3 Reasons Customer Acquisition Cost Is The Most Important KPI

It has been said by many successful investors and business icons that if you cannot pay money to acquire a customer, then you don’t have a real business.

If you’ve ever watched Shark Tank, then you know that before you go on the show and make your pitch you better be prepared to answer some tough questions from the Sharks… and if you don’t know your numbers you are going to get embarrassed.

One of the most common questions the sharks ask the hopeful entrepreneurs is “How much does it cost your business to acquire a new customer?” If you don’t have a good answer for this question prepare to hear the words “…and for that reason, I’m out.”

So why is this number so important?

There are many reasons why customer acquisition cost trumps other metrics when it comes to predicting business growth and scalability, but let’s start with 3 of the most important ones.

1 – Forecasting Scalability

For starters, knowing your customer acquisition cost is the only way to know if you can actually afford to advertise to grow your business. If it costs you more in advertising cost to acquire a customer than the amount of money you make from doing business with that customer, then you have a big problem, because you haven’t even considered any of the other costs often associated with acquiring a customer like commissions, fees, and so on.

Knowing the economics of your marketing gives you the insight to make smarter decisions and avoid wasting money. When you eliminate waste and re-allocate spend to the campaigns with highest ROI and lowest customer acquisition cost, you can grow your business in multiples and dominate your market

2 – Competitive Market Share

Customer acquisition cost also illuminates the path to pushing your competition out and carving out your share of a market. See, once you lose a customer they are rarely coming back to you, and once you enter a market, you are in a competition for a finite number of customers.

In order to survive and win, you need to be able to buy every profitable customer out there and get your share of the market.

To think that whoever it is you are competing with is just going to let you come in and take their business, that’s obviously being naive, but most business owners don’t recognize that. You need to know your market and know your numbers inside and out to give yourself any possible advantage over your competition.

3 – Goals & Optimization

Not only that, if you don’t know what sources a new customer can be attributed to, you might be shooting yourself in the foot without even knowing it.

See, most digital campaigns are measured and optimized using low level metrics like traffic and leads. An accurate cost per lead is an important metric, however it can be very misleading without customer acquisition cost.

The vast majority of campaigns are optimized for conversion cost or cost per lead which can be a race to the bottom and here’s why: The cost per lead based approach does not account for lead quality.

If the lower cost leads are also lower quality and do not convert to sales, then your strategy will backfire and you could be cutting off your most valuable lead source without even knowing it.

Sometimes the more expensive leads have a much better customer acquisition cost and bring higher quality customers, so it is a number you must know.

Most people don’t realize the true cost of investing into the wrong media buy, and in fact more than 80% of all PPC campaigns lose money, but most people are not aware of that fact because they are not measuring customer acquisition cost.

These are just 3 of the reasons why you need to answer this question with certainty before you can achieve breakthrough business growth..

So make sure you know your numbers and especially the most important question of all:

How much does it cost your business to acquire a new customer?