What really drives your acquisition cost

How much may a new customer cost? And how much may it cost to keep an existing one? Those two questions sit at the base of every commercial budget, but in practice they are rarely answered explicitly.

The result is that commercial budgets are often drawn up on the basis of what was spent last year, what the competitor does, or what the CEO intuitively finds reasonable. Those are not bad starting points, but they rarely produce a budget that genuinely fits the commercial strategy.

Two fundamentally different costs

Commercial costs fall into two categories that are fundamentally different: the cost of attracting new customers, and the cost of keeping existing ones.

The cost of attracting a new customer, the acquisition cost, covers everything you invest before a prospect becomes a customer. That is your salespeople's time, the marketing budgets for lead generation, the cost of events and trade fairs, and the overhead of the sales process. Divide that total investment by the number of new customers you win in a year and you get your acquisition cost per customer.

The retention cost is the investment in keeping existing customers active and developing them further. That covers the time of key account managers, the cost of customer events, loyalty programmes and the administrative cost of contract renewals.

Those two costs have a fundamentally different relation to the revenue they generate. A new customer usually costs five to seven times more than keeping an existing one. That is no iron law, but the pattern is consistent enough to take seriously when drawing up a commercial budget.

The financial room for your commercial team

Together the acquisition and retention costs decide the financial room you have for your commercial team. That room is not a fixed number; it depends on three factors.

The first is the average revenue per customer. The more revenue a customer generates on average, the more you can afford to invest in acquisition and retention. A company whose customers hold an annual contract of ten thousand euro can spend more on winning a new customer than a company where the average transaction is five hundred euro.

The second factor is the margin. High revenue per customer is worth little if the margin is low. It is the gross margin per customer that decides the real financial room, not the revenue.

The third factor is the customer lifetime. How long does a customer stay with you on average? A customer who stays three years and buys again every year is worth far more than one who makes a single large purchase. Calculate that long-term value and the question shifts from "how much may a new customer cost?" to "how much may a new customer cost over the whole life of the relationship?"

From theory to budget

Those three factors together give you a number: the maximum cost you can afford per new customer, and per retained customer. That number is the ceiling of your commercial budget.

In practice it works like this. Suppose your average customer generates a gross margin of twenty thousand euro over three years. If you are prepared to invest twenty percent of that margin in acquisition, your maximum acquisition cost per customer is four thousand euro. That means your total acquisition budget, salaries of salespeople, marketing costs and overhead together, may not exceed four thousand euro per new customer.

If you want to win a hundred new customers a year, you need an acquisition budget of four hundred thousand euro. That is the number you take to your management or your board, underpinned and calculated.

What this means for the make-up of your team

That reasoning also has consequences for the make-up of your commercial team. If the acquisition cost per customer is low because you have a high volume of small transactions, you need different profiles than when you work a limited number of large accounts.

High volume asks for an efficient team of sales development representatives who prospect quickly and in a structured way, supported by marketing automation. A small number of large customers asks for experienced key account managers who build long relationships and close complex deals.

That choice has direct consequences for your payroll, your recruitment strategy and your training budget. And you can only make it well if you have the acquisition and retention cost clear.

The marketing budget as part of the whole

The acquisition budget also covers the marketing budget. Marketing is after all one of the instruments with which you attract new customers and keep existing ones warm. But here too the marketing budget is not a separate given; it is part of the total commercial investment.

If you know how much you may invest per new customer at most, and you know how many customers come in through marketing versus through direct sales contact, then you can calculate which part of the acquisition budget goes to marketing and which part to sales.

That reasoning also forces choices. Because if the total acquisition budget is fixed, investing more in marketing means less remains for sales, and the other way round. Making that trade-off explicit is far better than letting marketing and sales each submit their own budget request.