Customer Acquisition Cost!
What if I told you there was a machine where you could put $1 in and consistently get $4 out?
No this isn’t some sort of scam, the machine I’m talking about above has to do with customer acquisition.
In this video I will discuss what is “customer acquisition cost”, how to calculate customer acquisition cost, some customer acquisition strategies, and specific examples of our customer acquisition costs and how we track them.
Most people have no idea how much they’re paying for their customers, let alone how to track and scale it, so I understand why you would be in shock when I tell you that these machines exist in the most profitable and largest companies in the world.
Most people think their customer acquisition is zero, that’s either not accurate or not scalable, you should be willing to pay for your customers, whoever can pay the most for a customer wins.
So, how do you calculate the Customer Acquisition Cost?
In a service based businesses it is the cost of the channel to bring in the customer + cost of sales rep.
(If you don’t have a sales rep than you obviously wouldn’t add that in).
The cost of the channel could be how much you spent on paid advertising (Youtube, Google, FB), the cost of how much you paid a virtual assistant to generate the lead, or even the cost of the billboard you paid to put your pretty face on.
The sales rep cost would be the commission you paid your sales rep to close that deal for you, typically in higher-ticket service based businesses we see anywhere from 10%-20%.
Now the next question I know I’ll get is “how do I track where my clients/customers are coming from so I can calculate it correctly and scale it correctly?”
The first and easiest ways to track it is to simply ask.
If you look at our calendar here at Scaling With Systems we ask them what piece of content piqued their interest, this let’s us know what channels are bringing in the most quality appointments as well as what content really resonates with our market so we can make more of it.
The second simple way to track your customer acquisition is to add up your marketing costs daily.
While this is not the most accurate assessment of where your customers are coming from, it does give you a good baseline if you’re using paid marketing channels.
The one drawback of this is you can’t necessarily tell which marketing channel is bringing in the most qualified appointments or leads, but it’s a great starting point to know where your marketing dollars are going.
The final way to track your customer acquisition is using software or code.
This is a little more advanced and can be somewhat intimidating, however it is by far the most accurate way to track.
You can use something like Google Analytics in order to do this, they have a “Goals” feature that will allow you to set a “Goal” for actions you care that your website visitors make.
From that you will be able to see which content drives the most conversions, which traffic sources, which device, and so on and so forth.
At Scaling With Systems we help our clients set up simple code that allows them to see what was their first attribution, last attribution, specific content, targeting, etc.
There you have it, how to calculate CAC as well as how to track it.
I challenge you to calculate your cost to acquire a customer now and see if you’re ready for scale!
Become The Entrepreneur You Always Wanted To Be
[00:00:00] What if I told you there was a machine where you could put one dollar in and get four dollars out every single time? What’s going on everyone, Ravi Abuvala here from Scaling With Systems and of course, in this video, I’m going to be talking about customer acquisition and how to actually create this machine where you can put that one dollar in and get those four dollars out every time. Now, look, most people have no idea even what customer acquisition is, let alone how to track it. Measure it and scale it. So I understand if you’re a little bit is skeptical, right. When I say that you can put a dollar in and get four dollars out. However, I do want to let you know that some of the largest companies in the world, like Facebook, Netflix, Instagram. They know how much it cost for them to acquire a customer. And so they’re willing to pay in order to acquire those customers because they know they’re going to get their money back -that one dollar in four dollars out every single time.
[00:00:55] Now, if you stay until the end of this video, I’m going to give you a totally free course. It’s about six and a half hours worth of totally free content. So it makes you stay until the end. So what is customer acquisition cost? Well, in reality, the customer acquisition cost is how much it costs to acquire a customer. I know that seems simple, but it’s because it is simple. Now, what’s not simple is how you calculate it. And we’re going to talk about in this video, but just for definite definitive purposes, understand that customer acquisition cost is pretty much how much you’re going to pay to get someone to become a customer of yours. Now, most people think that their customer acquisition cost is zero because they rely heavily on referrals. But most of the time, they would be incorrect. And on top of that, if you’d only said how much it cost you to acquire a customer, then you’re never going to be willing to pay money in order to get customers, which, like I said in the beginning, is what some of our clients do is what I do. So what are some of the largest companies in the world do and there’s a saying that goes around and it goes, People who can pay the most for their customers are the ones who always win.
