Cost of Acquisition versus Cost of Nurture

One question customers ask semi-regularly is: how do I reduce my contact database cost?

That is, they feel that the cost of keeping their contacts database is too expensive – and they want to know how to reduce the cost – ie by removing contacts.

This applies (obviously) to contact databases that are priced on a per contact basis (eg MailChimp, ActiveCampaign, HubSpot, etc).

I’m going to suggest that if your focus is on reducing the cost of the contact database tool, then possibly you’re focussing on the wrong problem[1].

Reason being: if you are a growing business your contact database should be growing also. Hopefully rapidly.

And thus having a growing expense for your contact database is a good thing.

In terms of costs, it’s all a matter of perspective…

Cost of Nurture

Let’s break down a few cost scenarios. We’ll start at the inexpensive end (eg MailChimp) and build up to the expensive end (eg HubSpot).

Consider the cost of having 10K contacts in your database. Here’s the cost comparison:

MailChimp: $75 = 0.75c per contact per month or 9c per year

Active Campaign: $350 = 3.5c per contact per month or 42c per year

HubSpot[2]: $1050 + $68 x 9 = $1662 = 16.6c per contact per month or $2 per year

So for the sake of argument, we’ll say that at the expensive end it costs $2 per contact per year to keep nurturing them. We’ll call this the Cost of Nurture (or perhaps Cost of Retention).

Cost of Acquisition

Now we’ll compare this with the cost of acquisition.

Often B2B companies are happy if they can get a lead for less than $100 per lead (eg via AdWords).

On Facebook we’ll often get leads for less than $20, and this is considered an excellent result.

For the sake of argument, we’ll say that it costs $20 per contact to acquire them. We’ll call this the Cost of Acquisition.

Summary: B2B businesses are usually happy to pay $20+ per lead to acquire them, but will baulk at paying $2 per lead to nurture them.

Solve for the problem: Cost of retention is usually NOT the problem

Paying $2 per lead per year is probably not the problem.

Instead think carefully about where your real problems are:
– improving conversion rate
– reducing cost of acquisition (eg a 10% reduction in CTA will cover the nurture cost)
– increasing lead quality
– improving lead to opportunity processes
– improving opportunity close rates

Real Problems

One more thing. Real problems require hard work. If you find your focus is on ‘solving’ easy things eg cutting some minor costs here and there[3] – use it as litmus test of whether your focus needs rethinking.

 

Notes:

[1]: I’m assuming you have regular database hygiene processes in place eg removing bounced emails, deleting cold contacts, low lead score contacts, etc – if you aren’t doing that at least, then yes, make that a priority.

[2]: I should actually use USD pricing as this would be comparable with the other two examples, but our customers are in AUD so I’ve kept that for now

[3]: Not to say you shouldn’t worry about minor costs – plenty of companies go bankrupt from nickel and dime costs that add up over time – of course you should always be prudent. But not at the ‘expense’ of the big problems.