I think I may finally have found something to say in conference presentations which gets some attention, and hopefully not in a Gerald Ratner way.
At the Platforum conference three months or so ago, I did a talk about the cost of acquiring customers, and particularly about the hopeless situation and brief life-expectancy of start-up financial services businesses with no customers and no money to recruit them with. In this talk, I quoted the very first hard numbers that I learned in the world of financial services direct marketing a million years ago – that whatever your proposition, market sector, target market or media strategy, on the whole, as a universal average, at least for initial planning purposes, you’re doing OK if you can generate a lead for £30 and acquire a customer for £200.
Much has changed since I first learned these numbers – well, let’s face it, nearly everything has changed. But at least for initial planning purposes, I’d say they still work. (They certainly work a very great deal better than the ridiculous notion that in today’s world of social media you can recruit any number of customers for no money at all, except perhaps the bus fares of the intern you get to write your Twitter posts.)
What’s interesting – by which I mean both surprising and pleasing – is how much interest these numbers of mine have attracted, and indeed continue to do so. For example, a new Finametrica report on the emerging robo-advice (bleurgghh) market quotes a typical customer acquisition cost of £200: without paying £995 for the report I can’t tell whether or not they’ve nicked my number, but let’s just say it’s a funny coincidence if not.
The great thing about a figure like this, of course, is that you can build a whole business plan on it. If you want 10,000 customers, it’ll cost you £2 million to acquire them. 100,000? £20 million. A million customers? £200 million. And so on.
Of course there are lots of reasons why it’s not that simple. Particular businesses have particular issues which will force their costs up or down. There are many of these, and perhaps the most important are the economies of scale, or perhaps as I always say the diseconomies of lack of scale: if you only wanted, say, 1000 customers then the full weight of your establishment costs would bear very heavily on them. The figure will require some refinement in the light of your specific circumstances – and of course the best and most accurate refinements will be made in the light of real-life experience.
But still, it’s something. And as a corrective to the view of all those clever people starting up new FS businesses of one sort or another who all seem to be assuming they can recruit their customer bases for nothing or next to nothing, it’s actually something quite important.
In Professional Adviser’s piece about the Finametrica report today, they mention various robo-advice start-ups tackling the customer acquisition cost challenge. One of these named in the piece is that well-known deep-pocketed financial services giant which is “Rutland-based Echelon Wealthcare.”
When the history of the robo-advice market is written, and the names of the firms which made the crucial breakthroughs are listed in the roll of honour, I will be astonished – no, let’s make that totally bloody dumbfounded – if Rutland-based Echelon Wealthcare is among them.