Measuring Acquisition Equity
Acquisition equity is the potential monetary value of acquisition for the organization. It provides the stage for customer equity data to be encapsulated in the financial database of organization. Measuring acquisition equity is indigenous and simple process to implement, the only hurdle is the collection data before this calculation is made. Computation comprises of following general steps:
Understanding the above steps, lets take a practical example and compute the acquisition equity stepwise.
Step 1: Assume the total number of prospects as 100 in a fixed time period of 1 month.
Step 2: After calculating, the marketing cost comes to $ 10, campaign cost $ 5 and servicing cost as $ 5 for whole selling stage. Hence the total cost for contacting one prospect comes out to be $ 10 + $ 5 + $ 5, which is $ 20.
Step 3: Now out of 100 customers 10 became actual customers hence the RR (response rate) comes to 0.1 or we can say that the conversion rate is 10%.
Step 4: Suppose after the customer purchases any product for the first time, the revenue comes to be $ 500. If the profit margin is 30% then the actual profit gained will be $ 150. This profit turns out to be $ 1500 for 10 customers for the first purchase.
Step 5: Through this, acquisition equity can be calculated by subtracting total revenue after customers first purchase i.e. $ 500 with the total marketing, campaigning and servicing cost i.e. $ 20. This will come out to be $ 20 - $ 500 = (-) $ 480.
Step 6: Finally for calculating the average acquisition cost for all the customers will be (-) $ 480/10 = (-) $ 48. This is the acquisition cost for 10 customers for that organization.
On paper, the above steps and calculations can yet be converted into formulas and equation. These equations will look like,
Cost of acquiring a customer Ca = Pc/PaWhere,
- c = cost of marketing per prospect.
a = response rate of customer acquisition.
P = number of prospects.
Total Customer Investment CI = PcpWhere,
- cp = cost of marketing per prospect.
P = number of prospects.
Profit per customer/Cost of acquiring customer P/C = m/Cp/a = am/cpWhere,
- a = response rate of customer acquisition.
Cp = cost of marketing per prospect.
m = sales gross margin.
Organizations usually get surprise by expensive customer acquisition, hence the comprehensive understanding of knowledge of acquisition cost and calculating cost ratios and business profit would help the organization to enhance and create business strategies in an efficient manner. By benchmarking these calculations the marketing process can be performed smoothly and strategically.
- Customer Acquisition - Introduction
- Customer Life Cycle
- Customer Acquisition Cost
- Customer Loyalty & Satisfaction
- Customer Retention
Authorship/Referencing - About the Author(s)
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