Customer Acquisition Toolbox. Part 1.

 

Customer acquisition cost (CAC) is the amount of money a company spends to get a new customer. It helps measure the return on investment of efforts to grow their clientele. CAC is calculated by adding the costs associated with converting prospects into customers (marketing, advertising, sales personnel, and more) and dividing that amount by the number of customers acquired.

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According to the US Small Business Administration, companies that make less than $5 million a year should allocate between 7% and 8% of their revenues to marketing. In other words, if your company brings in $300,000 a year, around $22,500 of that should go into marketing. But how do you ensure that’s money well spent? One important metric to look at is customer acquisition cost (CAC).

This article will dive into what CAC is, how to calculate it, how to use it in your marketing, and how it relates to customer lifetime value.

What is customer acquisition cost?

Customer acquisition cost, known in marketing circles as CAC, describes how much a company has to spend to get a new customer. The use of CAC has risen in popularity as organizations use web analytics to make data-driven decisions. Whether they’re paying to have potential customers click on banners or investing in articles and graphic content, measuring their CAC helps companies figure out if they’re getting their money’s worth as they invest in growing their clientele.

Internet marketing methods can target specific groups of customers on a granular level. This is relatively new. Traditionally, companies had to cast a wide net with advertising, which involved aiming their marketing content at a broad segment of potential customers. The hope was that this would bring in at least some new customers. Because this approach lacks specificity, it was common for companies to see undersized returns on their marketing investments.

How is customer acquisition cost calculated?

However, modern, targeted campaigns combined with CAC metrics can not only home in on specific groups of people but they can also tell you how much you’re spending per each new prospect to bring them on board and convert them to paying customers.

In short, to calculate CAC, you add up the costs associated with acquiring new customers (the amount you’ve spent on marketing and sales) and then divide that amount by the number of customers you acquired. This is typically figured for a specific time range, such as a year or a fiscal quarter.

If an organization spent $1,000 on marketing in a year, and it was able to acquire 1,000 new customers, the CAC would be $1 because $1,000 divided by 1,000 customers equals $1 per customer.

On the other hand, if the company brought in 500 customers, their CAC would be twice as high, or $2, because they spent the same amount of money and brought in half the number of new customers.

This formula is pretty simple, but adding up total expenditures can take a lot of factors into account, including the cost of multiple marketing strategies and staff salaries.

Example: Custom furniture maker

A fictitious furniture maker, Natural Seats, uses sustainable resources to build custom furniture. Natural Seats’ marketing efforts consist of:

• Paid sales and marketing staff
• Social media campaigns
• Pay-per-click advertising
• Quarter-page magazine ads in a journal read by its target market

The company decides to track how much it costs to acquire new customers for the period beginning January 1 and ending the following December 31 because this matches the start and end of their fiscal year. Natural Seats’ process is simple: They consider what they spend overall and how many new customers they have by December 31.

The expense sheet they’d use to calculate their CAC might look something like this:

Marketing Tool	Cost Per	Quantity	Amount Spent
Sales and Marketing Staff	$50,000	3	$150,000
Social Media Campaigns	$1,000	12	$12,000
Pay-per-click advertising	$0.50	20,000	$10,000
Magazine Ads	$700	12	$8,400
		Total Marketing Expenses:	$180,400
		New Customers Acquired:	2,512
		CAC:	$71.82

According to Natural Seats’ calculations, they spent an average of $71.82 per new customer acquired during the fiscal year.

While this may be outrageously high for many companies, this is a pretty good number for Natural Seats. Custom furniture comes at a cost, and clients expect to pay a premium for sustainable products. Natural Seats’ least expensive item, a custom dining chair, costs $250. So even if each customer only purchased one item and it was Natural Seats’ least expensive offering, they would still realize a decent gross profit of $178.18 after their CAC.

However, this is only the beginning of the CAC story—you also have to consider how much each customer spends, which is calculated using customer lifetime value.

How customer lifetime value affects customer acquisition cost

Customer lifetime value (CLV, or sometimes LTV) is the amount your company makes from each customer during the customer’s “lifetime” of making purchases from you.

Of course, the amount of time a person remains a customer and how much they spend varies greatly among businesses and sectors, so you have to consider the factors that impact your company specifically. However, some elements of CLV are pertinent to most organizations.

• Average customer life span: This is how long the individual remains a customer.
• Rate of customer retention: The percentage of customers who buy again.
• Profit margin per customer: Expressed as a percentage, this may take into account CAC as well as other expenditures such as the overall cost of goods sold, which includes production and marketing costs, and how much it costs to run the company. To calculate the profit margin per customer, take your net income per customer, which is what each customer spends minus the CAC, then divide that number by your revenue from the customer over their lifetime with you. Multiply by 100 to get the percentage.
• Average amount each person spends over their lifetime as a customer: This is a simple calculation: Add up what each customer spends over their lifetime and divide it by the number of customers.
• Average gross margin per customer: This can be calculated for a finite time period, such as a year, or according to the customer’s life span. In the case of a life span calculation, take the profit margin per customer over their lifetime, divide it by 100, and multiply that by how much they spend during their lifetime.

