Episode A2.006 Customer Acquisition Costs, Life Time Value & Retention

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Introduction

Customer acquisition cost (CAC) is the cost related to acquiring a new customer. CAC refers to the resources and costs incurred to acquire an additional customer. It is the best approximation of the total cost of acquiring a new customer. 

It generally includes things like: advertising costs, the salary of your marketers, the costs of your salespeople, overhead, commissions, bonuses etc., divided by the number of customers acquired. 
Why is it important - It's a really useful number to help you calibrate your investment and make sure that you are making the right decisions for your growth and why does it matter –  If your customer acquisition cost is greater than your revenue for a long enough period of time, you'll can possibly go out of business.
Show Objectives

We are going to discuss the Customer Acquisition costs and the importance of calculating these costs, then what is the Life Time Value of the customer and finally will discuss strategies on Retention of customers.


Key Issues

1. Customer Acquisition Costs - Understand the importance of this
   
2. Life Time Value of Customer - Do you know these costs, as a Startup you may not have that much data but you still need to start putting this in your business plan from inception
   
3. Lastly how do you retain your customers, so they become your “Raving Fans”
   

What You Need to Do

1. Calculate your customer acquisition cost from the data you have now
   
2. Look at your business model
   
3. Create the ability to monetize your customers which is getting the LIfetime value of your customer
   
4. A few strategies
   
   1. Increase your sales cycle
      
   2. Attract more qualified leads
      
   3. Referrals
      
   4. Increase Team productivity
      

Learn how to Retain your Customers
According to research from Harvard Business School, increasing customer retention rates by only 5% increases a company's profits by 25-95%.
It is the emotional journey of the customer that should never be ignored - It is not just what you sell but how you make them feel.

Benefits of Keeping your Customers
More efficient, more effective more profitable
Morale Improves
Selling to existing satisfied customer is 60-70%
Lifetime value of a loyal customer can be 10 times greater than the first purchase.
They become Raving Fans
They can be your best Testimonials and Referrals


Shows
Previous: Episode A2.005 Funding

Next: Episode A2.007 5 Steps to Grow your Business & generate more money

Written by Raj Kapur

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