Cost of Customer Acquisition and how to Calculate it Wisely

If someone ever asks you what your major assets on the Internet are as an online entrepreneur or the manager of an online property, you will probably mention your domain name, your website as an individual entity, and of course, the amount of business you conduct each year which in turn adds to the valuation of your website. The one component, by far the most worthwhile and valuable which you are likely to forget all about, is your customer community.

Regardless of which niche or industry vertical your website serves-- e-commerce, NGO, educational institution or even a content portal meant to generate revenue through digital advertising, your customers are your most valued asset. They drive your business, they help you pay the bills and most importantly, they help you grow. Google, for instance, wouldn't be the Google it is today had it not been for the millions (not thousands) of businesses worldwide who religiously top up their Adwords accounts regularly and continue to experience spectacular growth like Google itself. Customer communities are a tangible asset especially in the online space owing to the humungous competition we are all experiencing on the Internet today. Before we tell you how to calculate customer acquisition costs-- and you don't have to be a rocket scientist to be able to do so-- here are five reminders about how you can take care of your customers to the highest degree possible:

• 1. Provide outstanding customer service through live chat software, e-mail and the telephone if possible because good isn’t good enough anymore.
• 2. Try to understand your customer's needs and customize products and services for them if you can.
• 3. Maintain a finger on the customer's pulse by conducting regular surveys for which you can use Google Docs and Survey Monkey both are free.
• 4. Review the performance of your frontend teams such as live chat agents, telephone reps and e-mail reps to make sure that they are doing things right.
• 5. As the CEO or a major stakeholder of your online company, pick up the phone and call one customer randomly each week and find out how you are doing.

There is obviously a cost involved not only in preserving your customer base, but also in building and acquiring it. There are a number of ways in which this can be accomplished and a few of them involve elementary statistical analysis. The formula we like and the one that works the best is as follows:

• 1. Perform a head count of your active customers including those who have made a purchase from you during the past one year.
• 2. Calculate the cost of any advertising you have conducted such as Google Adwords, Tribal Fusion banners, etc.
• 3. Add to this 50% of the cost of your employees who are dedicated exclusively to customer service functions-this is also your retention cost.
• 4. Add also to this figure the salaries and wages of any marketing professionals you may have hired.
• 5. Use the annual salary for one year as your benchmark while calculating employee costs.
• 6. Finally, divide the total costs by the total number of customers-that is your customer acquisition cost.

A statistician friend can convert this equation into a formula and even factor in the necessary variances. The bottom line, however, is the fact that while you put out the red carpet to attract new customers, the same carpet should be laid out to preserve their loyalty so that they keep coming back to your Internet property "asking for more" just like Oliver Twist!