How Much to Budget and How to Build Customer Acquisition Costs into Teen Program Fees

While organic marketing and word-of-mouth advertising are excellent for building brand awareness, most teen programs still face customer acquisition costs. And if they aren't building those costs into their teen program fees, they might be losing money on every new student despite using outstanding marketing strategies.

Learn more about customer acquisition costs, how to budget for them and tips for building in these expenses to teen program fees.

What Are Customer Acquisition Costs?

Customer acquisition cost (CAC) is a marketing term that refers to the amount of money an organization spends to earn a new customer. Understanding this expense can help marketing teams understand their return on investment from marketing and decide the most valuable tactics for bringing in new customers.

To calculate customer acquisition costs, you’ll add all expenses you incur to convert a prospect to a customer and divide that by the number of students you acquired. Some common expenses include:

• Marketing Activities (Travel, Exhibitor fees, etc.)
• Admissions Staff 
• Paid Advertising
• Printed Materials
• Marketing Technology & Design Fees (Email, CRM, etc.)

Marketing and sales are an expensive part of operating any type of business, nonprofit or organization. In the education industry, most providers budget 20% of enrollment fees for new student acquisition.

So if your teen program costs $500 for the first year or initial enrollment, $100 of that total should be budgeted toward acquiring the new student.

You've probably heard the phrase "Retaining a customer is much cheaper than acquiring a new customer." Customer acquisition costs are a major factor in why this statement is true. That's why word-of-mouth referrals are so powerful in the education industry.

But that doesn't mean you can do away with customer acquisition fees because, in your business, students are only students for so long and will benefit from your services one time. That requires ongoing campaigns to bring in new students. It's the nature of the business.

Budgeting for Customer Acquisition Costs

To better understand your customer acquisition costs and how they influence your bottom line, you’ll need to take some time for evaluation and strategy. Some key metrics you’ll want to know include:

• Percent of students who were referred/repeat vs. those you had to acquire, over the past three years. 
• Total annual marketing spend, including marketing technology and staffing
• Tuition or program fees per student, averaged out if you provide discounts or specials
• Leads or prospects coming from various marketing channels, including advertising channels and word-of-mouth
• Annual enrollment compared to capacity

Depending on the nature of your program, these metrics may look a bit different for your organization. But gathering baselines for important sales and marketing metrics will help you measure expenses, budget accurately and price your programs accordingly.

Knowing this information can show you areas where you should put more of your marketing budget, such as the most successful marketing channels. And while that might mean spending more, you’ll know you can afford to do so because you’ve found success with low customer acquisition fees from that channel. Also, maxing out capacity in your programs helps you stretch your expenses across more paying students, making the ROI on each student higher.

Tips for Building in Customer Acquisition Costs to Teen Program Fees

You should look at customer acquisition fees as a whole. So even if you bring in a fourth of your students solely through word-of-mouth advertising, you’ll look at the total annual cost of bringing in new students and add that into your fees.

For example, your full budget might look something like this.

• Fixed and variable operating expenses: $350,000
• Staff salaries: $400,000
• Marketing and customer acquisition costs: $200,000
• Profit: $50,000

So you need to bring in tuition revenues of $1 million. And you know you generally get 500 students. Therefore, to hit your goal, you need to charge each student $2,000.

And in this scenario, with 500 students at $2,000 each and $200,000 in customer acquisition costs, you know that acquiring a new customer costs your organization $400 or 20 percent of your per-student fee. Increasing fees to $2,100 might be a good move to ensure you can offer some scholarships and still turn a profit.

By building that $400 customer acquisition cost into your student fees, you'll guarantee financial stability and give yourself room to grow. This also gives you a guideline of how much paid advertising you should be investing in to hit your goals. 

If you invest in the right places and increase your marketing budget, you could potentially experience your best year yet by filling 100 percent of your capacity thanks to a better understanding of what it costs to bring in a new student versus the reward to your bottom line for doing so. Imagine operating with a waitlist because there is so much interest in what you’re offering.

While the example is oversimplified as there are so many financial factors that make up an operating budget, it highlights the potential teen programs can achieve when calculating customer acquisition costs and building those expenses into their student fees.

How to Manage and Reduce Customer Acquisition Costs

When you first read that the average customer acquisition cost in education is 20 percent, you were likely quite surprised. It’s certainly a big investment, and one most organizations will look to manage and reduce in any way they can.

There are some ways to reduce customer acquisition costs, especially if you discover that your expenses exceed the average of 20 percent. Just know that cutting too much of your marketing budget too fast can have a negative effect on enrollment. You want to make strategic replacements and adjustments instead of just slashing budgets. Here's how to do that.

1. Know Your Customers

If you plan to appeal to your customers, you must first know them. And the better you know them, the fewer touchpoints it might take to convert them into customers, which can save you money. 

Take time to outline your customer persona. You might have a persona for students and one for parents as you get to know each party’s interests, preferences and motivational drivers. 

2. Automate Instant Customer Engagement

Modern marketing is instant and customers have come to expect that. If a customer deposits a check on their mobile banking app, they get an immediate email confirmation that the check has been received. Or if they order a product to be picked up in-store, they get an instant email confirmation that the company has received the order and will let them know when it is ready for pickup.

Your teen program needs to meet those expectations for immediacy. When a student or parent reaches out for information, you should have automated responses. These responses direct them toward more information or offer a timeline for when they’ll hear from a counselor with more information.

Automation can reduce repetitive work for your staff, giving them more time to focus on students and parents likely to enroll in your programs. This can lower customer acquisition fees by allowing you to enroll more students with a smaller staff. But you’ll have to use automation effectively because marketing automation systems do come with a cost. That’s why knowing your customers and their needs is an important first step in the process.

3. Max Out Enrollment

Most teen programs operate at 80-90 percent capacity. And while that’s financially feasible, filling out that final 10-20 percent capacity improves profits immensely because those extra students don’t involve increased operational expenses or additional staffing, making them nearly pure profit.

When you max out enrollment, you improve your ROI. Sometimes that means spending more on marketing in areas you know are effective and results in the best leads and the lowest cost per acquisition. That’s why it’s so important that you spend some time evaluating your most effective mediums.

4. Invest in Marketing Wisely

Every marketing channel is not created equal. You’ll find varying success rates with different forms of marketing and advertising. Investing in those that produce the best results is crucial to reducing customer acquisition costs. Or trying something new might produce impressive results.

TeenLife offers advertising on a platform where students and parents frequently come to learn more about teen programs and opportunities. Your audience is here, so you should be as well. Contact us to learn more about how you can get your message in front of the right audience.