Knowing the answer to this question will help you to create an unlimited marketing budget. When I ask business owners if they know where their leads are coming from they usually say, “Yes, we ask every customer where they heard about us”. I then ask to see the data of their results.
After squirming a bit, they tell me that the information is just in their head. Let me be clear about this! It is impossible to accurately measure this information in your head. To get a clear picture of what media, headline, or offer is working, it is not enough to only ask how they found out about you, but you must also record the results. If you don’t measure it, you can’t improve it!
Marketing is all about “buying customers." By understanding and knowing the acquisition cost of a customer, you can begin to create an unlimited marketing budget and buy as many customers as you want.
So, how do you turn your marketing from an expense to an investment? Measure and test your results. For every dollar you spend on marketing, more should return.
Let’s look at an example…
- You invested $1000 on advertising
- You get 50 phone calls, then you are paying $20 per lead
- If you close 20% of those leads, you have 10 new customers
- If your product sells for $200, you’ve just made $1000
RESULTS:
50 (Calls) x 20% (Closing %) = 10 New Customers
10 (new customers) x $200 (cost of product) = $2000 Revenue
$2000 (Revenue) - $1000 Advertising Investment = $1000 in Gross Profit
If every time you invested $1000 in advertising and, on average, you get 10 new customers and a return on your investment of $1000 profit, then you know the benefits of measuring your marketing results and creating that unlimited marketing budget.
Understanding your customer acquisition cost will change your mindset and how you think about marketing forever.
Please let me know your thoughts in the comments section below...
So many business people never fully understand this principle (I know at first I did not). It teaches you the long term as well as the short term value of a customer. This is the primary reason I started focusing on the sale of renewable business. As always Steve has provided valuable information in a concise easy to digest manner. Thanks Steve.
ReplyDeleteYou can't buy new customers unless you know how much each one is worth.
ReplyDeleteThe "Build it and they will come," mantra espoused by many business owners is hard enough to swallow in good economic times. In tough times like those we are currently experiencing, it is a kamikaze run. The main reason that two thirds of businesses fail in the US after two years is mainly doe to the fact that many entrepreneurs don't understand the math of the game.
ReplyDelete