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How Much Money Does Getting a Customer Cost Your Business?

If you’ve ever found yourself complaining about advertising costs then what I’m about to show you will help you work out if you should be complaining or not.

The way I look at marketing is that it’s all about buying customers.

With this mind-set about marketing, marketing becomes a logical formula…

Amount of Marketing = Amount of Customers

However, to get this formula right you need to understand what kind of marketing is bringing in what kind of business.

Do you know how much it costs to make a person call your business or walk in the front door? If you do then you have no need to read on. If you don’t know then I’ll show you my way of finding out.

Tracking

Tracking incoming new business is one of the most effective ways to manage your marketing budget and to reach sales goals week-to-week, month-to-month, or year-to-year.

The process is simple – train your staff to ask new clients how they heard about your business, and secondly, add the question “How did you hear about us?” to all your contact forms online as well as to all of your business paperwork on site.

To make this work you will need to be dedicated. Casual workers and young workers may be tempted to not get on board at first so you need to make sure it’s getting done. To check it’s being done you can add this new task to a checklist of duties for your reception staff (if you have a checklist that is). Then you can check this is being done at the end of the day.

The Logistics

At reception, near the phone, keep a very simple sheet of paper (I find using a sheet of paper is better than using a computer for this kind of tracking because it’s quicker to write than to type for most people).

The sheet should have a table that looks something like this.

Train your staff to ask the question of the customer “Would you mind if I ask how you heard about us?” or some variation of that phrase.

I’m tempted to give you detailed instructions on when in a conversation this question should be asked but I won’t. That’s because your business is idiosyncratic and so are your staff. What matters is that the question gets asked, answered, and then the answer is recorded for EVERY new phone call or walk-in customer.

If you have two receptionists and have a busy front desk I recommend two separate lists – one for each telephone or receptionist – so they don’t have to share the paper during the day. If it’s not a busy desk this may not be necessary. Leave it to them to work out what will work most efficiently.

When the sheet is full have them put the sheet into a designated folder which is kept at reception. You’ll need to know where this folder is so you can check it’s done and grab the data when you are ready to analyze it.

Logistics involved optimizing everything from your initial shipping to your last-mile delivery. Small steps and improvements in the different areas can help you create a profitable arrangement for your business. Make sure that you are opting for breakbulk services and logistics in case you are shipping bulky loads or goods.

Getting into the Habit

Something that will help your staff to get into the habit of adding this task to their day-to-day work is explain to your staff why you want them to do it. They will be more likely to co-operate if you tell them your reason why. Don’t give them a 10 minute speech about your reasons though, simply explain to them that you are trying to analyze your marketing and that this is now a part of their job requirement.

For the first few days ask your staff how the new procedure is going and ask them for their honest feedback about the system. Do they need to make changes to the recording system? Or tips on how to ask the question more effectively? Or need to make a sign on the back of the desk reminding them to do it? Brainstorm solutions with them if they are having trouble remembering to ask customers.

Analysis

Here’s an example of how to use rough data for analysis of marketing.

Rough Data Collected by Staff or Yourself

Google:

Say, on 2 Feb you were running Google AdWords Pay-Per-Click and you spent $30 that day.

Look at the results and see how many heard about you on Google – 3

So, each customer cost you $10

‘Designer’ Magazine:

Say that ad in ‘Designer’ magazine cost you $400.

You got 1 customer on 2 Feb

Because this is an ad in a magazine you will need more data than one day to work out the value of this advertising, but, if you only get 1 customer from a $400 ad, that customer cost you $400.

A Friend:

This customer obviously didn’t cost you anything at all.

These kinds of customers can help balance out more expensive customers.

Summary of 2 Feb

Say the shop earned $800 that day from new business.

The cost to get the new business was $440

Your marketing profit is $360 and each new customer then cost you $88 total.

Obviously these figures may be inaccurate if the magazine ad brings in more than one customer over time. But I hope you can get the idea of how you can analyze the data.

Expensive Customers

If you ran advertising that was expensive and only a few customers walked in the door because of it don’t hastily stop the ad. Try to isolate how much those customers spent on your products or services.

What can happen is, an expensive ad can be seen by a demographic that have money to spend if you target the ad right, so, remember to look into that before killing the ad.

