During the initial consultation with a new client I try to determine the level of awareness the client has with the financial ends and outs of their business. The most common information business owners know off the top of their heads is how much they charge each client for their products and services, how many clients or how much in sales they average each month, and they usually think they have an idea of how much they profit off each product or service they sell.
However, when I ask them “How much do you spend to get a new client or sale?” they usually give me a deer caught in the headlights look, or they ask me why it is important.
Customer cost of acquisition, or CAC , is critical to how much profit you as a business owner are making. If you sell products most business owners tend to know their cost of goods sold but this does not include other indirect costs. If you sell a service you usually know the time, and direct costs that go with the services you provide but tend to not include overhead and other indirect costs. There are a lot of factors which go into your customer cost of acquisition.
Some expenses that are often overlooked in calculating your CAC are: marketing, advertising, website costs (hosting, SEO, maintenance), office rent and utilities (or if a home office then a portion of your household rent or mortgage and utilities), time spent networking, travel time and money spent searching for or getting to clients, industry specific costs just to name a few. If as a business owner you are not factoring these costs into your pricing or profit calculation then you may be leaking money out the door.
Most business owners keep some sort of accounting books or at the very minimum watch their bank accounts like a hawk. Even if you hire someone to maintain your bookkeeping or hire a CPA you may not be getting the custom reports to easily pull this cost information off your normal profit and loss and balance sheet. Entrepreneurs who are not in a financial field especially can fall into this void when analyzing their numbers.
A good accountant can and should be in regular contact with business owners to pinpoint these numbers that are critical for making good business decisions. Max Profit Accounting makes a point to do this with all their clients. Custom reports such as budgets, cash flow statements, expense logs, and utilizing classes to track income and expenses can really help business owners see their numbers quickly, thoroughly, and at the level needed to fully understand and constantly be aware of all the ins and outs of their business.
So, in conclusion, make sure you factor all expenses when calculating how much you spend to get a new client or make a sale. You may find you need to make changes to your pricing or spending to fully be as profitable as you like.
Want your business to be more profitable? Check out
How Keeping Good Accounting Books Can Make You More Profitable.