Example of CLV: Networking equipment provider

Whole Networks is a fictitious company that provides networking equipment like routers, switches, access points, and servers by reselling original equipment manufacturer (OEM) items by major producers like Cisco and Fortinet. Whole Networks’ numbers stack up like this:

• CAC is $180 per customer.
• The average customer stays with Whole Networks for 10 years.
• Their profit margin per customer is 19%.
• The average amount spent by each customer over their lifetime with Whole Networks is $57,052.
• The average gross margin per customer over their lifetime with Whole Networks would be 0.19 x $57,052 = $10,840. This is the CLV of a Whole Networks customer.

Factoring in CLV when considering CAC

At first glance, Whole Networks’ CAC of $180 per customer may seem high, even for the technology sector. If they acquired 2,500 customers in a year, the expenditure would total $450,000, a rather steep figure. However, each customer is going to spend $10,840, so Whole Networks earns $10,660 per new customer, which is 60 times what it spends on acquiring each one. From this perspective, their CAC is relatively low.

Whole Networks’ return on investment (ROI) based on CAC:

Customer Metric	Amount
CAC	$180
Average customer life span	10 years
Profit margin per customer	19%
Average amount spent over lifetime with company	$57,052
Average lifetime gross margin per customer	$10,840
ROI per customer (gross lifetime margin − CAC)	$10,660

Factors affecting customer acquisition cost

When calculating CAC, it’s important to consider the business context in which the numbers are gleaned. For example, if you’re just breaking into a new market, your CAC may be higher because it often takes a greater up-front investment to get your marketing rolling in a new area.

Also, newer companies that have to hire marketing staff or existing companies that decide to augment their current marketing efforts with new people or technologies may have significantly higher CACs.

To illustrate, suppose a boutique sneaker company, YourKicks, has already established a market in New York City. To obtain its position in the boutique sneaker segment of metropolitan New York, it used social media, pay-per-click advertising, and several strategic partnerships with retailers who would sell their sneakers. At this point, with their marketing up and running in New York City, their CAC is $10 per new customer.

When YourKicks decides to target the Los Angeles market, some of their marketing efforts will require very little extra investment, while others will demand significant cash. For instance, the pay-per-click costs may be similar in Los Angeles and New York City, so that item in the CAC calculation may not change much. However, a Los Angeles-specific social media campaign will take significant time and human capital as they ramp it up. Also, acquiring new retail partners may involve heavy up-front investments in travel, meals, and other costs associated with landing each account. Therefore, the CAC for Los Angeles will be higher than what they are currently paying in New York City.

When factored into the overall costs of operation, the Los Angeles CAC may significantly impact the total CAC. But because this investment is necessary, it would be wrong to assume the Los Angeles market “costs too much,” at least until the number of new customers and sales revenues become comparable to New York’s.

How can you improve your customer acquisition cost?

To lower your CAC, you should work on converting leads and prospects to paying customers, upping the value of what customers get, and using a customer relationship management (CRM) platform to stay engaged with your audience.

• Improve lead conversion rate: You can use Google Analytics to see things like how often customers abandon their shopping carts after adding an item. You can take a close look at how fast your webpages load and think about ways to make your landing pages more engaging if your website visitors are leaving without clicking through to other pages. You should also check how your site looks on mobile devices and how smoothly the checkout process works for buyers. Making all these experiences better for the customer will lead to more conversions.
• Add value to your offering: The value users perceive from your products and services is subjective, so adding features that similar companies have implemented may not have the desired effect. It’s best to spend time interacting with customers—using surveys or emails—to figure out what would best fit their needs. You can also study statistics such as your customer retention rates and more subjective feedback from the reviews you get. If you notice correlations, improving one may boost the other.
• Use a CRM system: A CRM platform can help you keep track of new customers, their movements through the sales funnel, how much they buy including when and where, loyalty programs, and more. You can also use it to manage email lists and campaigns such as promotions, seasonal email advertising, and drip campaigns, which periodically send emails containing compelling content.

How can you benchmark customer acquisition cost?

To benchmark your CAC, you’ll want to boil your measurables down to simple, easy-to-interpret metrics.

1. You need to bring in more money than you are spending on your CAC. While this may seem like it goes without saying, it gets more complicated as you factor in things like CLV and customer profit margins. A “low” monetization in the short term may look better over the long term.
2. Try to recover your CAC in less than a year. Ideally, you want to earn at least as much as your acquisition cost from each customer by the time a calendar year passes.
3. With social media marketing, track the number of shares. People only share content they value. If the content you’re paying for is bringing in customers and is being shared more than content you’ve previously produced, it’s doing its job.
4. Use gated content—content a customer can only access by giving you their email address or other contact information—and track how long it generates leads. Strong gated content can bring in leads for several months or more. Compare that with subsequent content to gauge the effectiveness of your investment.

