Why Most Marketers Must Befriend Cost-Accountants.
Last week, I was talking to an entrepreneur about the hidden costs of looking for the next big customer while ignoring the growth potential of current customers.
As someone with years invested in cost and management accounting, it was therefore very interesting for me to coincidentally read about time-tested cost accounting concepts in a recent Stratechery blog post by Ben Thomson highlighting aspects of the economics of the tech industry.
For many marketers, accounting is a foreign language. However, accounting knowledge is like travel to foreign lands. Once you develop an appreciation for it, it changes your outlook of the world for the better.
How then does a cost accounting mindset impact marketing and branding?
Cost of customer acquisition is a very important metric that determines a startup’s success and growth trajectory. The lower the cost of acquiring a customer and the longer you can retain them, the more you can harvest on the seeds once sown. You do need the regular care and feed, and the seasonal showers (customer training, seasonal user-conferences, and showering gifts within the limits of corporate ethics regulations for vendor relationships).
There are the measurable costs of finding a customer, and the immeasurable costs of finding that customer. Then there is the opportunity cost to be considered of focusing on one market versus the other. I have seen a scenario where a single ad click that cost 65 cents resulted in a $75,000. I have seen word of mouth referrals result in hundreds of thousands of dollars in recurring revenues. There is still an underlying cost, even with the referral. The cost of being at a certain tradeshow at the right moment and bumping into the Chief Procurement Officer of a Fortune 100 company, who already knew me and my company’s work through another happy customer she trusted, and the cost of keeping the referring customer delighted – these are still costs associated with such seemingly serendipitous occurrences.
It is important for a marketing head to keep in mind the sunk costs of getting a customer, and the relatively low maintenance costs of retaining that customer over a period. The longer the duration, the greater the opportunity to sell better and bigger products to the same customer.
Pursuing new sales opportunities that might take the attention away from a current customer is the classic dilemma faced by most ambitious startups. That is why Customer Success is a critical function.
Until the startup finds a way to bridge that gap and juggle both the needs – to retain and grow existing accounts, while scoring new customer accounts – the marketing chief must make decisions with a clear grasp of all the costs involved.
A very high cost of maintaining an existing customer, in relation to the revenues may even result in the company choosing to walk away from a customer. This happens instinctively for a plumber who is a sole-proprietor when he decides that a client has more nuisance value and that it may be better for everyone’s sanity to simply not show up for a repair. Still there is a cost involved for the plumber in obtaining that lead, that may have to be written off. He weighs it against the opportunity cost of other repairs he could have pursued and done with less ease and without a nagging customer robbing him of his peace of mind. For a startup or a sales organization that thought and behavior gets amplified.
To sum up, a product marketer, or any marketer with a good grip on costs will make for a better marketer. Whoever says accountants are boring hasn’t been following the investment and VC community. It might be worthwhile for startup mentors and coaches to get startups to develop keener cost-sensibilities, and not just the theatrics of pitch-practice.Or ask them to befriend a cost-accountant.
The author Ramesh Sambasivan, is the principal at SiliconGlades, a business innovation firm helping mid-sized organizations in not merely building brands, but creating proud legacies, through innovative marketing programs with social-impact.
