June 20, 2018

Profit per New Customer

It's common for folks to measure cost per new customer.
  • Total Marketing Cost = $10,000.
  • Total New Customers = 130.
  • Cost per New Customer = 10,000 / 30 = $76.92.
It's less common for folks to measure profit per new customer.
  • Total Marketing Cost = $10,000.
  • Total New Customers = 130.
  • Average Order Value = $100.
  • Profit Factor = 40%.
  • Profit = 130*100*0.40 - 10,000 = ($4,800).
  • Profit Per New Customer = ($4,800) / 130 = ($36.92).
In our example, you had to give up $36.92 of hard-earned company profit in order to acquire each of 130 new customers.

Is it worth it to give up $36.92 of hard-earned profit to acquire a customer?

It depends.

If the customer pays you back $65.00 profit in the first year on the file, you absolutely want to give up the profit, because you will make more profit in the next year, with the net of the relationship being a profit increase.

If the customer pays you back $11.00 profit in the first year on the file, you have problems, don't you?

You can't possibly know whether a cost per new customer of $76.92 is good or bad. You just know that the figure looks expensive.

You know all you need to know if you have profit per new customer coupled with lifetime value.

Show of hands ... how many of you measure profit per new customer and combine it with lifetime value to know which tactics you need to employ to be successful?

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