Do You Know Your Customer Acquisition Cost?

This blog post is going to be a little more tactical than usual and should give you some useful information that you can use when thinking about how to grow your customer base.

I was thinking about some of the changes recently in how Udemy do their pricing. As I’ve mentioned in the past, I have some courses up on Udemy and do pretty well with them from a financial perspective considering the effort I put in.

To fill you in, Udemy changed their top end price from $300 to a maximum of $50. They’ve also instituted a low-end price of $20 and a maximum discount of 50%.

These changes met with mixed reviews from many in the instructor community, but personally, I think it was a wise move.

This email isn’t about Udemy or their pricing policies because that’s neither here nor there to me. What is interesting is some of the feedback from people who were “outraged” that they couldn’t charge $300 for their course on underwater basket weaving any longer.

I engaged in discussions with a few of these folks and for the most part, their logic and sense of reason had totally abandoned them. Not all of them, but many.

Understanding Customer Acquisition Cost

My point was quite simple if you think someone will buy your product for $300 and your net cost of distribution is virtually zero (as is the case with digital information products) then to make a near 50% margin you can spend $150 on buying your customers.

That’s a fair chunk of change with which to acquire a customer.  More importantly, if you can’t spend that much to buy a customer than really, your product just isn’t worth that price.

That argument didn’t really go over very well with this crowd. This honestly didn’t really surprise me because those people aren’t really business owners.  Anyone with a direct response marketing background would immediately understand the point I’m making and start talking about finding the right audience or tweaking their offer to lower their customer acquisition cost.

Earlier this evening I was reading about Juicebox Games closing their doors. Their CEO penned a letter outlining why their company failed and he made a number of salient points.  The key point though was around their customer acquisition strategy.  If they had been able to more cheaply acquire customers, they would have been successful with their second game because the other metrics were promising – they just couldn’t buy enough customers at the right price.

This is something I’m starting to think about now myself with Casual Marketer.  I’m going to be closing the Foundation Membership program at the end of April 2016 and increasing the price.  Once that happens I will then start focusing on growing my subscriber base and acquiring more customers.

There are a few things you need to think about before you embark on something like this.

What Are Your Customers Worth?

First of all, you need to understand what your average customer is worth to you and how much it actually costs to deliver the product or service you’re offering.

This is slightly more complicated than you might think.  I am shipping a physical newsletter every month so there’s a cost to that. Then because the newsletter is fairly new, I don’t really have great churn rate information, so I’m having to guestimate a bit to establish my average customer subscription length.

Once you have the average customer subscription length in months and you know your costs per month, then you can work out your lifetime customer value from a net profit position.  At this stage, you’ll easily be able to establish how much you can spend to acquire each customer on average.

How Will You Reach Your Target Customers?

Secondly, what media and modalities are you going to use to acquire your customers becomes an important thing to consider.  Many people get pretty lazy at this point and say, “Oh, I’m going to do content marketing because it’s free.”

If that’s you, stop right now.  There is no such thing as free traffic, it always has a cost.  Maybe it’s your time in creating it or promoting it, but if you think you can just “write epic content” and Google will sort you out with tons of buyers at no cost, you’re living in a fantasy.

Hope is not a strategy.  Get your head around the idea right now that in some way, shape or form you’re going to pay to acquire your customers and I assure you, you’ll be so much better off!

The Beauty Of Recurring Revenue

Finally, think about how you can build a recurring revenue model and how you can reduce churn.  Paying to buy a customer for a “one and done” sale is fine, but it requires you to have a very steady stream of fresh leads.  Buying a customer once and having them pay you every month is a much better model.

If you can swing that recurring model, then the key is reducing churn.  You have to work hard to keep the customers you have.

So many people screw this up, they spend 80% of their time trying to find new customers and ignore the ones they already have who then leave.  They end up on this treadmill that starts going faster and faster making it harder to keep up.

With what I’m doing with Casual Marketer, my Foundation Members are typically my best and most loyal customers.  Acquiring them has taken years of relationship building and me providing them value over that time.

The next generation of customers are going to require more lead generation and better conversion funnels.  At the same time, I’m already focusing on providing increasing value to my existing members.

As an example, I’ve mentioned a few times in previous emails that over the next month or so I’ll be working on putting together a membership site for subscribers to the Casual Marketer Monthly Newsletter.  That membership site will have training courses, cheat sheets and recordings of webinars that I’ll be offering starting in the second half of the year.

That’s the idea to keep people engaged, but the other stream of effort which brings us back to the theme of this email is that I need to focus on acquiring new customers.  I’m looking at a bunch of ideas in this area.

Different Ways Of Reaching Customers

I’ll certainly be working on a paid traffic strategy.  If you can go to Facebook or Google, pay for ads and acquire customers profitably, then you are onto a winner. This is pretty hard to get right so I’m going to need to spend time playing with it to get it dialled in.

Content marketing will obviously continue to be a thing that I focus on.  These daily emails are a form of content marketing and they have spin-off benefits like becoming blog posts.  I’m going to look to leverage my content even more to broaden my reach and acquire more customers with this channel.

I’m also going to look at an affiliate program.  I’ve had a few people who I know approach me about promoting Casual Marketer to their email lists and their audience.  This is a great customer acquisition strategy if you can do it well because your cost to acquire a customer is fixed and only payable on success. You just have to do the work to make sure the numbers stack up.

Overall, you need to get to grips with the idea that there’s a cost to acquiring a customer and that to scale up whatever you’re doing, you need to be willing to buy new customers.  As I’ve highlighted, the key is understanding your customer data and making sure you’re investing in the right channels and acquisition strategies for developing a long a long-term revenue model.


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