January 23, 2017

Profit per New Customer

Customer Acquisition is the one place where your vendor partners get to extract a pound of flesh. You need new customers, and you've been trained to believe that channels are the place where customers reside - so you pay a toll and feel like you did your job.

I'm always amazed by the feedback I get.
  • "We pay $69 per new customer."
Then I'll ask if that is marketing cost, or if that is profit (loss)?
  • "Marketing cost."
Then I'll ask why the individual uses marketing costs instead of profit per new customer?
  • "Because I have reporting that tells me how much I spent, and how many orders I generated."
Then I'll ask if the customer has a break-even, one-year, two-year, three-year, or longer payback horizon?
  • "I don't know."
I like to use "Profit per New Customer" instead of (Marketing) Cost per New Customer, for obvious reasons.
  • Every employee is forced to calculate profit ... and in modern marketing, we've gone from 8 metrics to 800 and too few people ever calculate profit ... which is the whole reason we're in business.
  • In order to calculate profit, every employee must develop a relationship with the Finance team. This is an important relationship.
  • Every employee must feel accountable when looking at a ton of negative (loss) figures.
  • Every employee must figure out how much downstream profit is required to pay back the investment in the new customer and still yield 10% or better EBT (Earnings Before Taxes).
Those are the reasons I like to use Profit per New Customer. I hope you will consider using the metric as well.

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