How much does a customer “cost”?
If you’re a regular visitor to my blog, you may remember that I’ve previously written about the hazards that can occur when organisations measure the wrong things. Today, I’m going to outline a similar (but subtly different) danger: What happens when organisations don’t measure the right things, by using one specific example.
Let me start by asking you a question. Does your organisation know and understand the actual cost it incurs to acquire a new customer? Are you able to slice this data by marketing campaign, to see which are truly effective? And are you able to compare this with the cost of providing the service to the customer, so you can see how many purchases a customer needs to make from you before they are profitable?
If you answered “yes” to the questions above—congratulations, you’re at the top of your game!
If you answered “no” to the question above, you are certainly not alone. Organisational attention is often skewed towards understanding the cost of servicing customers, without focussing on how much it costs to attract new customers in the first place. However, cost of servicing is really only half the picture.
There’s an old adage, that “it costs 5 times as much to acquire a new customer than to retain an existing one”. This often-quoted figure has been internalised in organisational thinking (much like the common misunderstanding of Pareto’s observation of 80/20). But what if “5x” isn’t the right multiplier for your organisation? How would that affect your decisions? Put another way—What if it didn’t cost you five times as much to acquire a new customer? What if it was 2,3 or 4 times? Would that change the way your organisation allocates its budget? And what if you could analyse the data to such a granular level that you could establish which marketing campaigns were creating the highest value customer interactions? That might well change your approach.
The key to making informed and sound decisions is to capture and analyse the data. This is important for all organisations—but for those with limited marketing budgets (and let’s face it, whether you’re small, mid-size or multinational, you’re resources will be limited) it’s essential.
Real insight leads to actionable data. The first step is to take action and start gathering and analysing the data!
This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet
