Tool Box

Issue No. 10 - April/May 2003

The Cost of Acquiring Customers

by Brad Sugars

We've all heard the statistics, 8 out of every 10 new businesses will fail in their first 5 years. Of those that survive, 4 out of 5 will then fail in the next 5 years.

So why does this happen?

One of the main reasons why many small businesses fail is that they get too many new customers. What's that I hear you say? You thought you were supposed to get new customers ... Well yes, you do want to get new customers, but only if they come back and buy from you at least 5 times. Let me explain what I mean ...

Each time you market to a new customer it costs you money. This is known as your acquisition cost. To calculate your acquisition cost, you need to workout the cost of your marketing, (i.e. the cost of your ad or commercial) and then divide that by the number of people who buy from you as a result of your marketing. Note that we're only interested in the how many people buy from you and not how many come into your store.

What many people don't realise is th...

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