Business owners often look at their marketing budget and wonder whether it’s working. They spend money on marketing and advertising without always having a clear picture of what’s bringing people in. The DreamSpring Resource Library has a new post that aims to give owners and entrepreneurs insight into finding their best customers. The library post offers marketing tips alongside a free Customer Acquisition Tracker.

Knowing what it costs to bring in a new customer is one of the most useful things a small business owner can track. It identifies whether the company’s marketing is earning its keep and indicates where to focus for growth.

Customer acquisition cost, or CAC, is how much a business spends to bring in each new customer. It takes the total marketing spend for a given period and divides it by the number of new customers that were brought in during that same time. A business spending $500 a month on marketing that brings in 50 new customers has a CAC of $10. One bringing in five has a CAC of $100.

Once the CAC number is established, the next step is determining which specific channel produced it — a paid social ad, a flyer posted at a local coffee shop, booth space rented at a market, or word of mouth. That’s the harder question, and it’s where a lot of marketing dollars get wasted.

For makers, food producers, and creative businesses, word of mouth is usually the strongest channel, and often the cheapest. It’s hard to beat a recommendation from a person that a potential customer already trusts. And that’s something to consider before putting a lot of money into paid advertising.

Marketing and operating expenses can blur together, and it’s important to understand that marketing expenses are costs directly tied to acquiring customers — ads, flyers, booth rentals, event fees.

So How Can Customer Acquisition Be Tracked?

One useful trick is to assign a unique identifier to each marketing channel. A dedicated phone number works well, as does a code word on a flyer. If a flyer says “Ask for Pete” and your Google ad says “Ask for Maria,” the Petes and Marias who call can be counted and traced to the channel that sent them. It’s not a perfect science, but it offers good data to work with, and it costs nothing to set up. 

Easier yet is to ask every new customer how they heard about the business. This can be done on an order form, post-purchase survey, or follow-up thank you.

These are just a few of the suggestions from DreamSpring. Read the entire DreamSpring post for more tips and to download the free Customer Acquisition Tracker.

DreamSpring is a nonprofit organization that offers small-business loans and training. One of its specialties is working with people in the creative industries. The DreamSpring Resource Library is useful for all business owners, but it is especially helpful for creative businesses.