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Finance Learning Lab – Micro Course on Small Business Bookkeeping and Finance (Part 5 of 10)

So let’s talk customer acquisition cost. It is probably one of the most important financial metrics of your business and chances are, if you’re like most business owners, it’s one that you’re not actually measuring. So if you’re anything like me, whenever I started into entrepreneurship, I just thought you know what you build a website, customers will automatically come. Well it didn’t take too long to realize that customer acquisition cost, whether that is in your time and effort and energy, or whether that’s in dollars out the door in marketing and sales spend, acquiring a customer is one of the most costly activities that you’re gonna engage in in your entire business. So why is it that so many business owners spend so much of their time and effort thinking about getting leads and converting to sales, yet no one is actually measuring it? So you really need to be measuring your customer acquisition cost.

One of the challenges is that a lot of times, a business owner will decide if their sales are down or their sales are lagging, what they’ll do is they’ll say, “Hey you know what? We’re going to hire a digital marketing firm to help us with this”. And sometimes that’s the absolute right solution. But sometimes you actually need the help of someone that can come in and can look at the entire business operation that you have in place and look at the entire resources or expenses available to you. They can say, “Look if you’re hiring someone that’s going to run Facebook ads, did you realize it would actually cost you a fraction to do xyz instead?” But if you’re only talking to the Facebook Ads person and you’re on the Facebook ads platform, they’re going to continuously tell you do more Facebook ads. Exact same idea if you go when you talk to a branding expert. The branding expert is going to sell you on branding. Branding is what you need that’s going to increase your sales. You go talk to an SEO person, they’re going to tell you SEO. So all of these consultants and specialists are going to really continuously look at the best advantages within their sliver of the world and really encourage you to look at those expenses. Again, a Facebook Ads manager is going to suggest Facebook ads and they’ll help you optimize within your portfolio Facebook ads. But sometimes you need someone to look broadly across your entire spend to help you determine how are you spending best. And so someone that can look at your entire cost structure and say, “You know what? Your cost structure entails 3 employees and a virtual assistant and x dollars on marketing spend”. You might have those proportions wrong or you might have those proportions in a way that no wonder you’re not bringing in sales”. And you might hire the best branding person under the sun but they’re only looking at a sliver of your portfolio. So customer acquisition cost is such an important metric for you to be measuring because without it, you don’t know if your customer acquisition cost is actually profitable. You need to be analyzing the lifetime value of your customer and looking at ways to ultimately optimize it by examining across different channels.

The other mistake that a lot of business owners make when it comes to customer acquisition cost is only looking at hard dollars out the door and forgetting the opportunity cost associated with your time or your staff’s time. And where this comes into play a lot is with organic social media. So if you hired a student to do all your social media and all of your content and you think it’s very affordable salary, that can be the best decision for you. Or that can be the worst decision for you. It’s going to depend on your particular business. But if you’re not looking at the results that you’re actually generating from those type of activities and comparing it to where those dollars could go instead, you are absolutely going to continue to have lagging sales and you’re going to continue to have ultimately lagging profit. Because you’re not putting your dollars and your resources in the spots that are getting you the biggest bang for your buck. So I would say if you take nothing else away is go start measuring your customer acquisition cost and measure it across time and measure it across different channels. It is critical to the success of your business and it’s critical to your ability to grow.

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