The Way We Work
July 16, 2009 by James Waters

Even big companies fall into the trap — pursuing market share and underestimating new customer acquisition costs. American auto makers such as GM fell into this trap, building cars and offering discounts in the pursuit of market-share. Eventually, the cost of acquiring customers was greater than the profit they generated. As a freelancer, it’s also easy to focus on the big numbers: hourly rate and total income. But are you measuring your customer acquisition costs?

pricing and negotiationThe body of marketing theory and research focused on the costs associated with acquiring a customer vs. the benefits of retaining them over time is known as CLV. Every freelancer should have a firm idea on their costs of acquiring new customers versus the costs of going above and beyond to further cement lasting relationships with existing clients.

Do you calculate your time spent prospecting, interviewing, scoping and communicating to land new customers? Does it take you 5 hours to land a 40 hour job? That equals a 12% hit in your overall hourly rate for the week. What if you delighted an existing customer by investing an extra free hour or went above and beyond to deliver something amazing investing only 2 hours to do it? What if that subsequently landed you a 200 hour job? Suddenly you’ve gained a 12% hourly pay increase.

Some good CLV resources on the web:

  1. An overview and introduction for small business owners to CLV;
  2. Harvard Business Press’ online CLV calculator; and
  3. CLV guide for consultants.

Key takeaway:

Giving your top customers occaisional free and delightful extra help can actually pay more in the long run! Keep in mind how much it costs to get a new customer vs. cementing a longer relationship with an existing one. Sometimes, donating a couple of hours in the name of building relationships is actually the fiscally sound choice!