Allowable Acquisition Cost (AAC)

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What is “Allowable Acquisition Cost (AAC)”?

“Any business can buy incremental unit sales at a negative profit margin, but it’s simpler to stand on the corner handing out $20 bills until you go broke.” — Morris Rosenthal, author of Print-on-Demand Book Publishing and blogger at fonerbooks.com

Key Points:

• Allowable Acquisition Cost (AAC) is the marketing component of the Lifetime Value. The higher the Lifetime Value of your customers, the more you can spend to attract new customers.
• To calculate your AAC follow these steps:
  
  
  
  • Start with your average customer’s Lifetime Value.
  • Subtract your Value Stream costs.
  • Finally, subtract your Overhead divided by your customer base (which represents your Fixed Costs).
• The higher the Lifetime Value, the higher the AAC. The more each new customer is worth, th more you can spend to attract them and keep them happy.

Questions for Consideration:

• How much can you reasonably spend to attract a new customer?
• Could you use a ‘loss leader’ to establish a new relationship with a high lifetime value customer?

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