Question

Topic: Customer Behavior

Cost Of Client Retention And Acquisition

Posted by Anonymous on 7/4/2004 at 7:19 PM ET 125 Points
What is the specific formula for calculating client acquisition costs and then retention costs? How can I define how much of our spending is allocated towards retention vs. new client acquisition? The adage of "it costs more to get a new client than to keep an exisiting one"....how do we quantify that number? I am able to calculate how much new business we generate annually, but I'm not certain of how the math works to draw any meaningful conclusions. I'm trying to find a formula regarding marketing spending in terms of our CRM initiatives.
To continue reading this question and the solution, sign up ... it's free!
SUBSCRIBE
Or, SIGN IN

RESPONSES

  • Posted by darcy.moen on 7/5/2004 at 12:27 AM Accepted
    Okay, I was a dry cleaner for many years, here's how I did it.

    Cost of printing and mailing 1,000 postcards was $500

    With a 10 percent response rate, I'd get 100 customers in, spending an average of 15.00 per ticket.

    I would gross 1,500.00 in sales directly attributed to that direct mail promotion.

    My Cost of Goods Sold was 70 percent of $1,500 revenue generated or $1050.00. add on the 500 it cost me to mail the promotion...and it would cost me 1550.00 to generate a $50.00 loss.

    But, when I mailed out 1000 postcards (at a cost of 1.00 each) to 1,000 customers who had gone inactive for 180 days or more (180 days without making a purchase), I would get up to a 30 percent response rate with an averate ticket of $17.50 after the discount.

    I could turn 5250 in gross revenues, minus my 70 percent cost of goods sold, minus the 1,000 dollars in postcards and postage, leaving 575.00 in pure profit...and I'd slow the number of customers slipping away from me.

    You need to look at what your customer's lifetime value is, how much it costs to aquire a customer, and what you are willing to spend to keep a customer. There are dollars and sense ways to figure out where to draw the line, but it varies from business to business. Feel free to contact me personally, and I'll be happy to e-mail you a excel spreadsheet that will help you determine the numbers for your business. No charge by the way...I found this spreadsheet on the net, and I'm willing to share it with you.

    Darcy (Customer Loyalty Network ) and former dry cleaner.
  • Posted by Blaine Wilkerson on 7/5/2004 at 12:11 PM Member
    You may want to check out www.crmguru.com as well.
  • Posted by SteveByrneMarketing on 7/5/2004 at 9:41 PM Member
    There are plenty of formulas and related info available on Google to answer your question directly. But here’s a thought – also focus on the other side of the equation. What is the true lost opportunity of not keeping a client? There are not an infinite number of prospective clients, what is my universe of potential clients? If I loose one, what percentage is that of my universe? What is the revenue potential of a retained client? Hopefully you get the idea – balance loss with gain to get the true picture.

    good luck
BACK TO TOP

Post a Comment

Related Discussions

Community Info

Top 25 Experts
(Customer Behavior)