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Common ways to segment CAC

Total CAC can often hide what specific ads/channels are most and least effective. It is common to break out CAC to see where to further spend and optimize.

For instance if we spent half that money on Facebook ads and half on Google and got twice as many customers through Facebook we would want to invest more in Facebook ads.

We might also look at this data over time or segmented further by demographics to see an even clearer picture.

The most common ways to segment CAC include:

• Channel
• Ad
• Company size
• Country
• Age
• User Persona

These segmentations can make it very clear where we are getting the most bang for our buck. Let’s segment the Facebook CAC further, this time dividing by age.

Here, we can see our ads are performing well for people under the age of 25 and very poorly for older groups.

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Cohort analysis is a kind of behavioral analytics that breaks the data in a data set into related groups before analysis. These groups, or cohorts, usually share common characteristics or experiences within a defined time-span. Cohort analysis allows a company to "see patterns clearly across the life-cycle of a customer (or user), rather than slicing across all customers blindly without accounting for the natural cycle that a customer undergoes." By seeing these patterns of time, a company can adapt and tailor its service to those specific cohorts. While cohort analysis is sometimes associated with a cohort study, they are different and should not be viewed as one and the same. Cohort analysis is specifically the analysis of cohorts in regards to big data and business analytics, while in cohort study, data is broken down into similar groups.

Cohort analysis has four main stages:

• Determine what question you want to answer. The point of the analysis is to come up with actionable information on which to act in order to improve business, product, user experience, turnover, etc. To ensure that happens, it is important that the right question is asked. In the gaming example above, the company was unsure why they were losing revenue as lag time increased, despite the fact that users were still signing up and playing games.
• Define the metrics that will be able to help you answer the question. A proper cohort analysis requires the identification of an event, such as a user checking out, and specific properties, like how much the user paid. The gaming example measured a customer's willingness to buy gaming credits based on how much lag time there was on the site.
• Define the specific cohorts that are relevant. In creating a cohort, one must either analyze all the users and target them or perform attribute contribution in order to find the relevant differences between each of them, ultimately to discover and explain their behavior as a specific cohort. The above example splits users into "basic" and "advanced" users as each group differs in actions, pricing structure sensitivities, and usage levels.
• Perform the cohort analysis. The analysis above was done using data visualization which allowed the gaming company to realize that their revenues were falling because their higher-paying advanced users were not using the system as the lag time increased. Since the advanced users were such a large portion of the company's revenue, the additional basic user signups were not covering the financial losses from losing the advanced users. In order to fix this, the company improved their lag times and began catering more to their advanced users.
• ‘’’Test results.’’’ Make sure the results make sense.

Payback analysis is performed by a business to determine when the amount of an investment will be returned. Understand the formula used in payback analysis and learn how to apply this using examples. 

What Is Payback Analysis?

Payback analysis is a mathematical methodology to determine the payback period for an investment. The payback period is how long it will take to pay off the investment with the cash flow derived from the asset or project. In colloquial terms, it calculates the 'break even point.' The payback period is usually measured in fractions of years.

Payback analysis can provide important information for decision-making. It provides a means to manage risk. You can use payback analysis to determine whether an asset or project will pay for itself in an acceptable period of time. Shorter payback periods are usually viewed as less risky. Additionally, you can also use the method to compare potential assets or projects to see which will recoup its costs quicker. The payback method is certainly not the only financial metric that should be relied upon when making an investment decision, but it is a useful tool.

Formula

Now, let's take a look at the formula necessary for payback analysis. The payback formula is simple. The payback period is the total investment required to purchase the asset or fund the project divided by the net annual cash flow, which is gross cash flow minus expenses, generated from the asset or project.

The formula is:

Payback Period = Initial Investment / Annual Net Cash Flow

Now that we know the formula, let's take a look at an example and use our payback formula.

Payback Analysis - A Practical Exercise:

The following exercise is designed to help students apply their knowledge of payback analysis in a real-life context.

Exercise:

You are the production manager of Alpaca Cozy Socks, a company that produces socks using alpaca wool with funky designs. The current sewing machine used by the company is at the end of its life - You must thus select a new machine. There are several options available on the market, each of them resulting in cost savings given that they consume less electricity and/or require less maintenance than the current model used.

Your managerial accounting analyst prepared the following analysis for each of the machines:

Machine	A	B	C
Cost and Installation ($)	40,000	50,000	80,000
Useful life (years)	10	12	15
Annual depreciation ($)	4,000	5,000	8,000
Annual cash savings ($)	8,000	5,000	10,000

Alpaca Cozy Socks is going through a restructuring phase where there is not much money going around. Therefore, the Chief Financial Officer told you that you must select the machine that will allow the company to recover its money as quickly as possible.

