Rant on the cost of acquisition of a customer

A lot of friends, who run internet businesses, work around the cost of acquisition (of a customer).

It is defined as the amount of money that they need to spend in order to get a customer to perform an action. The action could be a mere visit to the website. Or it could be a purchase of an item of certain value. 

IMHO, the idea of working around the cost of acquisition is fundamentally flawed.

It’s a metric that someone needs to look at when they are VERY sure that the customer would stay bonded to their service/product. A credit card for example. Or a bank account for that matter. Once you acquire a customer in such a business, you are sure of the repeat transactions and thus continual revenues. And thus it is justified to invest (aka spend money) on getting a new customer. You recover the investment over time and thus the idea of cost of acquisition makes sense. Look at all the razor companies for example. In fact this article on wikipedia is very highly recommended to understand more about the razors and blades.

On the other hand, if you run a website that sells deals, or electronics or clothes for example, then there is no compulsion for the customer (that you spent something like 600 bucks to acquire) to come back to your website to buy things again. The customer is not loyal to the platform (aka your website) but is loyal to the brand he is buying. Or to discounts for that matter. He will simply hop onto the website that gives him more discounts than you.

However, on the other hand, you can somehow create a very solid reason for the customer to come back to you and buy more things from you, then you may spend money on acquiring customers. Something that a business like Zovi.com is doing. They are creating a brand. And the cost of acquisition can thus be justified by apportioning it between marketing and sales. Ideally, your product, your brand must be something that he “needs” (not “wants”). Like recharge for a mobile phone connection. So if you were Zovi and you were creating a brand of menswear, how would you make the brand a "need"?

Apart from this, another reason why I think it sucks to spend so much money on acquisition is the imbalance of incentives. When I am acquiring a customer, I should pass on the benefits to the customer. In most cases, the money that I spend on acquisition goes to the brokers (the search engines). Just because they are marketplaces, they command prices and make the most value out of the entire acquisition game. If there could be a business that paid the customer, or me, for transactions, I would be interested in knowing more about it.

And that’s about it I guess. Like a true critic, I just know that this is broken and I don’t know how fix this. If you do, please share!

First posted on Sandbox.