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Client Aquisition Costs

Discussion in 'BlackHat Lounge' started by BassTrackerBoats, Dec 16, 2014.

  1. BassTrackerBoats

    BassTrackerBoats Super Moderator Staff Member Moderator Jr. VIP

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    This past week I was looking at a service for sale as I am looking to expand a little and played with their numbers some. The return on the price was a bit low but in the realm of reasonable in my opinion and the service would fit into my portfolio nicely but I had a hard time grasping how he could justify the value of each client.

    Back when I bought and sold bottled water companies, there was a price range as to the value of a client. It was revenue/age based and a fairly simple formula for me to grasp. The actual cost to acquire a client was also considered but that was a set number as there was an industry average. I could easily guess the value of a company after about an hour or two of investigation as you had to take into account the hard assets as well.

    Looking at this service:


    • There were some hard assets... X amount of value there.
    • There was a gross and a net - X amount of value there.
    • There were X number of customers with varying degrees of age and payment thresholds - X amount of value there.

    My problem was when I added it all up it seemed like there was something amiss and it took me a few minutes to see that the client acquisition costs he had were out of line. What he said it cost him to acquire a client, taking into account the time it would take to replicate the process, were numbers that I could easily crush had I been the one doing that end of the business.

    His cost to acquire a client was out of control and he had no idea it was way out of control. His thinking was that it cost him this much to get a new client and that was the norm but that number could be greatly reduced. I'm looking at those numbers and thinking he spent a lot of time spinning his wheels, looking in the wrong places for clients, advertising in the wrong publications and maybe had a sales person or 2 that spent more time in the local gin mill than out calling on potential clients.

    His entire marketing model was off centered and thus the costs there were out of line.

    He would either have to realize he made serious errors there and adjust the price of the company, eat the costs in order to sell the company or just tell prospective buyers that he is steadfast on his selling price.

    As a buyer I just had to consider if it was worth just buying it and paying a premium to eliminate the hassle of building something from nothing or realize that paying the premium was not worth it and just start a new entity and build from zero.

    As internet marketers our client acquisition costs need to be under control.

    That includes any advertising, promotions, discounts, give aways AND your time. Your metrics are a little different than some other businesses but the costs to generate a dollar on a steady basis are really a cost that we can control if we examine what we are doing and look at the results, both short and long term, and then adjust accordingly.

    In business you make money when you buy, not when you sell; you make money acquiring the client, not when the client buys.

    A client in our industry can be one that clicks on an ad, offers up an email address, fills out a survey, purchases our service or any other number of activities.

    Are you keeping your client acquisition costs in check to ensure that you get the kind of return on your site/service/lander/videos/etc? Can you eliminate some fat there and still maintain the same revenue level or can you actually spend more and do more to increase your client base and mitigate the expense with volume?

    We need to constantly keep those ideas in front of us as that is one way to increase our bottom line; a stream lining of our client acquisition costs.

    Our business is a little bit unusual but we still have to face the same kinds of issues as a brick and mortar and client acquisition cost is a line item on just about every ledger of any business that has vision.
     
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    Last edited: Dec 16, 2014