Examples of Customer Acquisition Costs in CLV

 

What are customer acquisition costs?

Many people assume that acquisition costs are only the promotional expenses used to attract new customers. But is important to note that while customer acquisition costs are substantially promotional expenses, these costs will also extend into other areas of the marketing mix. And failure to consider the full range of customer acquisition costs will result in a misleading customer lifetime value calculation.

Examples of customer acquisition costs

Promotional elements

  • All forms of advertising.
  • Sales and trade promotion – such as in-store displays and point-of-purchase promotions.
  • Direct marketing expenditure – such as direct mail and email campaigns.
  • Most other promotional methods – such as events, sponsorships, online activities, and so on.

Online expenses

  • Some social media costs – where the goal is to attract new customers.
  • Some website expenditure should also be allocated to customer acquisition.

Pricing incentives

  • Upfront discounts used to provide an incentive to purchase (this is also considered a sales promotion as well as a pricing tactic).
  • Sales and service staff costs.
  • Cost of the sales force (personal selling) – including base costs and sales commissions. Some firms use third parties, such as travel agents, where commission is payable – this should also be included in customer acquisition costs.
  • Some cost of the customer service staff – particularly if the customer service staff are used to close or fulfill the first time sale.
  • Cost of proposals (in staff time) – in some industries, it is necessary to tender or bid for a new client/customer – this also contributes to customer acquisition costs.

Retailing costs

  • Potentially a retailer in a high traffic location could allocate a proportion of its rental costs to customer acquisition. This is because its retail location and servicescape design contributes to attracting new customers.

Product fulfillment

  • Supply and installation of equipment will also be customer acquisition cost, if not immediately offset by a fee or charge. An example here could be a cable TV provider, or an office bottled water delivery firm – both of which provide the consumer with the necessary equipment.
  • In some cases, there would also be back-office staff costs associated with setting up the customer on the system and processing forms and contracts.

Data and analysis

  • Some companies will consider market research and data analysis costs to be a customer acquisition cost – particularly if it is used to identify and target potential customers (sometimes called prospects).
Therefore, acquisition costs are drawn from all components of the marketing mix

As you can see, customer acquisition costs can be drawn from across the marketing mix – and include promotion, pricing, products, people, place and even process. It would be a limited view, and probably quite unrealistic, to consider promotional expenditure only.