How Much Should I Be Spending to Acquire a New Client?

0:00Julian Mercer:Hello, this is Mark Satterfield and welcome to the Velvet Rope Playbook. Tonight's chapter, How Much Should I Be Spending to Acquire a New Client? The$14 ,600 bothered Julian Mercer. Not because he couldn't afford it, because he couldn't decide whether it meant his marketing was working brilliantly or failing miserably. Julian is 56 and owns a company that specializes in acquiring and managing rare books and manuscripts for private collectors. He started the business almost 25 years ago after working in the rare book department of a major auction house. His clients aren't people looking for a first edition of The Great Gatsby to put on the coffee table.

0:43Julian Mercer:They're serious collectors. One owns one of the largest private collections of early American political documents in the country. Another has spent the better part of 20 years assembling manuscripts connected to the history of science. Julian has handled individual acquisitions well into the six figures. It's a small world, but it can be an extremely valuable one. And Julian wants more clients. So he sponsors a private collection symposium in New York. Between the sponsorship, travel, dinner, printed materials, and everything else, he spends$14 ,600. and he gets exactly one new client. Julian looks at the number and thinks, I just spent$14 ,600 to get one client.

1:29Julian Mercer:That's ridiculous. So he decides he isn't doing that again, which would have been perfectly a reasonable decision except for one small detail. The client he acquires spent $185 ,000 with Julian during the next 18 months and then introduces him to another collector who becomes a client as well. Suddenly, that$14 ,600 doesn't look quite so ridiculous. In fact, Julian's bigger mistake may have been deciding not to spend another$14 ,600. And that's what I want to talk about today. How much should you be actually willing to spend to acquire a new client? Because if you sell an expensive service, I think there's a very good chance you're looking at this number the wrong way.

2:16Julian Mercer:Cheap clients aren't necessarily better clients. There's a natural tendency in marketing to celebrate inexpensive leads. I got a lead for$37. Wonderful. But what happened to that lead? Did they become a client? How much did they spend? Did they stay? Did they refer anyone? Because I'd much rather spend$5 ,000 acquiring somebody who ultimately produces$50 ,000 in profit, then$500 acquiring someone who produces$2 ,000.

2:46Celeste Armand:The acquisition cost is higher, but the economics are considerably better. That's particularly important if you work with affluent clients because one good client can be extraordinarily valuable.

2:58Julian Mercer:They may hire you initially for one engagement, then hire you again, then expand the relationship, then introduce you to someone else, which brings us to the first practical idea.

3:10Celeste Armand:Calculate what a good client is actually worth. Notice I said good client, not your average client. If you're trying to move your business towards more affluent, higher value clients, averaging everybody together can give you a number that isn't particularly useful. Instead, take your 10 best clients from the last few years. How much revenue did each of one of them generate? More importantly, roughly how much gross profit did each generate? Did they buy again? How long did they remain a client? Did they introduce you to other people? Now you have a much better picture of what the kind of client you actually want is worth.

3:50Celeste Armand:Let's say a good client generates$60 ,000 in gross profit over the relationship. Would you spend$500 to acquire that person? Of course. Would you spend$2 ,000? Probably. Would you spend$5 ,000? Now we're getting interesting. Would you spend$15 ,000? Well, maybe. There's no magic number that applies to every business. A commonly used benchmark is roughly three to one relationship between lifetime value and acquisition cost, but for professional services, I'd treat that as a useful reference point, not a commandment. Your margins, cash flow, capacity, repeat business, and sales cycle all matter.

4:33Celeste Armand:The important thing is that you're finally asking the right question, not, is$5 ,000 a lot of money to spend getting a client? But what do I receive economically when I successfully acquire the right client? Those are completely different questions. Meet Celeste Armand.

4:53Julian Mercer:Celeste has the opposite problem. She's 43 and owns a boutique firm that sources and manages household staffs for wealthy families. Not someone to clean the house twice a week. Celeste places estate managers, private chefs, executive housekeepers, personal assistants, and other people who become part of the machinery behind a very complicated household. She begins her career working for a luxury hospitality company in London, eventually moves to New York, and discovers that wealthy families have a surprisingly difficult time finding exceptional household staff that they can trust. So she builds a business around solving that problem.

