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Customer Acquisition Basics for MSPs

Cost of acquisition per new customer is obviously higher than cost of retention per existing one. This statement is true not only for managed service providers (MSPs), but almost for any IT-related business.

A managed service provider should first of all concentrate on the recurring revenue that the customers bring. However, if high costs associated with customer acquisition don’t pay off, you may experience difficulty maintaining the stable MRR.

In this article, we’re going to review several tactics that you may implement into your customer acquisition strategy in order to lower your expenses. But before consider buying new clients, let’s define the basic formula to calculate customer acquisition cost. This will allow us to understand how much we currently pay for the acquisition.

Calculating Customer Acquisition Cost (CAC)

Here’s the cost per acquisition formula for CAC calculation:

  • CAC = (all your expenses to acquiring new clients) / (number of new clients)

The expenses may include the following items:

  • Salaries of your marketing and sales team
  • Overhead
  • Bonuses and commissions
  • Advertising budget (CPC, PPC, SEO, content, email marketing, the lot)

The result will show how much you pay for every new client.

Another useful index closely related to CAC is:

  • (monthly expenses to acquiring new clients) / (monthly revenue)

This number shows how many months should pass before the costs to acquire new clients will be profitable. Make sure that the number is between 6 and 12. If your clients are not paid off in a year, it is an indication for you to change your customer acquisition strategy.

Let’s take a look at specific numbers and calculate how much money new clients should generate in order for the enterprise to be profitable.

For example, during a year you’ve spent $1,000 to acquire 10 new clients. Then your CAC will be equal to $100 and each of these clients should give you the profit of at least $100/12 = $8.30 per month.

Choosing a customer acquisition strategy

If your advertising budget is too high (or if you don’t have a budget at all) and the cost of acquiring new clients exceeds the limits you can afford, consider diversifying your strategy and add some more methods. There are several different ways to acquire new customers; try mixing the approaches to determine which one works best for you.

1. Word of Mouth: This type of strategy is hard to track and to control as there are too many different factors that are out of your reach. But still, don’t give up on it. We are all surrounded by other people, and most likely many of them are engaged in the same business area. If your existing clients are happy with your services they may spread a word about your incredible team, and you can encourage them to do so using the next strategy.

2. Referral program: Motivate your clients to talk about you by offering something valuable to them (discounts don’t always work). This will help you gain new customers that will be more loyal to you and will cost much less compared to traditional methods of advertising.

Referral programs are not that easy to implement. So we’ve created a handy guide on how to crack it.

3. Participate in local events: Any local conference is a great source of new customers. It’s a chance for you to speak up and show your potential clients the value you can give them.

4. Social media: Grow your audience in social media groups, such as Twitter and Facebook. Create a channel on Youtube and a blog on Medium to reach potential customers. Post the articles with valuable content and thus grow your expert status.

Conclusion

Customer acquisition may be a costly procedure, and if you don’t include it in your budget you may bear huge losses. However, there are always ways to acquire new clients at very low costs. Try one of the methods that we’ve described in this article and enjoy the results.

Learn more about how to start and progress as an MSP with the weekly MSP Podcast.


Alexander Negrash is director of marketing at CloudBerry Lab. Read more CloudBerryLab blogs here.

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