Required:

1. Compute the payback period for each machine.

2. Determine which machine should be recommended based on the CFO's criteria and explain why.

Solution:

1. The formula for calculating the payback period can be given as

Payback period = Cost / Annual cash flow

Machine	A	B	C
Cost and Installation ($)	40,000	50,000	80,000
Annual cash savings ($)	8,000	5,000	10,000
Payback period (years)	5	10	8

2. The answer is Machine A since its payback period is the lowest.

Funnel analysis involves mapping and analyzing a series of events that lead towards a defined goal, like an advertisement-to-purchase journey in online advertising, or the flow that starts with user engagement in a mobile app and ends in a sale on an eCommerce platform. Funnel analyses "are an effective way to calculate conversion rates on specific user behaviors". This can be in the form of a sale, registration, or other intended action from an audience.

The term 'funnel analysis' comes from the analogy with a physical kitchen or garage funnel, which gets narrower along its length, allowing less volume to pass through it. Similarly, an analytics funnel helps visualize how a large number of individuals enter the funnel, yet only a small proportion of them will perform the intended actions and reach the end goal on a website, eCommerce platform, application, or online game.

Real world applications

An example of how a company would use funnel analytics is by focusing on drawing actionable insights from funnels. Funnel analysis can be used to determine conversion and user fallout rates in a given funnel. An analysis to determine the steps that lead to a desired goal in order to improve future interactions in the same funnel can be done for further success. To illustrate further, looking at how many users actually make it to the end of the funnel, for example to make a purchase or register, compared with how many do not.

By continuously monitoring and analyzing funnels, it is possible to assess if changes to an application or platform are having a positive effect on conversion. For instance, one might find that only 10% of users who come to a platform and enter the registration funnel actually reach the goal of completing registration. Using the funnel analytics process, it is then possible to tweak settings or features within the funnel in order to see what makes that number improve. Or when creating a marketing campaign, there is a chance to analyze how well the campaign is working by monitoring a funnel that brings users from the initial event all the way to purchasing a product.

Funnel analysis helps determine the point in which users are dropping off. The next step is to understand why they're dropping off, in order to reduce drop off rates and in turn increase overall conversion.

However, it's worth noting that the funnel as a linear approach is getting less relevant in today’s marketing. Consumers nowadays are having a more dynamic journey. Instead of just narrowing their options, they widen the resources to help them make a decision. And when they finally make a purchase, consumers share their opinion of the brand, regardless if it’s good or bad. They also set a standard based on their best brand experience and this affects their brand relationships and overall journey

Market Sizing

The ability to accurately size the market opportunity will provide the necessary focus so that all go-to-market resources are aligned for maximum impact.

Market size is a measurement of both the total and potential volume of a given market. For now, think of market size in terms of a pyramid that includes three layers: Total Market, Served Market, and Target Market.

Total Market – the total market attempts to quantify how big the total universe is for the specific product or service in question. This measure of the market is very broad and includes the total spectrum of the technology adoption curve. Note that the technology adoption curve represents all segments of a market including innovators, early adopters, early majority, late majority, and laggards.

Served Market – the served market is a subset of the target market and contains filters based on the reach of an organization’s distribution channel.

Target Market – the target market reduces the served market down to those that are most likely to buy based on the value proposition, a specific business problem and demographic, or social and transactional considerations.

The following are examples of information sources that can be leveraged to determine market size:

• Government data
• Trade association data
• Financial services companies
• Financial data from major players in the market
• Customer surveys
• Predictive modeling

Market Segmentation

At the heart of market sizing is market segmentation. Market segmentation is a marketing strategy that divides a broad target market into homogeneous subsets that have, or are perceived to have, common needs, interests, and priorities. Once the broad market is properly divided, one can then design and implement strategies to target those subsets. Market segmentation strategies are generally used to identify and further define the target customers. They also provide supporting data for marketing plan elements (such as positioning) to achieve certain marketing plan objectives. Businesses may develop either succinct product differentiation strategies or undifferentiated approaches which would involve specific products or product lines depending on the actual demand and attributes of the target segment.

Technology Adoption Curve

Established in the 1950’s at Iowa State University, the technology adoption lifecycle model describes the adoption or acceptance of a new product. The technology adoption lifecycle is illustrated as a normal distribution or bell curve comprised of five segments: innovators, early adopters, early majority, late majority, and laggards.

