How Much do You Spend to get a Hot Prospect?
The promotional and marketing actions that, hopefully, results in a new wine buyer are very important businesswise but, unfortunately, are usually hidden.
Every business and winery is and should be treated as a business, should spend money to acquire new customers. This is a normally required procedure if the winery owner wants to increase volume and profits.
When a winery is doing just fine business-wise, owners and managers often neglect this action, relying on existing customers to provide for the turnover, but in reality, customers leave, cease to exist, or most likely start to buy from another winery.
So in order to stay with the same profits or to increase them, the winery needs to acquire new customers constantly.
Why it is Important to Know Your Marketing and Promotional Expenses?
To run a business successfully the manager needs to make more money than she spends – “Elementary, My Dear Watson” as Sherlock Holmes used to say. Therefore a good business practice would require that the income coming from the new customer will be bigger than the expenses that were made to acquire him.
In the marketing jargon the ratio between the profits, not income, you immediately get from a new customer versus the money you spend to get that customer is called CAC (Customer Acquisition Costs) When this ratio is positive you are doing fine when it is negative your winery is actually financially shrinking.
The Big Problem with CAC
Unfortunately, many wineries, especially smaller ones, are not aware of the expenses they really spend on acquiring a new customer and as a result, they have no idea whether they are getting better, making more money, more profits, or working hard towards bankruptcy.
It is the hidden data that prevent logical and sound business decisions.
If you are not aware of the CAC ration in your winery, then you are in a very dangerous zone. The solution is to sit down and calculate as accurately both sums of this equation: the average expenses spent to get a new customer versus the average first-order profits of a new customer.
The best way to calculate this is to take into account a big time span, like a year, so the average sum makes sense.
It is important to know that although the CAC calculates only the first time profits gained from the new customer, some marketing people take into account the profits generated from the new customer in a bigger span of time. Although logically true, it is best to stick with the profits of the first deal with the new customer as a safe estimate for the CAC.
Here, for your convenience, is a ready-made table to assess your winery CAC (I left some empty rows to accommodate for other expenses)
Expenses (Yearly) for Acquiring a New Customer (in US$)
|Expense Type||Your actual or estimated data||Our estimate|
|Travel for trade shows and prospect meetings||3'000|
|Samples sent to prospects||600|
|Maintenance of winery website||1'500|
|Business expenses for hosting prospects: hotels, restaurants , etc.||1'200|
|Preparing promotional pieces (design, advertising, graphics, etc.|
|Direct advertising expenses|
|Online advertising expenses|
|TIME spent on marketing and promotion||4'000|
|TOTAL YEARY EXPENSES||$10'300|
Our estimation is based on years of helping wineries to acquire new business
Once you have this figure, the next step is to calculate the profits you got from each new customer in that period of time. This is easier to do, as the winery keeps better records on this part of the business.
Now divide the yearly profits by the yearly expenses and, Voilà, you got your CAC.
I sure hope this ratio is positive! Positive CAC means you are doing well and should strive to make this ration more positive.
A negative CAC should encourage you to take immediate steps to evaluate how each expense contributes to acquiring a new customer. Cut bad expenses, Improve the ones you keep and discover new, more efficient, ways to reach new prospects and turn them into new customers.
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