New Year, New Clients
The new year is upon us. Are you ready? It’s likely that one of your goals for the new year is to acquire new clients. Even if you’ve been in business for a while, client acquisition isn’t always easy. It can be time consuming and expensive. Here’s how to determine if you’re getting a good return.
Calculating Client Acquisition Cost
Your client acquisition cost (CAC) is the money your business spends in order to acquire a new client. This is an important business metric. Your CAC will be part of your marketing budget because that’s how you reach your target market. To properly fund this requirement, you must do some basic math to determine your CAC. Now, if you have exact numbers that you can plug into the following formula, that’s even better. Your CAC will be more accurate.
You need a given time frame. Let’s say 12 months. Take the total amount you spent over that time frame in marketing. Let’s say you spent $500 a month. So, $500 x 12 = $6,000 for the entire year. During the year, you acquired 20 new clients. To get your CAC, you would take the total you spent over the stated period of time and divide it by the number of new clients. In our example, that would be $6,000 / 20 = $300. This means you spend approximate $300 to acquire a new client.
Using our example, you may not feel that $300 per client is a bad investment. If you’re spending $500 a month, you’re acquiring a little more than one client a month. So, you get a new client and you make headway with another potential client. Some companies spend up to $100,000 to acquire a single new client.
Yet, for many businesses there is still another pressing question that must be answered related to CAC. Is the business getting a good return?
Evaluating the Return on Investment
Once you have your numbers, you can ascertain whether you’re getting a good return on investment (often abbreviated as ROI). If you’re ROI isn’t good, you should re-evaluate your plan for acquiring new clients. So, how do you know if your ROI is good? The clients you are acquiring are spending enough money with you that you’re turning a profit.
Using our example, we’re spending $500 each month for marketing. We know from the math that we acquire a client for $300. You’ll notice that there would be $200 out of the $500 that is essentially used to continue marketing for new clients. That’s a good sign.
Let’s say that the new client spends $1,000 a month on our services under a contract. Over the course of the year, they would spend $12,000. That’s not bad considering the money spent to acquire the client was only $300. Of course, you would also need to adjust for any additional equipment, fees, or other services they need from you, but the idea is still the same.
Let’s look at another scenario. Let’s say it costs you $1,000 to acquire a new client. To break even over the course of the next year, you would need the client to purchase at least $1,000 of services from you. To turn a profit, you would need to make more than $1,000 from the client. If the client only spends $500 with your business over the year, your ROI isn’t good. It’s almost like losing $500. You would want to re-evaluate what your CAC, your services, and your relationship with the client to find a way to improve the ROI.
Improving Your ROI
Of course, you have the option of redesigning your entire marketing plan and ensuring that you’re getting the most bang for your buck when it comes to reaching your target market. Here are some other considerations that can drastically improve your ROI:
- Re-evaluate your services. Are you sure that you’re offering everything that your target market needs in your industry? Do your services really solve problems for your clients? What can you do to be more valuable to the clients?
- Improve your customer service. Clients spend money with businesses not just because they need the service, but also because the business makes them feel special in some way. They get great customer service. Their questions are answered. It’s convenient to pay their invoices. Follow-up is performed by the business to ensure client satisfaction. If you want to improve your ROI, improve your customer service.
- Offer specials for current clients. Businesses offer a lot of incentives to convince people or other businesses to try out their services. Business owners tend to forget that current clients are the biggest source of their income. Providing incentives, even if it is just once a year, can mean more money from your current clients. It is much easier and less expensive to continue to profit from your current clients than it is to acquire a new client.
Ring in the New Year with Better Client Care
At Clients ARM we understand the importance of excellence in client care. With more than 30 years of experience, we are the premier solution for outsourced customer service and client intake. Clients ARM is based in the United States. Using our services is cost-effective for businesses. It costs around 40% less to use Clients ARM for business services than it is to hire a traditional employee. You get experience and professionalism. Your clients get a seamless customer service experience that builds their loyalty to your company. To learn just how easy it is to get started with Clients ARM, contact us today. The consultation is free, convenient, and there is absolutely no obligation.