Calculating the Cost of Securing a New Customer

Published: 12th March 2009
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What is the cost of gaining a new customer? Most small business owners can't answer that question. They may keep track of what they spend on advertising, but they never actually take the time to figure out what a new customer actually costs and how much they can afford to spend to gain a new customer. Not knowing what it costs and what they can really afford to pay to gain a new customer is one of the biggest reasons that most small businesses fail. While they think they are doing everything right by advertising and promoting their business, they don't break it down to a cost per new customer. Without knowing this key performance matrix, they could actually be losing money on each new customer they gain.

The problem with traditional forms of advertising- mailings, newpaper ads, television, or even radio, is that it is hard to tell whether new customers are actually coming from the advertisement you are paying for, or from another source. Without some method of tracking who is coming to your business as a result of your ad(s), how do you really know if your ad is working? Let's say you spend $400 on an ad in your local community flyer. If only 4 people come in as a result of that ad, it just cost you $100 per person. If the same ad generates 40 people, than your cost per person just dropped to $10 per person. While this is a very basic example, you can see why it is important to track where your sales or leads are coming from. With traditional print advertising, the easiest way to be able to track this is by offering a coupon or an incentive to identify that they found your ad. By tracking the sales from each ad, you may find out that by changing some of the sales copy, you can actually double the number of new customers you get from your ad.

I know what you are saying.... as a small business owner, I don't have time to track each and every customer manually to see where they are coming from. This is why online advertising is so important. While it may be difficult to get completely accurate numbers from traditional advertising, internet advertising can be very precise. There are a wide range of software programs that can provided detailed tracking results so that you know exactly where each and every customer is coming from. This is why internet marketing is so powerful. For that same $400 you spent on the local flyer, you may be able to generate 100 people by fine tuning your ads and focusing on the sales copy that is producing results.

There are also a lot of free methods of advertising on the internet, which if used effectively, can double or even triple the number of new customers you are generating. So before you spend any money on your next marketing campaign, take a step back and figure how exactly how much you can afford to pay for each and every new customer. By know what you can spend, and tracking how much it is costing you per new customer, you will be able to focus your efforts and even add profit to each sale.

Mike Geary and Gary Nealon are internet marketing experts that have co-authored a small business marketing program to help small business owners double or even triple their revenue without having to spend thousands of dollars on advertising. The program is designed using the same web marketing techniques that Mike and Gary used to build their multi-million dollar businesses.

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