Posted 21 Aug 2019, Editor's Desk
Many businesses fail because they spend too much on acquiring a client without calculating the cost.
This impacts their margins and profits that hit the company despite the best strategy.
So, it is important to understand and calculate customer acquisition costs.
What is COCA?
The full form of COCA is the Cost of Customer Acquisition. It is the customer acquisition cost, which means the cost of convincing a potential customer to buy/use a product or service.
In simple terms, the company incurs a lot of expenses on marketing & advertising its product to reach out to the potential buyer along with the salary of its employees. The total amount spent in this process is called the Cost of Customer Acquisition (COCA).
Once COCA is calculated, we can arrive at the actual Average Cost per Customer.
Let us take an example to understand how to calculate customer acquisition cost.
A businessman spends Rs 1 crore on ‘Marketing + Advertising + Sales’ and acquires 100 new customers.
Now, Cost of Customer Acquisition or COCA can be calculated as:
COCA = (Sales and Marketing Expenses)/New Customers Acquired
COCA = Rs 1 crore/100
= Rs 1 lakh
That is, Rs 1 lakh is spent by the businessman to acquire one additional customer, which is the customer acquisition cost.
Now, your next step is to analyze whether you can afford 1 lakh rupees to add one more new customer or the Cost of Customer Acquisition.
If you have a business of repeat sales i.e. recurring revenue model business, then a new customer can give you good business in the next 5 years.
If a customer is buying only once and cost to add a new customer is more than what you get by selling your product, in that case, it is not a good idea to invest so much in acquiring a new customer/client.
Business Loss = COCA > Business Expenses
COCA < Expected COCA, here you consider your friends, family & relatives as your customers and once they go away, you find yourself in a tough situation. So, it is important to make some budget for bearing cost of customer acquisition without plunging into the negative margin.
It is important to understand the long-term relational value while acquiring a new customer.
You need to identify those behaviors that are indicative of a loyal customer. And then you need to hold your customers for repeat business.
Retention marketing is a new battleground in the business, where tracking is compulsory.