For the past few weeks we’ve been talking about Lifetime Value of a client or customer.  Hopefully I’ve made my point.  If not, give me a call and we can discuss it in person because in this current economy, it is an absolutely critical metric to know and work hard to build.

Now, let’s talk Acquisition Cost.  Fancy marketing person lingo for how much you paid for a new client or customer.  You do “buy” new clients or customers.  You know that?  Right?  Hey, they don’t come free.  The closest you’ll ever get to a free new client or customer is a direct referral from a current client or customer who, before you meet, sells the prospect on your goods or service. All others come with a cost associated with them.

So, let’s make this easy to figure out. (I don’t know calculus, only arithmetic) Let’s say you do only networking to market your business, but you do it at Golden Referrals, North Fulton Chamber and Johns Creek Chamber.  Total membership cost for these 3 is $750 for a year.  From these 3 memberships you get 10 leads and of them 5 become paying customers / clients.  So, each lead cost you $75.  Each customer/client cost you $150.  Let’s say each bought from you once in the year and each paid you $300.  Did you make any money?  Well, we know your gross profit was $150 each, but what was your NET PROFIT?  What are your fixed expenses per client/customer?

Maybe they were profitable sales, maybe they weren’t, but you have to know your numbers in order to know if you’re making any money.  You see, you can sell a bagillioon of anything, but unless you are profitable on each sale, you aren’t going to be profitable at all.  The old K Mart philosophy of “I’ll make it up in volume” only works in very specific instances and, by the way, none of us are K Mart.

The key things here?  Know your Acquisition Cost and know your net profit margin.  From that you can tell if you’re going to make any money.  I mean, you do want to make money, right???