The other thing about expensive customers is that if you add up the total new customers and the total marketing expenses, the cheap or free customers often balance out the expensive ones.

Sometimes You Will Lose Money The First Time You Get a Customer

When you spend a lot of money on advertising and don’t profit from the advertising campaign that’s when you need to realize that you have bought this customer.

This means that the first time they walk in the door or visit your website and buy something it needs to be your priority to do all you can to impress them and keep them coming back to your shop. This way, their second, tenth, hundredth purchase is all profitable. You see how that works?

This is frequently called looking at the lifetime value of a customer. If you’ve never looked at customers this way take some time to think of all the things the customer could buy from your business after their initial purchase and add up that total. Then add to that referral sales  (if they like your business they will probably recommend you to other people).

For instance, say you’re a hairdressing salon and your advertising campaign cost you $100 and only 1 person came and bought something from you. Ask yourself, what else could this person buy in the future from us?

First visit – a haircut $40

Second visit – a haircut and a hair styling product $80

Subsequent visits – a haircut and a product – $80 each time

One time per year they buy 1 gift voucher – $100

Let’s say this customer bought something 6 times  in one year and spent all the money suggested above – the math would look like this:

Obviously this is an ideal example but it gives you an idea how spending $100 you can get all that business from the customer and the people they refer for years into the future. That’s how you can look at the lifetime value of a customer and therefore can justify loosing money or breaking even the first time a customer shops at your business.

Further Analysis Potential

As your data bank grows you can start to get deeper analysis happening.

For instance, if in one month the ad in ‘Designer’ magazine brought 10 new customers what you can do the next month is make some modifications to the Ad design and see if  it gets a better response than 10 people next time.

So you can see that without the data you couldn’t do this kind of testing to try to improve your ROI.

Dealing with Staff Issues with Tracking

Be aware, many of your staff will lie to you. That’s a fact I’m sorry to say. So when you start tracking your incoming business and someone on staff forgot to ask the question “How did you hear about us” or forgot fill in the new tracking sheet, they may not tell you. Instead they may tell you “there were no new enquiries today” which may be a lie. Or worse, they’ll make up the tracking results so you think they’ve remembered to do it.

The reason staff lie is for several reasons, ranging from: they don’t like you; they want you to trust them to do what you asked; they are afraid of being sacked for making a mistake; they are afraid of you in general; they feel like they failed their job by forgetting and they are too proud to admit they forgot; they lost something related to the task; they don’t think you’ll say anything to them if they don’t do it (in other words, you let them get away with it). These are the main reasons in my experience as both an employee and a manager.

So, it goes without saying that it’s important to create an environment where your staff feel comfortable telling you the truth (and respect you enough to tell you).

This is easier said than done. Just do the best you can to ensure that staff know they won’t be punished for forgetting to ask the question but at the same time remind them that you want them to do it every day and will be checking because you need the data.

Of course, be nice to them because after all, the way they answer the phone and greet customers will depend on how happy they are to be at work.

Will it work?

The success of tracking is going to be up to you. That’s because if you don’t value the process you can bet your staff won’t value it and the new tracking sheet will become another piece of paper shoved into draws of the reception desk never to be seen again until years later.

This technique doesn’t work if you don’t use it. It’s understandable that sometimes your staff will forget to ask the question. But, if you put a priority on tracking being a part of their job requirement, meaning, they don’t have a choice not to do it, you’ll find that over time your staff will do it like second nature.

You too need to make it a part of your own job requirement to analyze these results on a regular basis if you want to make the most of the data and your staff’s efforts.

So, if you decide to start tracking your marketing make sure you have systems in place from the very start. Then make sure you use the data and are committed to this new system in your business.

The data you collect will help you to plan future budgeting as well as help you find out if some form of marketing isn’t bringing you any business and therefore is wasting your money.

Keeping Customers

Always remember that it’s cheaper to keep an existing customer than get new ones. Remember this.

Customers become loyal if you treat them well so acknowledge them, listen to them, and thank them. It’s not rocket science.

A great way to create loyalty, increase sales, and get free advertising is by using Rewards Cards. Click here to read about Reward Cards and how they help retain customers

Marco Polo
Marco Polo is the admin of sparebusiness.com. He is dedicated to provide informative news about all kind of business, finance, technology, digital marketing, real estate etc.
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