You may be thinking, “how will I acquire customers for my business?” The question you should be asking is, “how will I acquire quality customers that will have a strong lifetime customer value?” Understanding the relationship between your “cost to acquire a customer” and that customer’s “lifetime value” will make a significant difference in how balanced your business model is.

If your cost per customer outweighs your lifetime value for that customer, your startup can easily fail even if you have everything else established. The key to reducing customer acquisition costs, according to David Skok, is improving conversion rates and creating a process that decreases customer confusion.

Skok suggests:

1. Incorporate testing to identify areas where you can improve conversion rates

2. Create demo videos answering the most likely sales questions

3. Provide a comparison matrix for how your product compares to the competition

Now that you have some ideas of how to reduce customer acquisition costs, you need to make sure you know how to calculate these costs:

Customer Acquisition Costs = Cost of Sales and Marketing (including salaries and headcount expenses) for a given period / Number of customers acquired during that period

Lifetime Customer Value = Gross margin expected from a customer during the lifetime of that relationship

Once you’ve identified your balance structure, you are able to identify what changes you may need to implement to address your customer acquisition costs. This knowledge will allow you to avoid one of the greatest miscalculations made by entrepreneurs: that as soon as you launch, customers will flock to you. It will allow you to establish the worth of a direct mail marketing campaign vs. an email marketing campaign.

Once you have these tools, there is little that can stop your business from being a success.