How much are Your Customers Costing You?
Jenny runs an architecture practice. She does some advertising, and always asks how enquirers found her, so she has a good idea how well her advertising is working, and has a good estimate of the cost per lead. She also knows how many of these turn into clients, and has come up with a cost per sale, but is this the reality?
In Jenny’s case, she spent $5000 on advertising, which produced 20 enquiries, and 10 sales. So each client has cost her $500 in advertising, and considering that her average value per sale is $5,000, that seems a pretty good investment at 1000% return.
But she has forgotten something. Her time.
From those 20 enquiries, 5 of them were not really serious or were not her market, but for the other 15, she spent quite a bit of time with each. First there was the initial consultation. Then a site visit, followed by a second consultation where she presented some ideas, and then, the time to prepare the proposal. This was typically followed by another meeting where final questions were answered, and she closed the sale 2 out of 3 times. All up, including travel time, she spent on average 6 hours to the point where the sale was won or lost, and given that she was successful 2 times out of 3, that meant 9 hours per successful proposal.
Jenny’s chargeable rate is $150/hr, so the total cost per sale, including advertising, is $1850. This now doesn’t look quite such a great deal for Jenny, particularly since the $5000 per job is an average, and she has quite a few jobs less than that amount, but on the positive side, she has a handful of clients paying $20k plus. Unfortunately, she has found that it’s just as difficult to make a sale to client for a job at $5,000 as it is for $20,000. Often, more difficult. Her average return on her sales and marketing investment is 270%, and significantly less for the lower value clients. This return, of course, doesn’t take into account the actual cost of delivering the service, and for many cases, she was making a loss.
Armed with this information, Jenny is now able to make some tough decisions about how she advertises and how she manages people in her sales pipeline, as well as, in some areas, completely redesigning her pipeline.
The net result of such analysis has meant Jenny:
• Has Reduced her advertising costs
• Spends Less time on proposals
• Has Increased the conversion rates on the proposals she prepares
• Has Increased her average value per client
By understand her total customer acquisition costs, she is now in a position where she can make more money by working less, which means that she now has a much better work / life balance.
Do you know how much your customers are costing you?