1. Step 19: Calculate the Cost of Customer Acquisition (COCA)

2. Outline Overview How to Calculate COCA How to Reduce COCA Workshop
November 12, 2018

3. COCA is extremely important!!
Overview
This step:
Determine how much it costs to acquire a customer (based on your sales process) over the short term, medium term, and long term
COCA is extremely important!!
November 12, 2018

4. Sales Process (previous step) influences COCA
Overview
Sales Process (previous step) influences COCA
Quantify all sales and marketing involved to acquire single average customer
Includes all costs, regardless of whether customer purchases product or not
COCA does NOT include costs and expenses outside of sales and marketing
November 12, 2018

5. Identify factors that influence COCA
Overview
How to start:
Identify factors that influence COCA
Assign realistic values to these factors
Understand what you can do to reduce COCA over time
November 12, 2018

6. Early stages: COCA will likely exceed LTV
Overview
Why COCA matters:
Early stages: COCA will likely exceed LTV
COCA should decrease over time
How long will it take for COCA to drop below LTV?
November 12, 2018

7. Outline Overview How to Calculate COCA How to Reduce COCA Workshop
November 12, 2018

8. Tabulate aggregate sales and market expenses over time
How to Calculate COCA
Tabulate aggregate sales and market expenses over time
Divide by total number of new customers acquired
NOTE: COCA(t)
COCA should be a function of time
t could be short, medium, long terms
November 12, 2018

9. How to Calculate COCA What to include? Marketing Sales Salaries
Your time (doing marketing)
Sales
Websites
Salaries of salespeople
Social media
Your time (doing sales)
Ads
Commissions
Computers
Bonuses
Trade Shows
Travel + entertainment
Public Relations
Benefits
Consultants …
November 12, 2018

10. How to Calculate COCA
COCA formula: COCA = [ TMSE(t) – IBSE(t) ] ÷ NC(t) TMSE(t) => Total Marketing and Sales Expenses (over time) IBSE(t) => Install Base Support Expenses (over time)* NC(t) => New Customers (over time) * IBSE(t) = customer retention
November 12, 2018

11. Want to plot COCA over time Should decrease…
How to Calculate COCA
Want to plot COCA over time
Should decrease…
November 12, 2018

12. Outline Overview How to Calculate COCA How to Reduce COCA Workshop
November 12, 2018

13. Use direct sales judiciously Automate as much as possible
Ways to Reduce COCA
Use direct sales judiciously
Automate as much as possible
Improve conversion rates (sales)
Decrease cost of leads, improve quality
Speed through the Sales Funnel
Choose a business model with COCA in mind
Word of mouth
Stay focused on target market
November 12, 2018

14. Use direct sales judiciously Salespeople are expensive, but effective
Ways to Reduce COCA
Use direct sales judiciously
Salespeople are expensive, but effective
Instead, consider technology enablers
Telemarketing
Web presence
Social Media
November 12, 2018

15. Automate as much as possible
Ways to Reduce COCA
Automate as much as possible
Try to automate customer acquisition process
May require initial investments
Promote product via large networked sites
Facebook
Twitter
LinkedIn …
November 12, 2018

16. Improve conversion rates (sales) Costly to chase deals you don’t close
Ways to Reduce COCA
Improve conversion rates (sales)
Costly to chase deals you don’t close
November 12, 2018

17. Decrease cost of leads, improve quality Quality > quantity
Ways to Reduce COCA
Decrease cost of leads, improve quality
Quality > quantity
E.g., passing out business cards is cheap, but low-quality
Use inbound marketing e.g., HubSpot
Aka content marketing
Social media marketing
Search engine optimization
November 12, 2018

18. Speed through the Sales Funnel
Ways to Reduce COCA
Speed through the Sales Funnel
Increase speed through which customer moves through funnel
Time = money
Choose a business model with COCA in mind
E.g., Usage based vs. Cell phone plan could impact COCA
Word of mouth
Best way to reduce COCA!!!
November 12, 2018

19. Stay focused on target market Beachhead market Don’t get distracted
Ways to Reduce COCA
Stay focused on target market
Beachhead market
Don’t get distracted
Help improve word of mouth
Make sales reps more productive
Become experts of industry
Understand DMUs
Decrease sales cycles
November 12, 2018

20. Outline Overview How to Calculate COCA How to Reduce COCA Workshop
November 12, 2018

21. Workshop Several worksheets: Estimate COCA Reduce COCA
Plot COCA over time
Identify risk factors
NOTE: this is hard for us computer scientists! You may need to do some digging (e.g., costs of inbound marketing)
November 12, 2018