5:32Julian Mercer:A typical client can be worth$35 ,000 to$75 ,000 in fees over several placements. Celeste is extremely proud of one part of her

5:42Celeste Armand:marketing. Most of her clients cost almost nothing to acquire. They're referrals, and referrals are free. Or are they? Celeste spends hours every month maintaining relationships with estate attorneys, family office executives, private bankers, and existing clients. She attends events. She travels. She takes people to lunch. She sends thoughtful gifts. She makes introductions. None of that appears in her advertising budget, but it absolutely has a cost. Which brings us to practical idea number two. Count more than your advertising. When people calculate what they spend acquiring clients, they often count the obvious things.

6:23Celeste Armand:Advertising, marketing agency costs, maybe software. But what about your time? If you spend 10 hours a week networking, following up, creating content, and having introductory meetings, those hours aren't free simply because nobody sent you an invoice. What about the conference that costs$3 ,000 to attend? The dinners, the travel, the salesperson you may hire. The proposal preparation. If you want to know what acquiring clients actually costs, add up your real sales and marketing investment over a meaningful period and divide it by the number of new clients you acquire. And don't become obsessed with getting the number perfectly right.

7:04Celeste Armand:You're trying to get it useful enough to make better decisions. You may discover the marketing you thought was expensive is surprisingly efficient, and the free marketing you've been relying on isn't really free at all. Practical idea number three. Measure acquisition costs by the kind of client you get. This is the part I think gets overlooked most often. Imagine you have two ways of acquiring clients. Strategy A costs you$1 ,000 for every new client. Strategy B costs$4 ,000. Well, obviously, strategy A is better. except the clients from strategy A are typically worth$8 ,000 and the clients from strategy B are typically worth$40 ,000.

7:48Celeste Armand:Now, which would you rather have? This is why I wouldn't simply track how much does it cost me to acquire a client. I'd also track how much does it cost me to acquire the kind of client I actually want. You may discover referrals produce your largest clients or a particular conference or LinkedIn or Instagram or appearing on other people's podcasts or a particular advertising campaign. Once you know that, something interesting happens. You stop trying to make marketing cheaper. You start trying to put more money behind the things that produce disproportionately valuable clients. So back to Julian and his$14 ,600.

8:30Celeste Armand:Remember Julian, our rare book specialist? Well, he eventually goes back and he looks at his numbers. not just from that one symposium. He looks at several years of new business, and he discovers something he hadn't noticed before. His inexpensive marketing produces plenty of conversations, but the clients who come through collector events, introductions, and a handful of specialized partnerships are worth dramatically more. They're more sophisticated collectors. They buy more frequently. They trust Julian's judgment, and because they know other serious collectors, they're considerably more likely to introduce him to someone else.

9:10Celeste Armand:So Julian changes the question he's been asking. Instead of, how can I lower my cost of acquiring a client, he starts asking, how much can I intelligently afford to spend acquiring an exceptional client? That's a different way of looking at marketing. Because sometimes the problem isn't that you're spending too much to acquire clients. You're spending too little to acquire the clients who could transform your business. And that's the number I'd encourage you to figure out. Take your best clients, calculate what they're actually worth, look at where they came from, and then work backwards and ask, what could I rationally afford to spend to get another one?

9:49Celeste Armand:You may discover the answer is considerably more than you thought. And if you'd like more practical ideas about attracting affluent clients, positioning yourself as the expert they want to hire and building a marketing system that produces more of the right types of clients, visit GetWealthyClients.com. When you're there, you'll find information about my books, programs, and information about working with me personally. That's GetWealthyClients.com. This is Mark Satterfield. I hope you have found this chapter of the Velvet Rope Playbook to be helpful. I'll be back at you soon with something new.

10:25Celeste Armand:But until then, bye for now.