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Customer Acquisition: It Might Cost You

By Anthony Taylor - October 24, 2011

One of the things that is being more understood these days is how much it costs to gain a new customer. Organizations are getting more knowledgeable about how much their contact lists are worth and how much it's worth to acquire a subscriber.

Group buying sites have it down to a science on how much they can pay out, just to be able to send out their offers to a new person. They offer between 5-10 dollars on a referral because they know that they will make that money back through the first sale. Once they have them on a list, they will make 100% of the subsequent profit from that customer.

Subway just had a promotion: when you buy a 25$ gift card, you get a free 6 inch sandwich. In this case, Subway knows that they can afford 6.00$ in retail cost to make 25$ retail. That free sandwich probably only costs subway 3$ or less, so they pay 3$ for a customer that will spend at least 25$, and make sure that 25$ goes in their pockets, and not those of their competitors.

Understanding the cost of a customer is paramount when you are paying for traffic through AdWords or Facebook ads. It seems pretty obvious that if you make more money on an offer than it costs you to promote it then you make money that it's a good idea, but not every organization moves in this direction. 

If you are working on building a list, but don't know how much you can afford to pay for traffic, make an initial offer or sale that creates at least enough profit to cover the cost of traffic. Many websites offer e-books or other products that have value to entice people to join the list. If there is no value, why would anyone want to subscribe?

Once you have a list, check your conversion rates with the emails that you send out alongside the corresponding offers. Through trial and testing, you will soon find out how much your subscribers are worth, and if it make sense you can pay more for leads to grow your list further.

 

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