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:

  1. In a specific acquisition marketing campaign identify total number of prospect customers which are acquired in a fixed period of time.
  2. Calculate the actual marketing, campaigning and servicing costs which are incurred while dealing with a customer from contacting till selling stage.
  3. Compute the exact number of prospects who converted into actual customers.
  4. Calculate the revenue and gross profit incurred after the customer purchases for the first time.
  5. Calculate the acquisition equity for all the customers by subtracting the cost which was determined in step 2 from the revenue computed in step 4. This figure can be positive as well as negative.
  6. Divide the sum of total acquisition equity by the total number of customers. This gives the final average acquisition equity value for each customer.

Understanding the above steps, let’s 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 customer’s 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/Pa

      c = cost of marketing per prospect.
      a = response rate of customer acquisition.
      P = number of prospects.

    Total Customer Investment CI = Pcp

      cp = cost of marketing per prospect.
      P = number of prospects.

    Profit per customer/Cost of acquiring customer P/C = m/Cp/a = am/cp

      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.

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Customer Relationship Management