How much should you spend to acquire a new customer?

I received an email this morning from a newsletter I subscribe to written
by Bob Bly. Bob is a legend in the copywriting industry and has published
over 70 books, including The Copywriter’s Handbook.

In his newsletter this morning, Bob details how you can figure out how
much to send on acquiring a new customer and I thought the message
was particularly relevant given that my readers and my clients are in the
business of generating new customers and keeping old ones happy.

Even if the majority of your new clients come from referrals, you can
still invest money in making sure you continue to receive referrals.

If for some reason you’re not looking for new clients, something
to consider is investing money in keeping your existing list of customers
active and happy. In either case, putting money back into your business
is a way to keep it healthy keep it growing.

Bob’s newsletter describes how to determine how much to spend on
acquiring (or keeping) customers. Personally I prefer to think of money
put into marketing as an investment. It’s an investment into your business
that should pay you a return.

Read through Bob’s ideas below and let me know what you think.
I think you’ll find he has an interesting way of thinking about the
value of a client.

Best,

Adam

*Note: Bob allows people to spread, share, and copy his newsletter
and blog content as long as you attribute his site as the source.
——————————-

Dear Direct Response Letter Subscriber:

To determine how much they can afford to spend to get a new
customer, many marketers base that figure on the average size of
the first order.

Therefore, if the front-end product or service is $500, they
won’t spend anywhere near that to acquire the customer, for fear
of operating at break-even or even a loss. If they want to double
their money on the promotion, the most they’ll spend to make the
sale is $250.

But savvy marketers know that the amount of money you can spend
to acquire a new customer should be based on the customer’s
lifetime value, not just the revenue from the first order.

Lifetime value refers to how much money your customer is likely
to spend with you during the period he remains a customer of your
business.

For instance, if the average unit of sale is $500, the average
number of purchases per year is two, and the average customer
remains a customer for 5 years, the lifetime customer value is
$500 X 2 X 5 = $5,000.

Based on the average lifetime value, you can see where it would
in fact be well worth spending $500 to acquire a new customer.

The business owner who understands lifetime customer value as it
relates to customer acquisition has a tremendous advantage: He is
willing to spend more to acquire new business, because he knows
its true value.

Example: A company selling books to corporate librarians planned
a marketing campaign to get new corporate accounts to start
ordering books from them.

I asked the owner what he would be willing to spend to get a new
account. He said about $300.

Forget advertising, I advised. Just open up an account for every
company you want as a customer – and put $300 in it!

Send each prospect a personal letter telling them they already
have an account with you — and that it contains $300 they can
use at any time this year.

Instead of a sales or marketing campaign, my client gave the
money he would have spent to generate leads and makes sales calls
directly to his key prospects, so they could try the service at
no cost. It worked like a charm!

Today online trading services use the same tactic. They send you
a letter telling you they have opened an account for you with $75
or so in it. You get the money when you do your first trade.

Need to stimulate business? Calculate lifetime customer value,
decide what percentage of that amount you want to spend on
acquiring new customers (10% is a common figure), and invest that
amount of money to acquire new customers.

It will likely be more than your competitors think they can
spend, giving you a huge edge in winning new business.

Sincerely,

Bob Bly
Copywriter / Consultant
590 Delcina Drive
River Vale, NJ 07675
Phone 201-505-9451
Fax 201-573-4094
www.bly.com

Follow Bob:
Twitter, http://twitter.com/Robertbly
LinkedIn, http://www.linkedin.com/in/bobbly
Facebook, http://www.facebook.com/people/Robert-Bly/535042603

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