[00:01:55] So in service based businesses, the easiest way to figure out your customer acquisition costs is just to see whatever channels you’re using for marketing or customer acquisition. The costs for that, plus the costs for your sales rep in order to close that deal, is going to be your customer acquisition cost. If you don’t have a services business or a product, a based business and you don’t have any sales reps, then of course it would just be the cost of that marketing or whatever channel you’re using in order to bring awareness to your customer costs of the channel or the cost to bring awareness of your company to your customers. It could be the costs that you pay a virtual assistant or a sales development wrap their salary in order to help you acquire that customer or even the costs of a billboard in order for you to bring awareness to that customer on your local interstate or freeway.
[00:02:41] The sales rep cost the sales rep commission would, of course, be the percentage of the sale that you give your sales rep for closing that deal. The industry standard for a lot of service based businesses was anywhere from 10 to 20 percent of the cash that is collected from that sale. Now, because I understand anytime I talk about math or try to do some numbers through just a video, it doesn’t really come out that clearly. I want to walk you through a quick little formula spreadsheet that we show our clients and Skilling with systems in order for them to help calculate their customer acquisition costs, using a virtual assistant from scaling with systems. So is our outbound prospecting and inside sales unit economics model. I know that that is a mouthful, but essentially this is what we show our potential clients. It’s getting with systems to show that, hey, this is what a virtual isn’t really would cost you or this is how you are going to calculate your costs per customer acquisition. And I’m going to go through this right now with you. So like I said in the beginning, you figure out the cost of the channel that you’re going to use in order to bring these customers to you. So for this one, we’re gonna use a virtual assistant.
[00:03:40] So the salary that we’re paying a virtual assistant or our clients pay virtual assistants at scaling with systems as about four hundred dollars a month. They’re based in the Philippines. And that is their average salary. Their contacts hit by the virtual assistant every single month are about 4000. Now, that’s just your average virtual assistant that scaling with systems. It’s gonna be much higher. It’s usually close to 500 to a thousand a day. But just for conservative numbers here, we’re going to say 4000. So we’re going to trickle through here and you’ll see that that means that the costs for a contact hit for your virtual citizens, 10 cents. That means that if there’s one to three percent of those people actually turn into leads, it costs you about three dollars and 33 cents for a lead. If 20 percent of those people turn into actually book demos, that means that it’s costing you sixteen dollars and sixty seven cents for every single demo that shows up on your calendar. If you have a 70 percent show up rate and your salesperson that we talked about earlier closes at 20 percent, well, that means that your total cost per acquisition in order to acquire a client’s without your sales rep commission is going to be one hundred and nineteen dollars. OK, so that’s the cost of the marketing channel that you had to use in order to bring someone into your company.
[00:04:47] Now, that’s not the true cost per acquisition because like a lot of service based businesses that we work with, you have to also add in the sales rep commission. So let’s say that your sales rep commission is 10 percent of gross contribution for a year. So let’s say your product is about three thousand dollars. That means that you’re gonna add in an additional three hundred dollars to that sale for the sales rep percentage of commission. And then one hundred nineteen dollars for you to actually bring that person to you for that virtual doesn’t actually do the work to bring that deal to you. That means that your cost per acquisition total is four hundred and nineteen dollars and five cents. OK. And that’s about one hundred and thirty nine percent cash return on investment and a six hundred and sixteen percent revenue return on investment. Assuming you only get a thousand dollars in the first seven days. So some kind of payment plan. OK. So this is pretty much a really, really quick and dirty model of why virtual sit ins makes sense. We show our clients. I want to show you so you understand in numbers how to calculate your cost per acquisition. So pretty much this could be anything, right? This could be, you know, YouTube ads, Facebook ads, Instagram ads. Right. How much it cost you that month for you to do Facebook ads? It could be how much you know, how many close’s you have from those Facebook ads that month. Let’s say it costs you a thousand dollars a month for Facebook ads. You had to close’s. That means you had to pay Facebook five hundred dollars each time and already to bring that close. And then you had to give your sales rep 10 percent of that. So that of the three thousand dollars. So you that an additional three dollars do it. So be 500 dollars plus three hundred dollars a B eight hundred dollars cost per acquisition for each one of those customers that month.
