Imagine you are standing ankle-deep in coins. You have three seconds to pick up any coin that you want, and you can repeat this process as many times as you want, but you have to pay 10 cents every time you pick up a coin whether you come up with one or not (this is called the customer acquisition cost). You see many pennies and nickels. You see a number of dimes. You see a handful of quarters and a few half-dollars. The bigger pieces are harder to identify because they look very similar to worthless game tokens.
What would you pick up? The answer is obvious. You must pursue quarters and half-dollars. Anything else is nonsensical. If you pick up a dime, you only break even. If you pick up a nickel, you’ve destroyed half of the value of your original investment. If you pick up a penny, your return is only 1/10th of what you spent. You must make back at least that which you spent, or it would be better to just sit on your money. Unfortunately, many people conduct marketing efforts only thinking about what they gain without considering the cost.
-Darin
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Dr. Darin Gerdes is an Associate Professor and Director of Graduate Programs in the School of Business at Charleston Southern University. All ideas expressed on www.daringerdes.com are his own.