September 12, 2016

Which formula is the best for customer acquisition ?

How much could you spend on acquiring new clients ?
Every communication or marketing plan should start by giving a clear answer to this question, which is certainly a difficult one.

The most common answer is the absence of calculation for the acquisition cost. The second answer, which already demonstrates great thinking, is related to the margin applied to the products and services’ prices.

If a product is sold at 100 with a production cost of 60, then the profit is (included) in the amount 40

But this vision is very reductive. Indeed, when the question is about a new client, the answer deals with a new sale. But a client is not a sale, it is a human being made of flesh and blood, who loves, speaks, lives and above all, who creates a relationship with the brand.

If the proposed offer pleases him, he will talk about it, redeem it and recommend it. Thus, one should take the customer value into account in a new client acquisition formula, alongside with the offer’s performance regarding the length and the quality of the relationship between the customer and the brand.

To sum up: it is the Customer Life Value (CLV) type of calculation.


Value Creation Formula Enigma INTERNAL 160913

Here is an example from everyday life :

When something goes wrong at the restaurant so that the waiter offers you coffee for free, he does it with a Cost Per Action (CPA) thinking. In the margin of how much you spent by having a Menu du Jour, he calculated that he could afford offering an extra while still making money. By contrast if he gives you a meal for free, he will have done a customer lifetime value calculation.

You will certainly feel embarrassed by this commercial gesture as it would seem to be a disproportionate action. But at that point, the waiter recognizes that the problem is not related to the quality of the meat or to slow service but in reality he realizes that he has failed your trust and that it is unacceptable and unaffordable. He needs then to fix this mistake by reducing the distance created between you and the restaurant.

If you are looking forward to obtain new clients’ email addresses, their quality will not be the same depending on how you do it. Indeed, the results will not be similar whether you organize a contest with several gifts including a sunny getaway or if you offer something of high value to a single winner amongst all the participants. Obviously, it will require more time, creativity and it will be more difficult but it’s worth the money.

Check out this other example of customer lifetime value calculation made by Domino’s Pizza. The customer that will cost the least to acquire for the brand is the least profitable in the end.

Table Profit Per Consumers Enigma INTERNAL 160826

It’s a grand mother saying but it’s true : “You can catch more flies with honey than with vinegar”.

This article has been posted by Olivier Kennedy
on September 12, 2016
in #Other
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