Do You Know How Much You Are Paying For New Customers?
Editor’s Note: This article was originally published on July 4, 2014 and was updated on January 20, 2016.
The cost of new customer acquisition
If you have ever watched Dragon’s Den, you are familiar with what happens when an entrepreneur doesn’t know his numbers. If Kevin O’Leary catches someone ill-prepared, you know you’re about to watch some very entertaining television.
One of the questions he often asks entrepreneurs is what their customer acquisition cost is, that is, what is the average cost to the business for each new customer it gains. Typically this is something that retailers overlook and fail to consider when during business planning.
Customer acquisition can be expressed as a ratio, but I prefer to express it in hard dollars. To calculate your customer acquisition cost, you need to track data. This can be done by capturing demographic and transactional information at the till. Canadian Retail Solutions has multiple methods to help you track this kind of data with the POS systems we offer.
How to calculate new customer acquisition
The basic formula to calculate the cost of new customer acquisition is:
(Total campaign spend) / (New customers gained during the campaign time period)
Imagine I create a Facebook campaign that cost $2,000.00 and the goal was to attract new customers to my store.
Say when customers make a purchase at the store, the checkout clerk asks them if they’ve shopped at my store before and how they heard about the store. By adding these details to the Customer Management System in my POS system, I can calculate the amount of sales and new customers gained. So, if I gained 150 new customers who said they heard about us on Facebook, the cost of acquisition would be $13.33 per customer. Not bad!
Shawn Dillon is the Chief Technical Officer at CRS. He has been involved in hundreds of retail installations and has worked in the IT industry for over 20 years, with independent companies as well as government agencies.