Allowable Acquisition Cost
How to determine AAC
There’s a bunch of models out there, but here’s a simple one.
Take your overhead expenses(rent, insurance, utilities, salaries, etc) during the LVA divided by the number of athletes to find your Fixed Cost (FC) per athlete.
Here’s the quick math.
9 months of overhead costs you $50,000 and you have 100 athletes, your Fixed Cost per athlete is $500. As you grow, this number should decrease.
LVA – FC = Revenue before marketing expenses. In our example, $1,130 – $500 = $630. Now you need to determine what type of profit margin you want on that leftover $630, for this example lets shoot for 60%, which leaves you 40% for marketing expenses or $252. This $252 is the maximum you can spend to acquire a new customer. Having this number allows you to experiment with a variety of marketing options.
So putting those two pieces together, spending $100 per athlete on a referral program is a good investment. Plus there’s a potential snowball effect with your new athlete attracting their friends and family because of that bonus. IMO, it’s a win/win situation. It just provides a little bit of extra motivation for a current athlete to bring in a new athlete. Now they’re working out with all their friends…which boosts your retention.
As you increase your LVA, you’ll have more money to spend on AAC.
There are definitely other ways to spend your marketing dollars, so understanding your AAC is a great first step. Once they are in the door, keep them there.