In some companies, how much you actually pay to acquire a new customer is a great mystery.  It shouldn't be.  This should be and is one of the basic building blocks of a successful company.

8X8 is a voice over IP provider.  Thy service businesses and consumers with telephone services over the Internet.  In their most recent quarterly earnings report they offered up the following numbers:

$638 cost to acquire a new business customer
$201 monthly revenue value of each business customer
67% gross margin

This is a company that knows how much they actually spend to acquire a new customer.  How much should they spend?  Well, let's think about this for a minute...

$201 per month in revenue times 12 months equals $2,412.  Not bad.  Spend $638 and get $2,412 back in year one.  This suggests a simple expense to revenue E/R ratio of 26.5%.  That's okay unless you work for a channel partner like Insight, CDW or others and need to run your marketing department on 3% of revenue.

Factor in the gross margin of 67% and they earn $1,616 in gross profit for every customer that they serve.

Remember the above is an unloaded or unburdened analysis.  There are many other aspects that must be considered up when trying to answer the question of how much you should spend for a customer... but we're going to keep this very simple today. 

Many direct marketers will tell you that they lose money in year one, break-even in year two and start making money in year three.  Applying this logic to 8X8 and they could spend up to $2,412 before going into that "lose money in year one" position.  If you want to load up the analysis a little, work from your gross margin number instead - and the number for 8X8 becomes $1,616.

Personally, I like the 26% E/R range that they are in.  The company is showing a profit and based on this simple cut of numbers they could afford to spend a little more if they need to.  That's a good position to be in.

www.iangilyeat.com