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  • Acquisition Cost

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    Jerry Toppo
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    The document outlines a six step process to determine customer equity: 1) number of prospects contracted, 2) marketing and servicing costs, 3) number of prospects who became customers, 4) sales revenue and margin of new customers, 5) acquisition equity by subtracting costs from revenue, 6) average acquisition equity per customer. It then provides assumptions and calculates acquisition cost, profit/loss per customer, profit to cost ratio, initial customer investment, number of customers acquired, and profit/loss from new customers. The key statistics should help management understand their business.

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    Acquisition Cost

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    The document outlines a six step process to determine customer equity: 1) number of prospects contracted, 2) marketing and servicing costs, 3) number of prospects who became customers, 4) sales revenue and margin of new customers, 5) acquisition equity by subtracting costs from revenue, 6) average acquisition equity per customer. It then provides assumptions and calculates acquisition cost, profit/loss per customer, profit to cost ratio, initial customer investment, number of customers acquired, and profit/loss from new customers. The key statistics should help management understand their business.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Download as pdf or txt
    15 views6 pages

    Acquisition Cost

    Uploaded by

    Jerry Toppo
    The document outlines a six step process to determine customer equity: 1) number of prospects contracted, 2) marketing and servicing costs, 3) number of prospects who became customers, 4) sales revenue and margin of new customers, 5) acquisition equity by subtracting costs from revenue, 6) average acquisition equity per customer. It then provides assumptions and calculates acquisition cost, profit/loss per customer, profit to cost ratio, initial customer investment, number of customers acquired, and profit/loss from new customers. The key statistics should help management understand their business.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    of 6

     Sets the stage for using the customer equity

    data in a company’s accounting system


     It’s a straight forward process, but obtaining
    data is bit difficult.
     It has six steps:
    1. Determine the number of prospects contracted over
    a fixed time period from a completed acquisition
    campaign;
    2. Measuring the marketing and servicing costs
    associated with contacting and selling to the
    prospects;
    3. Determine the number of prospects who became
    customers;
    4. Computing the sales revenue and gross margin
    for the new customers’ first set of purchases;
    5. Computing the acquisition equity of the entire
    pool of customers by subtracting the costs (step
    2) from revenues (step 4)
    6. Dividing the total acquisition equity by no. of
    customers to determine the average acquisition
    equity per customer
    Assumptions
     Acquisition Rate: 13%
     Cost per Sales Call: Rs.250.00
     Number of Calls per Prospect: 10
     Cost per Prospect: Rs.2500.00
     Sales Margin for New Customer: Rs. 8000.00
     Number of Prospects Targeted: 7,308
    Basic Financial Statistics

     Cost to Acquire a Customer: ??


     Net Profit (Loss) to Acquire a Customer:??
     Ratio of First-Year Profits to Acquisition
    Costs: ??
     Initial New Customer Investment: ??
     Number of Customers Acquired: ??
     Net Profit (Loss) for Newly Acquired
    Customers: ??
    Basic Financial Statistics

     Cost to Acquire a Customer Rs.19,231.58


     Net Profit (Loss) to Acquire a Customer (Rs.
    11231.58)
     Ratio of First-Year Profits to Acquisition Costs
    0.416
     Initial New Customer Investment Rs.
    18270000 or Rs. 182.7 lakh
     Number of Customers Acquired 950
     Net Profit (Loss) for Newly Acquired
    Customers (Rs. 10670001.00 or Rs. 106.7
    lakh)
     Basicknowledge of acquisition
    costs, initial profit to cost ratios
    and new customer investment
    statistics should provide
    management with a better
    understanding of their business.

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