To understand how we can build a plan to close a customer gap, let’s use as an example a local service business. It has a customer gap of 417 customers and will require 333 new customers every month to replace defectors and maintain their revenue. Let’s examine the 4 customer acquisition tools that we have to build out plan.
The 4 Customer Acquisition Tools
- Physical Presence: If your business has a physical presence, it is often an excellent way to acquire customers. Think about the retail adage that success is about 3 things: location, location, and location. In addition to choosing the location, investing in new or improved signage can often be a great way to acquire more customers. Once in place, a strong physical presence will continuously generate new customers making it a great investment.
- Online Presence: Every business should have an online presence which includes their website, social media, local listings, Google Business profile, product listings and reviews on 3rd party platforms, etc… Your online presence only includes investing to build and maintain these platforms, not advertising. Think of you online presence as what can be discovered without having to pay for impressions.
- Referrals: Referrals can come in many forms but the principle is the same: your business is being recommended or talked about in a positive light. Customers refer businesses to friends and families, professionals refer businesses, for example a relator recommending a mortgage broker, or your business may receive positive mentions in social media or the press through public relations.
- Advertising: The final category is advertising or paying to have your business placed in front of prospective customers. We are all familiar with many forms of advertising like billboards, radio, social media ads, affiliate marketing, video ads, etc… These are all ways to pay for exposure to acquire customers.
Building the Plan to Close the Gap
The table below shows that they plan to invest in their online presence and a digital ad campaign to close the customer gap and to ensure they generate enough replacement customers to maintain their revenue. They will need a one-time investment of $14.6K to close the gap of 417 customers. They will also need to acquire 333 new customers/mth. Through customer research, they estimate their physical presence and customer referrals generate about 150 new customers/mth. By investing in their online presence and advertising, they plan to acquire the remaining 183 customers/mth and spend $6.5K/mth or about 8% of their revenue.
An important metric when building the plan is the average customer lifetime value (LTV) expressed in gross profit. In this case, lifetime revenue is $240 and their gross margin is 60%, yielding an LTV of $144. It’s critical to keep the customer acquisition cost (CAC) well below this number. In our example, the CAC is about $35 or about 25% the LTV.
