After the cost of delivering services, the cost of client acquisition is the most critical expense to control in your business – but most people don’t track all the costs. They usually have the different types of sales costs like marketing staff, entertainment, travel, PPC and software costs spread out all over the P&L. Almost all SMEs don’t track the cost of people’s time, time that could have been spent doing billable client work.
I’ve said before that Founders need to bring in the first $20M of sales but of course there are costs associated with doing that. The critical success factor, absolutely the thing that will make your business sink or swim, is to make sure you get the best bang for buck. And the first step is to make sure you track all the costs. So how can you do that?
One of the most powerful marketing measures is “Customer Acquisition Cost” (CAC). This is the total of all sales and marketing costs divided by sales. Put all of the sales related expenses in one section of your P&L and track them against sales and budget. Use customise report layout in Xero to help do that. Then calculate CAC. Next find out what your industry normally pays, do that by talking to experts in the field.
The next valuable measure is the total value of an average customer, or type of customer, to the business or “Customer Lifetime Value” (CLV). Logically you want to track the ratio between the cost of acquiring a customer and the value of that customer.
So, how much money should you spend on marketing? There are lots of differing views but I believe professional service firms should aim for spending 5% of fees and concentrate on getting the most bang-for-buck. That’s a fair lump of cash but you want to grow right?
On top of the 5% of fees you allocate in cash expenses you should allocate a time budget for fee-earning staff. I like to use 5% of available time. If you don’t have one, use a good CRM like Hubspot, Pipedrive or Insightly to track activity.
One way to plan is to do a dream marketing plan and then cut it down to size. Take away the least effective one at a time until you reach your target. Be aware of synergies but get stuck in and weed out the rubbish.
A/B test as much as you can. Gather as much data about effectiveness as you can.
Do it quarterly as part of your Quarterly Operational Work Plan (QOWP).
For you creative types I know this is what you do but sometimes it doesn’t hurt to take a fresh look at what time and money you are spending on client acquisition – plumbers and leaky pipes and all that.