Specifically, the segments are defined as:

• Innovators –innovators are the first individuals to adopt a new product or service. Innovators are willing to take risks even though they know that they may ultimately fail as they can absorb the financial loss. Innovators represent 2.5% of the market.
• Early Adopters –these adopters are often referred to as thought leaders because they have a good deal of influence on other buyers in the market. Early adopters represent 13% of the market.
• Early Majority – these individuals adopt an innovation after there has been some proof that the product or service works — and this can take a varying degree of time. The early majority represents 34% of the market
• Late Majority – the late majority adopts an innovation once the scale has been tipped—meaning the average person is now a buyer. These buyers are highly skeptical, risk averse and afraid of financial loss. The late majority represents 34% of the market.
• Laggards – this segment of the market is the last to adopt a new product or service. Laggards do not follow the trends and are not swayed by thought leaders. They are very much creatures of habit and do not like to change things, even when something is broken. Laggards represent 6% of the market.

Market sizing, market segmentation and embracing the technology adoption curve are precursors to establishing a sound market penetration strategy.

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PVP index-

These are vastly different market segments. A great way of figuring out your ideal target market is to use the PVP index.

1. Personal fulfillment

2. Value to the marketplace.

3. Profitability

and giving each market segment you serve a rating out of 10.

P - Personal fulfillment:

How much do you enjoy dealing with this type of customer? Sometimes we work with “pain in the butt” type customers just because of the money. Here you rate how much you enjoy working with this market segment.

V - Value To The Marketplace:

How much does this market segment value your work? Are they willing to pay you a lot of $$$ for your work?

P - Profitability:

How profitable is the work you do for this market segment? Sometimes even when you are charging high fees for your work, when you look at the numbers it may be barely profitable or even loss making. Remember it’s not about the “turnover,” it’s all about the “left over.”

Given that you’ve now seen the power of choosing a narrow target market it’s time to select yours.

A prospect is a potential customer who has been qualified as fitting certain criteria outlined by a company based on its business offerings. Determining if a contact is a sales prospect is the first step in the selling process. Once you've determined that the person meets the criteria, they're a prospect and can move into the next phase of the selling process.

Learn more about prospects to tune up your selling process and improve your customer relationship management.

What Are Prospects?

Companies deem potential customers as prospects once they've been qualified as possessing predetermined characteristics. In most cases, a prospect fits your target market, has the means to buy your products or services, and is authorized to make buying decisions. Prospects don't have to have indicated an interest in buying; they just need to meet the mentioned criteria.

For example, if you sell virtual support services to small businesses, a prospect would be a small business manager who can afford your services and make the decision to hire you. If your contact doesn't have permission to make a buying decision, they're not your prospect.

How Prospects Work

Prospecting is the act of finding leads and turning them into prospects. Leads come from various places; you can buy lists, skim the phone book, search the internet, or talk to people while you're waiting in line at the store. In most cases, whatever form you use, your goal is to determine if the person could become a prospect.

You determine this by qualifying them on one criterion, usually your target market. For instance, you can buy lists based on demographics and interests; you can narrow a phone book or internet search on your target market's location; and while you're standing in line, you can strike up a conversation that would get you information about whether or not the lead was in your target market. 

Once you've determined that the lead could be a prospect, you then work to qualify them under the other criteria, which can be done in various ways, including a phone call, in-person meeting, online form, or email. Your goal is to determine if the lead is a good candidate for what you offer and has the money and ability to buy. 

Many home business owners end up wasting time on the sales process because they don't qualify leads before trying to sell to them or spend too much time on unqualified leads.

Prospects vs. Leads

Like many industries or occupations, the business sales field has many words unique to its own language and use. Terms will often be used interchangeably, even though they don't mean the same thing. This is the case with the business sales terms "prospect" and "lead."

A prospect is often confused as a lead, but there's a fundamental difference. A lead is an unqualified contact; any potential client or customer you meet who hasn't been qualified as a prospect is a lead. In the sales process, you gather leads first, qualify them into prospects, and then move them through your sales funnel or process.

• A prospect is a potential customer who has been qualified as fitting certain criteria.
• Prospects fit your target market, have the means to buy your product or services, and are authorized to make buying decisions.
• A lead is an unqualified contact, while a prospect has been vetted to fit the defined criteria.
• Prospect tracking is important for the sales process.
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• 
  
• You already know that spray-and-pray sales prospecting doesn't work. 
• To be effective, your prospecting process needs to be targeted. 
• Here's the thing most salespeople don't realize: Targeted prospecting isn't just a tactic you can plug into your sales process—it's an end-to-end strategy. 
• When targeted prospecting is treated as another box to tick, sales teams spread themselves too thin by selling to prospects who aren't a great fit. 
• The good news? There's a better way.
• It's not enough to say, "Your prospects should be targeted." You need a process that makes it happen. 
• Why targeted prospecting is more effective than traditional sales prospecting 
• More than 40 percent of sales reps say that sales prospecting is the most challenging part of the process. It's not hard to see why. 
• The average B2B company grows its revenue and customer base by talking to as many potential customers as possible. 
• More=better, right? 
• The more prospects you talk to, the theory goes, the more customers you can close. 
• The problem is, that time you spent getting to know one (crappy) prospect is time you don’t have to spend on prospects that might close. 
• Rather than having a larger prospect list, sales targeting allows you to focus more time on customers that might actually buy. 
• Here are a few other benefits of targeted prospecting: 

1. Provide prospects with a better experience: When you have more time to focus on each candidate, you get to know prospects better and can provide a more personalized experience. 
2. Higher close rates: Focusing on high-value prospects means fewer low-value prospects that drag down close rates. 
3. Higher customer retention rates: Prospecting is the start of your customer relationships. When future customers feel valued from the start, they are less likely to churn. 
4. More up-selling and cross-selling opportunities: Targeted prospecting provides a deeper understanding of each customer's needs and so you can offer other solutions they actually need. 

