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Secrets of Success in Customer Acquisition

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Attracting new customers is the one business activity that keeps many business owners up at night. Adding to the challenge, it has become increasingly more difficult to Identify and reach new customers given there are more discrete segments of potential customers and many more media options to reach them.  

A variety of articles and reports are showing that the cost of acquisition for both B2B and B2C companies has increased substantially over the last 5 years.  Hence, there are more sleepless nights for entrepreneurs trying to grow their revenues and profits.

Customer Acquisition

Many organizations dilute their acquisition investments as they try to appeal to a broad audience without a rigorous and focused target audience definition. This is especially true for newer organizations that think they need to appeal to everyone to be successful.

In this article, we will review a planning process to help you think about your business and how to map out an appropriate acquisition strategy.

Setting acquisition objectives

In this all-important step, there must be a quantitative target for the number of new customers or business accounts that you want to acquire.  By taking the number of new customers multiplied by the expected revenue per new customers, organizations will have a new customer revenue target as well as an absolute number target. The target number should be reviewed for reasonableness by looking at prior year acquisition numbers, market share, market sizing and competitive dynamics relative to pricing and product and service offerings.  This number may change as you dive deeper into the targeting process explained in the next section, however, this gives you the ‘goal posts’ for your initial objectives.

Defining your target market

Canada Target Market

The most important step in the acquisition process is to identify the potential new customer target audience in as much detail as possible with a laser-focused view.  

A great example of a company that started narrow with the target audience is Facebook. Mark Zuckerburg started Facebook by targeting only Harvard students who wanted to connect.   Based on the enthusiastic response, it was then offered to other Universities across the United States. It was only after Facebook achieved success within the university and college group did they then expand to a broader target audience supported by their loyal student ambassadors.

When you are embarking on an acquisition effort, it is critical to have a clear definition of the target new customer along with the expected value of that future customer.  If you are starting a new business, then you need to answer these questions by using business judgment, primary and secondary research.

However, if you already have existing customers, then the best place to turn to understand potential prospects is to look at your existing customer base.  To answer the questions above, you will need to understand the value and needs of your existing customers with a particular focus on recent high-value new customers.  This will then allow you to develop a plan that can target and bring on more high-value customers that will grow your business.

All customers are not created equal

canadian sme magazine

The 80/20 principle, derived from the broader Pareto Principle concept, is alive and well in the majority of businesses as there is usually a small percentage of customers who drive a disproportionally larger percentage of profits.  This principle should drive your prospecting efforts for generating qualified leads and new customers. This allows your organization to be focused on attracting the most valuable relationships.

Your best customers should drive your new customer strategy

In the ideal world, one would want to locate the most desirable prospects and then spend acquisition dollars that are significantly less than the expected lifetime value of that consumer.  In order to find the “best’ prospects, start with your existing customers and all the corresponding data and research, to build the profile of the “best’ customer. It is important to start with understanding the financial value of the existing customers.   There are three different approaches that can be used to build that understanding.

    • At the simplest level, segment existing customers by revenue per customer to uncover the 80/20 principle for the business and then rank from highest to lowest
    • If you can allocate costs at a customer level, then move to the next level of sophistication by developing profit per customer and then determine the new 80/20 ranking
  • If you have historical revenue and retention data by customer, calculate lifetime value by a customer and then rank by customer lifetime value

If you have a direct relationship with your customer and have historical sales and profit data on each customer, you can achieve the lifetime value calculation.  If your company has an indirect relationship or the end user data is unavailable, then you may have to work with a customer revenue approach.

Seven questions for acquisition success

Regardless of the approach you use, be sure to complete the analysis listed above to understand the 80/20 rule in your business.  Once you identify the highest value existing customers, you can leverage this insight and begin the process to answer the following seven questions for acquisition success.

    • Who specifically are my best prospects?
    • What is their expected value?
    • Where are they?
    • What do they want?
    • How can I reach them?
    • How much should I spend to acquire them?
  1. Which programs deliver the most customers with the highest ROI?

Once you have set your final objectives for new customer acquisition, you can then move to set up sales and marketing goals by geographic area. It is absolutely critical that the quality and value of a new customer is clearly defined to ensure the ongoing health of your organization.  Here are some metrics that you can use to help define acquisition success.

    • Number of new customers (Absolute number of new customers in a given period)
    • Total new customer revenue (Total revenue from new customers in a given period)
    • Average revenue per new customer (Total revenue of new customers in a given period divided by the number of new customers)
    • Cost of acquisition (Dollars spent on acquisition divided by the number of customers acquired)
    • Number of qualified leads (Number of qualified leads)
    • Lead conversion rate. (Number of new customers in a period divided by the number of qualified leads in the same period)
    • Cost per lead (Total costs to generate leads in a given period divided by the number of leads in that same period)
  • Customer retention rate (Number of new customers who are still active in a given period divided by the total number of new customers that were acquired in that period.

Avoid the mistake of neglecting to give revenue targets and retention goals along with your new customer goals as this could create the scenario where new customers may not be the ideal targets.  This could result in one or all of the following:

    • Higher than the average cost of acquisition
    • Lower than average revenue per customer
  • Lower than the average new customer retention rate

Invest time to develop a thorough new customer acquisition strategy and you’ll reap the rewards and sleep better at night.

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