What does a New Customer Cost?

by Jeremy Powers on July 6, 2010

A growing and stable business requires new customers.  You don’t want your company too dependent on any one customer, so even if your largest account is spending more, you need new business.  Many businesses fail to understand and control the cost of customer acquisition.

The largest customer acquisition cost for many businesses is time and focus.  Whether you have an account development team or not, chances are landing the new big fish requires time and focus throughout your organization.  The analysts crunch numbers on delivery costs.  The credit team performs a background check and determines thresholds.  The marketing and sales team research account needs and tailor messages.  Executives meet with executives.  While a good organization is able to balance the needs of existing customers with the necessity of growth, a really strong organization is able to prioritize the expansion efforts based on the value of the new account and the probability of success.

The second largest customer asquisition cost to an organization is the direct selling cost.  This includes the cost of mass marketing, communication materials development, and maintaining a credible brand foundation for your prospective customers.  A significant portion of my business comes from creating and maintaining these items, and I usually present these as an investment rather than a cost.  Poorly executed or planned, however, even the most basic of marketing materials cost you more than the value they provide.  This is part of the reason you need someone like me:  the cost of a marketing materials is nothing compared to the cost of ineffective materials.  (See, you knew I couldn’t let this paragraph stand without a re-framing and a small sales pitch, Contact Jeremy.)

The last cost you should consider before spending any time or money on customer acquisition is the cost of risk.  While the long-term risk of lack of growth is great, the short-term risk of poorly managed growth can be catastrophic.  To name a few, there are risks in customer service, cash flow, brand dilution, profit margin, information sharing, and talent management.  You should not fish for sharks with a Mickey Mouse pole; are you sure landing this business will not snap your organization in half?  Do not be cornered by fear, but take great care to measure the risks.

The stability, profitability, and viability of your business depend on growth.  Appropriately planned, executed, and measured, new accounts are the vitamins of your revenue diet.  If you have a related story or anecdote you think other readers could benefit from, please feel free to share it in the comments.

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