How to estimate the cost of serving a new customer

Short answer: add up everything the business spends to win and serve a customer: team time, materials, tools, support and the cost of attracting them. The value you find shows whether the price charged covers the effort and leaves a margin. It is an estimate, and it improves as you record real data.

Prerequisites

• An idea of what serving a customer involves from start to finish.
• The hourly value of whoever serves (including you).
• The monthly cost of tools and marketing.

Steps

1. Map the service. List the stages, from first contact to after-sales.
2. Estimate the time for each stage and multiply by the hourly value.
3. Add materials and direct costs: packaging, shipping, supplies, payment fees.
4. Include the share of tools. Divide the monthly cost of systems and subscriptions by the number of customers served.
5. Consider the acquisition cost. Divide advertising spend by the number of new customers in the period.
6. Add everything up and compare with what the customer pays (or with what they will pay over the relationship).
7. Review with real data after a few customers.

An example

A consultancy serves a new customer with 6 hours of work, at $80 an hour, which makes $480. There is $40 of tools and fees, and $100 of acquisition cost per customer. The total cost is $620. If the customer pays $900, the margin is $280. If they paid $600, the service would run at a loss. This is an illustrative example.

Common mistakes

• Forgetting the owner's time and the time in meetings and emails.
• Ignoring the acquisition cost.
• Underestimating after-sales support.
• Using the average when different customers cost very different amounts.

Next step

Make the estimate for a typical customer and compare it with the current price. Then use the break-even calculator to see how many customers per month the business needs to serve to cover its fixed costs.