• The bottom line is this: targeted prospecting allows sales teams to spend more time on what matters, resulting in a more effective — and scalable— sales process. 
• How to target sales prospects  
• A truly targeted prospecting strategy starts from the ground up. It focuses on reaching the right people at the right time, on the right channel, and knowing exactly what to say. Here is a four-step process for creating a customer-focused prospecting process. 
• Step 1: Get a clear picture of your target prospects 
• How do prospects end up on your list? Because they tick the right box for annual revenue or their business is in the right industry? Maybe they happen to have the right title? 
• Generic information doesn't tell you who they are or what challenges they face. 
• Salespeople need more context about prospects’ business and needs. Without context, your messaging will be generic and ineffective. 
• So, how do you improve your qualification process? Here are a few ways: 

1. Talk to customer support teams to understand the qualities your best customers share. 
2. Focus on sales prospecting over lead generation. 
3. Use a sales prospecting tool to dive deeper into prospects. 
4. Create one (or more) prospect personas and plan targeting strategies based on what types of messaging they respond to. 

• Remember, a better qualification process means sales reps only reach out to only those most likely to need your solution. 
• This means you have more time to refine your sales approach instead of throwing out one-size-fits-all tactics and trying to appeal to 10,000 different prospects.
• Step 2: Start with a smaller, more targeted prospecting list 
• The traditional approach to sales prospecting says that the bigger your initial list of prospects, the more customers you'll convert. 
• A larger, less qualified list automatically means your messaging is less targeted. With 10,000 prospects, you might get a hold of 100 of them. But with a list of 250, you might reach half of them--and they are far more likely to convert. 
• Start by honing in on the best-fit prospects and spending time talking to them—instead of trying to convince prospects who aren’t a good fit. 
• Here are a few ways to find more targeted prospect lists: 
• Partner with complementary brands 
• The prospect persona you put together in step one should give you a clear idea of what brands your prospects might work with. Use that information to partner with related brands, sharing prospect lists, and use each other to get a foot in the door. 
• Sponsor and attend conferences 
• Conference attendees are often already semi-qualified for you. You know their industry and interests—and it’s no secret that they’re an excellent place to meet with prospects. Take it a step further by sponsoring relevant conferences, granting full access to information and contact information. 
• While in-person events are on hold, consider hosting a webinar or sponsoring virtual conferences in your industry. 
• Use a sales prospecting tool 
• Leadfeeder and other sales prospecting tools help you understand prospects by showing you which companies visit your site, including in-depth information on company size and revenue, and contact information. 
• You can also see how prospects behave on your website, such as: 

1. Which pages do they visit?
2. How long do they spend there?
3. Did more employees from the company visit after you gave a demo?

• Step 3: Build your sales prospecting process around customers 
• The typical sales process is all about moving prospects forward toward a sale and focusing on specific KPIs salespeople are supposed to hit. 
• There’s a tendency to think, "I just need to do so many things today, and my job is done." For example, you might want to:  

1. Email ‘X’ number of prospects today
2. Schedule ‘Y’ number of calls
3. Book ‘Z’ number of demos

• When that’s the basis of your prospecting process, it leads to unnatural and forced messaging that doesn't convert. 
• This type of process isn't designed to meet prospects where they are in the buying journey—it’s designed to push them to close. 
• That can translate into making prospects jump through hoops of your own design.
• Instead, use a holistic approach and build the entire sales process around the natural behaviors prospects were already taking. 
• Then, it's less about how qualified prospects are and more about the behaviors they exhibit.  
• Focus on creating opportunities by understanding the context underlying each prospect’s interest in your product. The best prospecting system focuses on enabling your sales team to know when to reach out and what to say. 
• 
  
