How Much Does a New Customer Cost? You Need to Know.

In November’s newsletter I wrote an article entitled “5 ways to beat your competition without spending a dime”.  The first item was to show up and be on time for your appointments.  When I wrote that I thought it was so obvious that I almost did not put it in.  But then I had the following experience.

A friend of mine called and told me he needed a new roof on his duplex.  I told him that I knew a great roofer in his area and that I would have them contact him right away.  I called the roofer and told him that my friend was expecting a call from him.  He did call and set up an appointment to check out the roof.  I later contacted my friend to see how things had gone.  He said that the roofer I recommended had called but them never showed up for their appointment and that he ended up getting someone else to do the job.  They did not even show up for a pre-qualified referral lead. Needless to say I was embarrassed and will probably not recommend that roofing contractor again.  But, the experience led me to write this post.

How much money did that roofer waste by not following up on that lead? I am not talking about his potential profit, I am talking about his cost of acquisition for a new customer.  I know that this roofing contractor actively markets his roofing company including yellow pages, a web site, and direct mailing.  That amounts to a lot of money each year to acquire new customers.

Let’s look at how you can figure what each new customer costs you to acquire in terms of marketing dollars.

First - take your total marketing spend for the year.  Add up all that you spend on your yellow pages, web sites, direct mailing, and other marketing.

Second - divide that number by the total number of jobs you closed in that same year.

Here is an example:

Total of all Marketing expenditures for the year
Yellow Pages – $1200 per month = 14,400.00
Web Site – $50.00 per month = $600.00
Direct mailing – $300.00 per month = $3,600.00
Newspaper Ad – $300.00 per month = $3,600.00

Total Marketing spend for the year = $22,200.00

I know that there are some roofing contractors who spend that much just on their yellow page ads!

Now lets figure the total number of customers acquired in that same time period
1.5 re-roofs per week = 78
Total repair jobs = 50

Total customers acquired = 128

Total Marketing Spend = 22,200.00 divided by number of customers 128 = $173.43 per customer.

So in this example it costs $173.43 to acquire a new customer.  If that were the case for the roofer I mentioned above he wasted $173.43 by not showing up in addition to the amount of profit he could have made.

This is an important number for all roofing contractors to know.  This is an important number for all of your employees to know as well.  Every time someone does something that costs you a new customer you just wasted that much money in your marketing expenses.

This is also a good number to know when you are analyzing new marketing opportunities.  You can take the cost of the marketing item and divide it by the total number of customers you expect it to bring and find out if it is a good spend.

Marketing is a major expense for roofing contractors.  Knowing the exact value of a new customer can go a long way to helping you to bring those costs down.