Low Cost Customer Acquisition
A CASE STUDY

A low cost customer acquisition strategy is the need of all startups as their cash resources are limited.

“Without planning, even the most effective marketing will fail to deliver results.”- Ian Brodie- Marketing Thought Leader 2013

Sara opened a pre- school and was anxious to start admission process. She had spent a lot of her time trying to identify the right sources for customer acquisition but with little success. Sara, being a homemaker had very little personal savings. She could afford a maximum of $ 500 for her startup.

She had to start the school during that academic session and was wondering what should be her strategy to acquire customers at low cost.

Low Cost Customer Acquisition- Fishing Holes

Sara’s school is in a metro town and is close to ten high rise apartments. Her analysis showed that there are close to 3000 families living in these high rise apartments. Most of the occupants were young working couples.

Low Cost Customer Acquisition -  Resources  vs-Return

Sara listed her resources and estimated the returns for each approach so that she can plot   the Resources- Return matrix to identify potential customers.

Time   60 hours / week (50 hours for marketing)

Money:  $500 budget for pamphlets/ high tea/ travel cost

Since her time is critical she evaluated all the alternatives to select one which will get her more customers per hour of work.  She had limited cash resources whereas she had more time to spend on marketing.

The rating scale for both the resources and the returns was from 1-10, one being the lowest and 10, the highest. For return higher score  is ideal whereas the lower score is the preferred option for resources..

Low Cost Customer Acquisition - Alternative Lead generations

  1. Meet individual families in high rise apartments

2.    Enclose pamphlets in newspapers by tying up with vendors who supply daily news papers to residential complexes. Respond to potential clients by calling them. 

3.Meet the office bearers of the 10 high rise apartment associations and request them to organize a meeting of residents on any weekend. She offer to host tea. 

Resources -Return estimate for each alternative

Alternative1

Resource: Time

 4 visits / complex and 5 hours in each complex which include follow up with interested customers .Time per residential complex: 4X5= 20 Hours

Total time for all ten complexes: 10X 20= 200 Hours  ( 4 weeks)

Cash Resource;   Travel Cost & Pamphlet

 $ 5 / Complex Total  $50

Return: Lead Generation

Based on a pilot, she realized she could meet only 20 % of the  residents and all of them may not be her potential clients.

Time requirement: 200/ 240 - 80% which is a score of 8 out of ten for resources

Return: 20% success rate for identifying customers hence the score is 2 out of 10.

2X2 Matrix (Resource: Return) : (8,2)

Alternative2

Resource: Time

Inserting pamphlets in newspapers delivered to high rise building

Time required for arranging with vendors- She had to meet 6 vendors and withtravel time it would take her 24 hours to finalize with vendors. She had to respond to those who contacted her and she spend another 6 hours / week on this. For four weeks, the total time required was 24 hours.

Total    Time resource for 4 weeks; 24+24= 48 hours.  (48/ 240- 0.2 )

Return:  Based on her discussion with vendors and friends she arrived at the figure of 40% success rate in potential clients contacting her. Thus the score is 4 out of 10

2X2 Matrix (Resource: Return) : (2,4 )

 

Cash Requirement

Pamphlet – 3000 numbers  at 2 cents/ pamphlet                   60$

Vendor Charges: 5 cents/ house-                                        150 $

Total                                                                                     210 $

Alternative 3:

Resources: Time

Pre arrangement with each building Society: 2 hours (10X2)= -20 hours

Meeting day- 3 hours/ society                      (10X3)                         = 30 Hours

Follow up                                                                                                     20 hours

Total:                                                                                                           70 Hours

 Resource: (70/240=0.3)

Return:

Based on meeting   20 families / society she would potentially meet 200 families.

Since Sara’s interest was only parents with young children  her conversion rate would be 80 %

 Thus the score is 8 out of 10

2X2 Matrix (Resource: Return) : (3,8 )

Expected Expenses: $ 300

The cash requirements for all alternatives are below the budget of $ 500.

Low Cost Customer Acquisition- Result

Alternative 3 was the lowest cost incurred per customer acquired.  Sara invested less time but got higher returns by identifying the  right fishing hole.

Low Cost Customer Acquisition- Conclusion

https://www.forbes.com/sites/steveolenski/2017/01/09/how-marketers-can-reduce-customer-acquisition-cost/2/#1431ebd84b35

A simple data driven approach can help startup entrepreneurs to validate their assumptions instead of using gut feel for decision making.

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