The Forgotten Cost of Doing Business

I have lost count of the number of times I have heard "google has spent all my money".

The conversation quite often goes on to say..... "I thought I was having a really good month and now it has been spoilt because Google have just taken ("stolen") lots of money from my account."

However, this frustration is borne out of a lack of understanding on the reality of the cost of getting new customers......

So many businesses are not as successful as they could be as they simply don’t fully appreciate one of the most important costs in business =

The cost of getting and keeping customers or THE COST OF ACQUISITION

The "Cost of Acquisition" is another way of defining your spend / time / activity on getting new customers. And, once understood it will really make you think differently about how you can grow your business.

You see the initial comment about spending lots of money on Google would actually have a direct link with the fact that you have had a good month in terms of sales.

In very simple terms the more you spend on marketing (including adwords) the more leads you will get and the more business you stand to win.

Take away the spend on marketing that is generating leads and you take away the chance to win more work. Completely counter productive....!!

The reason that people run into problems is that they are not allowing for the cost of acquisition when they do each job.

For example if you are allowing a cost of acquisition of 15% then you need to take £15 off each sale of £100 to provide a fund for the acquisition of your next Customer.

In the early stages of business your COA will be high - after all you have no real presence, no customers to refer business to you and your website is probably not ranking very high - but over time this should reduce.

Therefore if you make an allowance for the COA on each and every job then you will always have a budget to fund your next month of marketing and sales will follow.

The problem is when you don't build the cost of acquisition into your price - worse still you start reducing your price to win work - and you cannot afford to do any marketing.....

I think you get the message - consider the Cost of Acquisition the same as you do parts and you won't go far wrong!!!

And on a final note when you understand the COA then there should be no complaints  about the payment of commission on jobs.

So ask yourself….

• Does my business need to attract new, and keep, current customers..?
• Do I want to grow my business through getting new customers and keeping current customers..?
• Getting more customers and keeping the ones I have would take away so much pressure and make me much happier..?

I would imagine that you answered YES to most or all of these questions…?

So if that is true why not invest more money (and time) into your marketing...?

Note

How do I calculate my COA…?

1. Look at how much you spend on Marketing over a period of time….
2. Look how many new orders / jobs you did over that period….
3. Simply divide the cost of marketing by the number of new orders / jobs in the same period

This will give you the overall COA however if you could break the figures down per type of marketing then you could calculate a COA for each type of marketing you do.