How Much Does It Cost You to Acquire New Customers?

One of the most common methods of obtaining a customer’s email address is paying them for it with in-store discounts. On the surface, this can be a very quick way to acquire customers’ email addresses; however one wonders if this tactic is as cost effective as it could be.

As an example, recently a friend of mine (owner of 5 retail shops) explained how he became a Loyalty Club member with a major Australian bricks-and-mortar retailer. Out shopping for a shirt he came across a bargain and quickly went to the cashier to make his purchase. The shirt was on sale at 50% off the retail price, and when he went to pay for the shirt he was offered another 10% off the sale price if he provided his email address to include in that store’s loyalty program. He agreed and supplied his email address and was another $5.00 better off –now, he got the shirt for 60% off the retail sales price!

In this case, the email address cost the retailer $5.00. As my friend walked out the door he was thinking if he could make this type of offer at his stores. Quickly doing his sums he realised he just couldn’t afford to capture customer details at that cost.

Perhaps for a major retailer or even a small retailer wanting to acquire the details of a customer they identify as a ‘high’ value, $5.00 might seem inexpensive; but it brings to mind an old accounting adage: You don’t need to use a sledgehammer to open an acorn!

Capturing email addresses and contact details from existing customers is a ‘no brainer’; however, retailers must be quite sure about what they can afford to spend in capturing these details.
So, what should you pay to acquire customer contact details, such as, email addresses, twitter handles and mobile phone numbers? The answer to this question will vary from retailer to retailer depending on their particular situation.

Generally speaking, if your average transaction value and margins are generally low, then you’ll most likely want to keep your acquisition cost low too. If you sell higher ticket items with greater margins, then you may be able to afford to spend much more.

Major retailers, particularly those with online shopping channels, have built acquisition systems through Loyalty Programs and newsletters, and also add transaction history to their customers’ records. Aside from helping them determine a customer’s value to them, the intelligence gained from these systems helps to cost effectively target customers with relevant offers to increase the frequency of their purchases and prolong their relationships.
For many small or independent retailers this may be quite difficult because they haven’t built a database nor have Customer Relationship Management (CRM) systems in place to help calculate their customer’s value.

In my next blog, I will break down the elements of customer acquisition and what kind of customer acquisition costs your business can leverage.

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