• Step 4: Banish generic outreach 
• We’ve all seen emails riddled with CTAs and rambling messaging that ends with something like, “Does this apply to you?”
• When you send the same generic message to 10,000 prospects, your outreach will always be less effective. 
• A well-targeted prospecting strategy should lead SDRs to the right messaging and CTA for the decision-maker persona you are prospecting to. 
• This is what happens when prospects are qualified based on broad traits rather than experiences or behaviors. 
• When your prospects qualify because of their experiences--such as actions they take on your site or other behavioral data, it's easy to speak to their challenges and needs.
• You’ve done the upfront work of getting to know your prospects inside and out, along with building smaller, targeted lists of those people, so there’s no reason to send broad messages. 
• You should be well-equipped with a targeted message that includes the action you’re asking prospects to take.
• Final thoughts on targeted sales prospecting 
• We know that spray-and-pray sales prospecting just doesn’t work, but there’s a lot of gray area between traditional prospecting and an end-to-end targeted prospecting strategy.
• If your process falls somewhere in that middle area, use the tips above to build a strong, targeted sale approach. Focus on a smaller, more qualified list and build a sales prospecting process based on customer behavior, not just sales rep metrics. 
• You will be happier, and so will your prospects. 
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What Is Lead Scoring?

Lead scoring is the process of ranking the sales-readiness of a lead using a predetermined methodology. The process goes like this: You determine which criteria or data points indicate a sales qualified lead and then assign point values to each of those criteria, ultimately leaving you with a final score for each lead.

A lead scoring system allows you to take the subjectivity out of the process and truly understand which leads have the best chance of converting. 

So this makes us wonder if lead conversion is a priority and if marketing leads are failing to convert, why not implement a lead scoring system? We answer this question next.

Lead Scoring Examples

Lead scoring most likely looks different at every company, and there is no one-size fits all. Each company should have its own, uniquely designed scoring system that aligns with their particular goals, objectives, and targets. 

Yet even with the individual nature of lead scoring, below are a few examples of things to consider when designing your own scoring model. 

1. Create Buyer Personas

Before you can score your leads, you must have a clear understanding of the characteristics that make a prospect an ideal fit for your products and services. That’s where buyer personas come in. A buyer persona is a semi-fictional representation of your ideal customer. Each buyer persona profile is made up of criteria gleaned from quantitative research, anecdotal observations, and existing customer data.

The more buyer personas you have, the more holistic your understanding of your customers will be and, as a result,  the more precise your lead scoring efforts will be.

2. Determine Which Data Points to Score

Now that you know what your ideal buyers look like, it’s time to decide which attributes you will assign a point value to. Lead scoring criteria can be broken up into two main categories– demographic information and behavioral information.

Demographic information refers to the characteristics that a lead possesses. Some examples:

• Location
• Age
• Company Size
• Department
• Industry
• Job Title / Seniority

The term behavioral criteria refers to the actions that a lead takes, or how they interact with your company. Examples include:

• Email opens
• Email subscription
• Web page visits
• Free trial requests
• Form submissions
• Content download
• Social media engagement
• Webinar registration

Every business has its own definition of sales-readiness, so we can’t tell you exactly what criteria you should score. But hopefully, the above examples will start your brainstorming session.

3. Assign Point Values

Not all scoring criteria are created equal. Remember: your goal is to define which traits and actions eventually lead to a closed deal. So, you need to assign numerical values to each data point accordingly.

For example, leads who subscribe to receive blog updates don’t often convert to paying customers. Conversely, leads who download a whitepaper tend to have a very high conversion rate. So, blog subscribers get scored two points while those who download white papers get 25 points.

And another example using demographic and firmographic data points: Your best customers often come from companies of 2,000 plus people who work in the financial industry. On the flip side, individual financial advisors rarely convert to customers.

In this instance, you would assign 50 points to someone from a company of 2,000 people who select finance as their industry. But, you subtract 50 points for anyone who submits a form with a free-mail who lists their job title as “financial advisor” Again, the exact numbers and data points will depend on your lead scoring system – but you get the idea!

Here’s how to gather the data you need to develop an effective lead scoring system:

Talk to Your Sales Team.

Sales reps interact directly with customers each and every day. Therefore, they have important insight into the factors that qualify a person to be a customer. They might have a deeper insight into buying indicators that you failed to incorporate into your buyer personas.

If you don’t want to take up too much of your reps’ time, check out your CRM data—you can glean a lot of important information by looking at the leads your reps do and don’t follow up with.

Talk to Customers.

Your customers can tell you about their buying journey in greater detail than your reps can. Speak to some of your top buyers and ask them what early steps they took before deciding to make a purchase. As you speak to more customers, you’ll begin to see trends that will assist you with lead scoring.

Examine Your Marketing Analytics.

Analyze data relating to all of your past marketing campaigns. Which ones generated the most leads? More importantly, which campaigns generated the most buyers?

If you find that a specific piece of content has a high conversion rate, for example, then you might assign a high point value to leads who download that specific piece or who download similar content types.

4. Determine the Point Threshold that Makes a Lead Sales Qualified

Once you assign each data point a score, you total all points amassed by a single lead and that’s their final lead score. Simple, right? Not so fast. The tricky part is this: You must determine what range of  scores represent “sales-readiness.” This will likely require some testing and analysis when you first implement lead scoring.

