Question # 33: How much should a new customer cost me?
Most business owners have NO idea what it costs to acquire a single customer in their business.
My name is Diana Miret and I am an Executive Financial Coach and Fractional CFO.
Often, clients put together elaborate launch plans that include software, resources, paying for great copy and ads - not to mention sales pages. They have fancy funnels and drip campaigns. All of that can be profitable, but often, no one measures success down to the cash it took to land one customer compared to the lifetime proceeds from that customer.
Let me explain. Say you spend $4,000 to set up a launch campaign for software and people to help you. This would include any virtual assistants and copy writers. Don’t forget the automation guru that makes it all happen smoothly! In addition to the $4000, you spend another $5000 in Google, IG and Facebook ads. That’s $9000 in total.
Say you got 100 customers to buy the $297 course you are selling. You sold $29,700 and it cost you $9,000. That is 33% of what you made goes to the Cost To Acquire A Customer or CAC. The profit you made on that initial $297 dwindles over time.
Sounds like a deal? That depends. Keeping that course available for a long time has costs too. You continue to pay for software and someone to troubleshoot any issues with customers or process refunds. These things cost money too.
The problem is with the LifeTime Value of that customer - which is $297. Unless you have more you can sell these customers, then the profit is not enough. But if you can also sell some of those customers another $497 product, the life time value of the customer goes from $297 to $794. Most of that difference is without running more ads and using the same infrastructure. So the incremental costs is minimal and the profit percentage is higher.
A very general guideline is that your LTV should be 2.5 to 3 times your CAC. So, if a customer is worth $100 to you over their lifetime, it shouldn't cost you more than $40 (at a 2.5 times ratio) to acquire them.