Customer Acquisition Cost: Is Your Business Off Balance?

Picture this: You are a start-up and have an amazing idea that is going to disrupt the way the world currently works. Maybe you are a small business, or just looking to make a quick buck. Maybe you’re a seasoned entrepreneur, a businessman or woman who worked in an industry for a decade, a developer, or maybe you are just getting out of college and looking to tackle start-up life. You assemble a great team and find the best market to create a product/market balance and then you execute on your business model.

A few months pass and you have some traction but not an extravagant amount. Your funding is running out, and you are eating ramen noodles for every meal and working a few side jobs to make ends meet. You are probably wondering what happened or maybe discovering that something feels wrong. You might ask yourself if you’re on a sinking ship. You start looking for ways to increase you conversions through marketing. “Should I create a Facebook Page? Twitter? Maybe a Linkedin Profile? Should I start cold calling, sign up for conventions, or network a crazy amount to find referrals?”

No matter what path you take, you might already have a case of the Silent Killer: Customer Acquisition Cost (CAC). David Skok explains CAC as the “second biggest cause of startup failure” preceded only by product/market fit. If you are a CMO, or an agency you should be tracking CAC for you and your clients if you want to stay afloat.

EmailCAC

Why?

If you are looking for what metrics to track in a campaign, don’t fool yourself into thinking that vanity metrics—such as number of likes, follows, retweets, and favorites—are the most important thing. The truth is they don’t have a great correlation with what everyone wants: a great ROI. When you focus on CAC as your main metric for marketing, it can mean a world of difference in measuring impact on your customer segments. Why? Because it gives you a holistic view of your marketing efforts in terms of cost, impact, and conversions. It dictates and forces you to think about things such as:

*Am I optimizing my sales/marketing models to meet the needs of my customer?
*Cost per lead
*Conversion rates at each stage of your sales process
*Lowest level of touch needed

CAC is the cost of your efforts in Sales and Marketing. As human touch increases, usually so will your CAC. You don’t have to be a rocket scientist to understand that if your CAC is larger than the LTV (Lifetime value of customer) you are probably sinking.

How?

The next step is to ask yourself “How do I figure out my CAC?” The way that HubSpot suggests to calculate CAC is quite simple:

Total Sales and Marketing Cost
Number of New Customers

These costs are, but not limited to, advertising, salary/commissions/bonuses, and overhead. You might be shocked at how high your current CAC is, but that is fine because you can begin to rebuild your process to lower it. Remember that “fear makes you focus.”

What?

After doing the calculation, analyze your results, don’t ignore that number despite the thoughts that you are having (ex: “This can’t be right”). CAC is meant to be more of a “ballpark“ figure, and may vary depending on your business model. If your CAC is not lower than your LTV, here are a few tips to getting back on track:

Revisit your sales/marketing model

The crux of the matter is that you are probably not optimizing your business in sales/marketing funnels well enough. Map out the processes that your customer segments go through to purchase (or not purchase) your services/products. This means going out there and conducting interviews. “GET OUT OF THE BUILDING”

Implement some Inbound Marketing

Some of your pain points probably exist because you aren’t taking advantage of tools to increase you online presence. Establish your brand through a blog, social channels, and optimize your website to gather leads. Yes, it takes time and money to do this, but the pain and effort you put in now will create better growth for the future.

Measure

Keep track of both how and how many leads you generate , and obviously track how your new strategy is impacting your CAC.

The most important takeaway: DON’T IGNORE YOUR CAC. Hopefully through reading this post, the process of analyzing your decisions in sales/marketing will become a habit which will lead you to research better marketing practices. Now go out and build, build, build!

SoMe will be at the16th Annual Food & Beverages Show!

SoMe’s very own, Aalap Shah, will be moderating and speaking on several panels at the 16th annual Food & Beverages Show in Miami next week.

Seminar topics cover best practices for social media marketing and increasing profits and sales with effective marketing strategies. In addition, Aalap will be speaking and leading discussion on leveraging the hottest trends in the hospitality industry and parlaying that into online marketing strategies to drive traffic to restaurants.

This is an exciting opportunity for SoMe to showcase it’s work in the hospitality industry and talk to rockstar chefs and entrepreneurs on the panels and bring those ideas back to our clients in Chicago.

Aalap will live tweet key takeways from the panels on Monday @some_connect.

Official Press Release from the Food & Beverages Show below:

Miami’s Top Chefs Headline Americas Food and Beverage Show Sept. 24-25

MIAMI (Sept. 14, 2012) – Miami’s top chefs and restaurateurs will showcase their best dishes and keys to business success at the 2012 Americas Food and Beverage Show and Conference (www.americasfoodandbeverage2012.com) Sept. 24 – 25.

The World Trade Center Miami-sponsored-show at the Miami Beach Convention Center will feature the likes of Mitchell Gomilla, owner, Red Koi Lounge, and John Kunkel, owner of Swine and Yardbird, as well as chefs Rachel Dominguez, The Dome Restaurant; Giorgio Rapicavoli, The Eating House Pop-up Restaurant (winner “Chopped” on Food Network); and Jimmy Carey of Jimmy Z’s.

“We really didn’t have to look very far for restaurant success stories,” said Charlotte Gallogly, president of World Trade Center Miami, based at the Port of Miami. “Some of the world’s best chefs and restaurateurs are here and they’re as innovative in business as they are in the kitchen.”

The America’s Food and Beverage Show will feature seminars for those in the restaurant business. Jimmy Carey, the chef behind Jimmy Z’s, an eatery with locations on Miami Beach and the Wynwood art district, will share his proven strategies for turning Internet visitors into paying customers.
“We’re all about social media and creating a community online in an effort to build our clientele. We’ve been able to convert our online audience into loyal customers,” said Carey, who, with the help of his staff, manages three Facebook pages, and accounts on Pinterest, Yelp, Twitter and Instagram.
Restaurant Seminars – Sept. 24

– Top 10 Trend-Setting Ways to Market Your Restaurant
– Latest In-Vogue Restaurant Trends That Work!
– Attracting The Right Customers and Making Them Your Promotional Tools
– Top Winning Tips for Turning Your Menus Into Sales and Profit Magnets

“We’re going to show you what you need to know and get you through the process to start importing to the U.S. and to extend your brand overseas,” Gallogly said. “The show has been highly successful in getting businesses to take that next step and get into other markets.”

The 16th Americas Food and Beverage Show and Conference will feature more than 400 food producers from 27 countries and top chef food demonstrations. The show is the largest specialty food trade event in the hemisphere, generating a total of $4.5 billion in recorded sales and helping some 125,000 businesses expand into new markets in 16 years.

2012 Americas Food and Beverage Show Numbers to Date
425 booths
372 exhibitors
10,000+ buyers or small business representatives (A country breakdown is not available yet.)

The Americas Food and Beverage is a trade-only event that is closed to the general public. Attendee registration and media is open at www.americasfoodandbeverage.com.