? So there are a lot of different aspects to this and that’s why I thought it would be a good conversation to have.

Jay: Yeah, I do agree with that. And you’re mentioning all the different types of custom