[00:06:22] Now, the next question that I naturally get when I’m talking about costs per customer acquisition is Rubby. How do I even track where my customers or clients are coming in just so I can know where to put my marketing dollars and how to scale? Well, to answer that question, I me give you a few different options. But the easiest and number one way I recommend you tracking your customer acquisition, weigh your client are coming from is to simply ask if you check out our calendar here. It’s killing was all throw it up on the screen here. You’ll be able to see that. One of the questions that we actually ask in the appointment setting process is what piece of content picture interests about Skilling with systems. Where did you find us and what made you actually finally decide that we’re the real deal and you want to talk to us? Well, this will allow us to do is actually just really quickly and easily figure out, OK, we’re getting really quality appointments from YouTube organic or we’re getting really great appointments from Facebook ads or we’re getting really bad appointments from YouTube pay traffic. And so we can adjust our marketing dollars and our efforts accordingly. The second and simplest way for you to track your costs per customer acquisition, especially when using pay traffic, is to use some kind of Google sheet dashboard or formula on a daily basis. So you can see how many dollars are going in and how many dollars are going out of your company. While this is not going to be the most accurate assessment of exactly where your customers are coming from, I’d really recommend using this in unison with maybe one of those questions in your calendar. This will give you a good idea if the dollars that you’re putting into these marketing channels have even a shot in hell and actually giving you some kind of cash return on your investment.
[00:07:56] This is an example of a tracking sheet that we actually give our clients a scan with system so they can track when they start putting advertising dollars in behind their marketing efforts. We teach them how to do that to create this machine that puts one dollars in and four dollars outs. And so, as you can see here, I can do stuff like put in, you know, your Facebook advertising spend here, like, let’s say five hundred dollars. Let’s say we reach, you know, 5000 people or our impression was 5000 people. It’s our reach was 4000 people. You can say your clicks was, you know, 400 clicks. You could say that your leads were one hundred leads. That means your cost per lead is about five dollars. Let’s say you got 10 people to book. That means your Facebook video conversion rate or your Facebook costs were booked, appointments going to be around 50 dollars. And then you can come in here and say something like, you know, we had ten people book today. We had eight people show up. We sold one unit. That means our cost for acquisition is going to be about five hundred dollars in order to acquire a client because we had spent five hundred dollars on Facebook that day.
[00:09:00] So, of course, this doesn’t let us know if that one close did actually come from those Facebook ads. But it is a really great place to start. And you can use it in use it in unison with the question on your calendar so you can know, OK. Did that one clothes come from Facebook ads? And should we spend more money on that marketing channel to find a way to track your customer cost per acquisition is going to be using some kind of software or code. Now, this can be a little bit more intimidating and advanced because it does require some kind of development or software. However, it is going to be by far the most accurate way in order to predict it. One example of it is essentially free software out there you can use is Google Analytics, where you can actually create an account there and set up what are known as goals, which are pretty much conversion events that you care about Europe, initial prospects making on your Web site. And Google analysts can actually tell you based on those goals, where are most of your leads coming from? Which referral source? So is a. YouTube organic. Is it Facebook ads? Is it your Instagram swipe up? They can also let you know, are most people coming from mobile or are most people going on desktop or what part of the country are most your customers or booked appointments or leads coming from? Obviously, this is going to be super valuable information because then you can see, hey, are my Facebook ads actually working or my YouTube ads working or is my cold e-mail campaign working? And you’ll be able to know it down to the actual lead, the name, the IP address or the traffic source so you know what to scale up at what time.
[00:10:28] At scaling was systems. We actually help our clients set up a simple tracking code on their Web site so we can see what was the first thing that someone saw when they came to the website? What was a referral source? What was the last thing that they saw? Whenever someone came to our Web site. Right. Was it a YouTube bad? Was it an email? Was it automated? Was it one of our virtual assistants? And that way we can track our customer journey from beginning to end and our clients contract our customer journey from beginning to end so that we can know exactly which piece of content really resonate with the market. Which paid traffic platforms are actually turning into closed deals and we can scale those up accordingly. So there you have it, an in-depth but simple explanation on what customer acquisition cost is and how to calculate it, track it and scale it inside of your company.
[00:11:13] Now, as I promised in beginning this video, and now that I feature interest in acquiring customers, you probably want to know how do I get my calendar full? Right. What are the different lead generation sources that Ravi or Scaling With Systems recommends, and how do I implement them inside of my company today. For that exact reason, I put together a totally free course. It’s about six and a half hours of content, which I go through all of that and so much more. All you got to do is click the link in the description below and you can get instant access to that course. As usual if you got some value out of this video and you want to be able to see the new ones whenever I put them out. Be sure to click subscribe in the button below. Give it a thumbs up if you don’t mind, and turn on the notification bell. In order to follow up this video, it’s incredibly important you watch the additional videos and I’m putting on the screen here so you can make the most out of this training. I’ll talk you guys the next video.