Social networking, social media marketing, blogging…if you speak to marketers today, these are the words you’ll hear most often when asking about customer acquisition plans.

There’s certainly a growing focus on the importance of social media in customer acquisition, but at what cost? Do you know your customer acquisition costs? You know, the amount of capital invested to actually acquire a new paying customer for your business?

Building online communities to establish and nurture customer relationships continues to be popular fodder for marketers. Identifying and encouraging influencers and advocates to share your brand message across social channels is also an important sales tactic, according to this year’s Sensei/ArCompany survey.  68% of marketers from around the world reported that they viewed influence marketing as a key lead generation and customer acquisition strategy in 2013.

Blogging has been an equally popular topic among business marketers as a prospect and customer outreach strategy. Social Media Examiner conducted its own survey of marketers in North America, the United Kingdom and Australia, and reported the results in its 2013 Social Media Marketing Industry Report: How Marketers Are Using Social Media to Grow Their Business.

In the report, marketers indicated they wanted to learn most about blogging, displacing Google+ (the 2012 report’s leader). While 58% of marketers are blogging, 62% want to learn more about it and 66% plan on increasing blogging activities in 2013.

You Can’t Manage What You Can’t Measure

While much attention has been focused on social media tactics and channels as a lead generation strategy, industries from mobile gaming to oil production are reporting concern over the increasing costs of customer acquisition.

Yet, few marketers are actively attempting to hold these new social channels accountable to traditional business benchmarks. Is this because we cannot measure the soft-science of social interaction or that no one has figured it out yet?

Author Lon Safko, in his book The Fusion Marketing Bible, provides an excellent model for analyzing a business’s marketing efforts with a focus on measuring acquisition costs.  Safko’s methodology uncovers the most effective elements of a business’s traditional marketing efforts and combines them with social media and digital marketing to reach more customers than ever, while spending less money.

For me personally, what stood out most is the suggestion that the cost of customer acquisition be reviewed at least twice per year, a sentiment or practice we don’t see often.

I’d go one step farther and recommend that customer acquisition benchmarks be established in the base analytics of each campaign and referenced back to established goals when reporting the results of each.

Too few businesses measure or benchmark their ongoing costs of customer acquisition let alone establish a budget for it, yet this is a key performance indicator for businesses.

The consulting firm Capgemini continues to stress the competitive advantage of lower customer acquisition costs and its relationship to business success in both emerging and established businesses.  Further, knowing where your business’s acquisition costs stack up against industry standards is equally critical.

Simple Customer Acquisition Cost Calculation 

Determining your customer acquisition cost can be quite simple. It all boils down to following these steps:

1. Track your marketing expenses for every marketing channel you use to drive in leads and customers.
2. For each marketing channel, track the number of customers you acquire in the same period for which you tracked the expense.
3. Divide your expenses per marketing channel by the number of acquired customers from the same source.

Of course, there are other elements that can factor in such as the cost of advocacy or loyalty for clients that were referred or those whose decision was based on the social proof generated by that advocacy.

Similarly, customer life time value can be a simple calculation until you factor in the value of advocacy created by loyal customers.  I’ll hold off this particular exploration for another post where we can dive a bit deeper. In the meantime there are some basic calculations that should be front and center in every marketer’s mind.

The Purpose of a Business

Business is really just about trading some form of value for money. Based on this definition, acquiring customers is a key pillar in the foundation of a growing business.

Yes, there are many ways to acquire customers today, such as building online relationships with customers, corporate blogging, etc. that do not provide the clean-cut measurement that can be demonstrated from traditional sales tactics like direct mail, for example.

Does that make those efforts less valuable to the business? Well, that’s the subject of another article but suffice it to say that whichever strategy you choose to deploy, understanding the comparative costs of customer acquisition across both digital and  traditional media is a must.

Customer acquisition is critical to any for-profit business and the efficiency or cost of acquisition is a key success metric, so it behoves marketers to understand what these costs are, how they are measured, and where they stack up against competitors in their industry.  Below are a few business analytics concepts that every marketer – including social media marketers – must be familiar with.

1. Customer Lifetime Value – This is the amount of revenue that you expect to earn for a single customer over the life of your business. Businesses can increase this number by offering back end product offers and subscription plans for their services.
2. Monthly Recurring Revenue – This is how much money your customer is billed every month. For example, the MRR of a Netflix account is $7.99.
3. Conversion Rate: The percentage of people who enter your marking funnel that actually become paying customers. Usually only 1-2%.
4. Cost Per Click: The amount of money you need to spend to get people to the top of your marketing funnel, or in other words to make people aware of your business. Often businesses use services like AdWords to drive CPC traffic.

How familiar are you with these terms and definitions? Can you quickly report the numbers for your business’s social media efforts?

Sensei Debates

–  Has social media engagement derailed the marketer’s focus on customer acquisition costs?
–  Can customer acquisition costs be measured at all in social media marketing?
–  Should social media marketing even be held accountable to such metrics?

Share your thoughts, pro or con, in the comments below.

Sam Fiorella
Feed Your Community, Not Your Ego