What is your average cost of client acquisition -- otherwise known as COCA? Your average COCA is an important metric to track.
To track and define your company’s average COCA, take your marketing, sales, business development expenses, and investments over the previous twelve months (or some period you can stay consistent with).
After totaling up that number, divide it by the number of new clients that came on board with your company during that period.
Tracking Your COCA
When focusing on the average cost of client acquisition, be aware it is a metric that should be tracked. Your COCA can be a combination of your
- Marketing salaries
- Sales salaries
- Outsourced marketing
- Professional services
- Sales related professional services
- Channel partner commissions
- Referral fees
- Pay-per-click advertising
- Asset creation
- Content creation
- Content promotion
- Public relations
- Video production
- Anything out of pocket
To give an example and keep the math simple, let’s say your company spent $100,000 last year in sales, marketing, and business development expenses. During this same period, 20 new clients came on board. Take $100,000 (total expenses), divide it by 20 (number of new clients), which equals $5,000 -- $5,000 per client is your client acquisition cost.
Now ask yourself: Can your company afford to invest $5,000 per client? That answer ultimately comes down to what a client is worth to your business -- both initially and on an ongoing basis over their client lifetime.
Defining a Client’s Value
If your business has a recurring revenue-based model, it is likely you are going to need to run a loss in the short term because the long-term value of your client far exceeds what they are worth initially.
For example, let’s say you spend $5,000 on acquiring a client and that client spends $500 a month. It will take ten months for your business to break even on that client, but if your business model is healthy, you know that client’s first ten months is just the tip of the iceberg. Maybe your clients, on average, stick around for ten years or 120 months. Doing the math, 120 months at $500 a month values your client at $60,000.
If you simply focused on the first year, where the client spent $6,000, you certainly would not invest $5,000 to acquire a client worth only $6,000. However, if that client is worth $60,000 over a period of 10 years, that is a completely different story.
Increasing or Decreasing COCA
It is important to be mindful of what your company is spending. It is common -- especially with small companies -- to invest way too much or way too little into client acquisition. Small companies are often guilty of making this mistake because their first couple of years in business largely depend on personal networking and word of mouth referrals. However, at some point, the owner’s network tends to dry up, and they run out of family, friends, and former colleagues to call upon.
To take your business to the next level, your company has to get on the radar of strangers -- even if they have never heard of your company before. That is where having a healthy business model comes in. Supporting and scaling your revenue generation requires being mindful of your COCA number, the average cost of client acquisition, and what a client is ultimately worth -- the average client lifetime value.
The Bottom Line
Consistently track your company’s COCA to ensure you are neither over-investing nor under-investing in each client. When you initially get into new markets and run tests, acquisition can be higher than you want it to be. In these scenarios, focus your efforts on continuing to optimize and get smarter over time. If you are measuring and doing lots of tests to dive down and get rid of inefficiencies, that number should come down over time.
When running marketing campaigns whether they be digital or inbound, track everything. Track by:
- Landing pages
- Buyer personas
- Products and services
There used to be an expression used decades ago, “Half the money I spend on marketing and advertising is a complete waste. The problem is, I don’t know which half,” but that mindset should have gone away a long time ago.
Everything should be trackable so you can identify where the dead wood is and cut it out. Determine what is working well so you can double, triple, and quadruple those efforts. Over time, your marketing gets stronger and smarter as you iterate and keep going through these cycles. Pay close attention to your COCA -- your cost of client acquisition.
Does your business know its average cost of client acquisition? Let us know in the comments section below.
To learn more about why the COCA metric is critical for you business, download our guide “3 Revenue Growth Opportunities Your Business May Be Missing.”