2 Must-Have B-to-B Metrics
Obviously B-to-B companies want to make money on customer acquisition. In reality, they settle on breaking even within the first 12 months to 18 months. In this case, the year-one additional sales calculate to a contribution of +$28.38 per new customer. After the first 12 months, you're close to breakeven but are still underwater by -$2.86 ($31.24 - $28.38). During year two, things turn around dramatically. You show a contribution per customer of +$91.13, which calculates to a two-year profit of +$59.89. In Year three, with a +$291.38 contribution per customer, you're ahead by +$260.14.
Of course, you can get more detailed in these calculations and include a value-of-money calculation and an estimate for overhead, usually in terms of a percentage of sales. But these are the essentials to get you started.
Based on these metrics, some companies will limit any new customer acquisition list or channel to their calculated LTV target. If an effort falls beyond their parameters, they cut it. Other companies will dollar cost average all of their prospecting efforts. This means that some lists turn a profit immediately and others turn a profit beyond the calculated LTV target, but on average their combined prospecting efforts are within their target range. The first technique is a bit conservative, while the second may be too aggressive. Usually a balance between the two approaches works best. Regardless of which approach you choose, you can now comfortably determine what you can invest for new customer acquisition.
A columnist for Retail Online Integration, George founded HAGUEdirect, a marketing agency. Previously he was a member of the Shawnee Mission, Kan.-based consulting and creative agency J. Schmid & Assoc. He has more than 10 years of experience in circulation, advertising, consulting and financial strategy in the catalog/retail industry. George's expertise includes circulation strategy, mailing execution, response analysis and financial planning. Before joining J. Schmid, George worked as catalog marketing director at Dynamic Resource Group, where he was responsible for marketing and merchandising for the Annie's Attic Needlecraft catalog, the Clotilde Sewing Notions catalog, the House of White Birches Quilter's catalog and three book clubs. George also worked on corporate acquisitions.