We recommend implementing lead scores with no minimum value to start. Request that sales follow up with leads equally, no matter their score for a predetermined test period. Then, once that test period is complete, analyze sales follow up and lead score. See if you can identify a clear cut-off point where leads stop turning into customers.

Once this number is determined, sales and marketing must work together to develop the appropriate outreach processes for leads of certain scores.

For example, if after careful analysis you realize most leads that have a score below thirty never turn into customers, you come up with an agreement that sales will follow up with all leads scored above thirty and those who fall beneath that threshold will be placed into a nurture program until they become ready to buy.

5. Secure the Help of Sales and Marketing Automation Tools

If you’re thinking lead scoring sounds great, but nearly impossible to get done manually, you’d be right. Scoring leads without the help of a marketing automation tool is time-consuming– and even worse, it can lead to data inaccuracies and lead routing problems.

Not to mention, as a lead is nurtured through the sales funnel, their score will likely change. Without automated processes, like Salesforce’s Pardot in place, it’s pretty impossible to keep up with a single lead’s activities—not to mention thousands of leads.

Luckily, most popular marketing automation tools can handle the entire lead scoring process for you. All you have to do is enter your scoring criteria, and the automation tool will score leads as they come in and will update their scores as they change. You will be able to reap the rewards of lead scoring without devoting a ton of your time to it.

Find Lead Scoring Success Through Alignment 

Lead scoring might sound like a big project to take on. But we assure you – once you implement a lead scoring system, your entire organization will become more productive and effective. In fact, organizations using a lead scoring system experience a 77% increase in lead generation ROI.

So, stop wondering what leads are best and stop sending unqualified leads to your sales team. Sit down with your leadership and start your lead scoring strategy today – your entire organization will thank you for it!

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Geographic segmentation involves segmenting your audience based on the region they live or work in. This can be done in any number of ways: grouping customers by the country they live in, or smaller geographical divisions, from region to city, and right down to postal code.

Geographic segmentation might be the simplest form of market segmentation to get your head around, but there are still plenty of ways it can be used that companies never think about.

The size of the area you target should change depending on your needs as a business. Generally speaking, the larger the business the bigger the areas you’ll be targeting. After all, with a wider potential audience, targeting each postcode individually simply won’t be cost-effective.

In total, there are six factors that pertain to geographic segmentation and can be used to create customer segments:

1. Location (country, state, city, ZIP code)
2. Timezone
3. Climate and season
4. Cultural preferences
5. Language
6. Population type and density (urban, suburban, exurban or rural)

Geographic segmentation benefits

Easy to implement

Geographic segmentation is different from the other types of market segmentation (especially psychographic and behavioral) because it requires fewer data points.

As a result, it offers a quick and effective route into personalized marketing and can offer tangible ways to reach potential customers using only their location as a starting point.

Higher product relevancy

This helps not only to improve sales but also creates a better relationship between customer and business. Presenting relevant items to customers improves user experience, reducing the amount of effort they need to put in to find what they want.

Improved advertising effectiveness

By presenting more targeted ads, you’ll guarantee that more of your marketing budget is spent reaching relevant customers, and less wasted on those who have no need or interest in your product.

This isn’t to say that geographic segmentation is always the best strategy to employ. It has specific uses for specific businesses and industries. Small businesses working in localized areas will benefit immensely from targeting their marketing to just these areas. Big businesses with products that will have consumer hotspots in specific regions will also benefit.

An international manufacturer of big four-wheel drive vehicles will achieve more sales targeting customers in rural areas than those who drive congested city streets.

But businesses that sell products that do not depend on region-specific patterns won’t benefit as much from geographic segmentation. Consumers of Corn Flakes are likely to be as common in one region as the next.

Geographical parameters by which to segment

There are several geographical parameters you can use, these include:

Location

Getting the obvious out of the way. Segmenting by location gives you a lot of options. It could be a city, a town, different countries, or even a continent. This can also be used to identify a new geographic location your business may wish to expand into.

Climate

Do you think they are buying winter tires in Dubai? Segmenting by climate helps you identify areas where the climate is appropriate for your product or service.

Culture

When addressing your target market you need to account for cultural variations and sensitivities. For example, In Western cultures, white symbolizes purity, elegance, peace, and cleanliness. However, in China white represents death, mourning, and bad luck.

Population

This can either focus on density or population type. A brand may choose to focus on a densely populated city area, for example, a fitness chain wouldn’t set up a gym in a rural area. You can also overlay demographic information here to find target audiences.

Urban, suburban and rural

These three different environments all need different and specific marketing strategies as customer needs are different. Those in cities and suburbs tend to have more purchasing power than rural areas, so products can be more expensive.

Language

Not every country in the world wants or can be marketed to in English. If you’re running a marketing campaign it will be essential it’s done in the local language. You’ll need to make sure you’re ready to enter a market if all your marketing messages are going to need to be changed.

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To be contined...