Map the Sales Process to Calculate Customer Acquisition Cost

Map the Sales Process / Customer Acquisition Cost The concept of customer acquisition cost is simple, but founders routinely underestimate what it costs a business to acquire a new customer. To understand the full cost of acquiring customers through the sales process, make a rigorous assessment based on evidence rather than subjective impressions. The first step is to map the sales process. Use a systematic approach to make an initial estimate of customer acquisition cost. You do not need to pin down an exact figure at the outset; doing so can obscure the bigger picture and distract from understanding the sales process as a whole. Focus on the sales process and map the company’s short-, medium-, and long-term sales channels. Then use the information you gather to calculate the costs of acquiring customers through the sales and marketing teams. Once you have estimated customer acquisition cost, you can revisit the sales process and adjust it to reduce that cost. Customer acquisition cost and customer lifetime value help you understand how a business is performing and provide useful data for assessing its sustainability and profitability. Four factors often overlooked when calculating customer acquisition cost Founders tend to be optimistic and remember only the customers who respond positively to their product or are willing to buy right away. They often overlook common costs in the customer acquisition process, including: ★ The cost of sales and marketing activities used to attract customers. These may include sales salaries, brochure printing, website development, trade-show placements, industry advertising, and white-paper development. ★ An overly long sales cycle can consume substantial resources. Founders tend to remember only the shortest sales cycles. ★ The company also incurs sales and marketing costs when it engages prospects who ultimately do not buy. How much effort does it take to find a paying customer? ★ Changes in the customer’s internal organization can affect the decision-making team. For example, a new manager may bring in new products and a new team to meet departmental goals, changing the effectiveness of the founder’s sales effort. #DisciplinedEntrepreneurship --- Robin’s note: The post repeatedly points out that founders are too optimistic, which can lead them to underestimate costs. When doing the calculations, prepare as fully as possible, budget on the relatively pessimistic side, and leave as much room as possible.