You may know how much your sales are worth. You surely know your costs. You might even have your budgets planned for the next few years. You probably have some of your ROI figured out for your marketing plans.
If you have made it to our blog, you are probably one of those digging for new and creative solutions to find new customers.
But do you really know how much your customers are worth?
A perfect marketing solution will not only take into account what it costs to get a new customer; it will also consider what your customers are really worth to your business.
You might say:
I own a small business. I’m concerned with my day to day operations and getting through this quarter with slow, controlled growth. I know how much I am able to spend on marketing, so why should I worry about more math?
The answer is simple, and once you realise it, it will entirely change how you look at marketing.
A customer is not worth just a sale. A customer is not worth only how much you are willing to spend on your marketing. A customer is worth much more than that.
Here at LBD, we like to break it down into a simple equation.
Here it is:
If I was sitting in a room with you now, and I had an unlimited amount of your target customers waiting to buy your product or service, how much would you pay to let each customer through the door?
This is the real “cost of a customer” – also known as the customer acquisition cost.
To work this out, you need to consider a few things.
- How much you make each sale? (If this varies, use an average based on your last 20 sales, or use the lowest sale price possible if you want to be really safe.)
- How much profit do you make from each sale?
- Is the customer going to pay once, or recurring?
If it’s a on-off sale, then you need to acquire the customer for less than the profit of that sale.
If the profit is $100, then anything under that is net profit.
If you sell a recurring product or service in which a new customer might pay each month based on a subscription, your aim is to acquire the new customer for under the first month’s sale price, then profit in the following months.
Think of it like this: if you could go to a bank and swap $50 for $100, how many times would you line up to do so? As many times as you can!
Remember, there is no single figure that meets the needs of every business—small businesses are all different.
So what’s the best way to acquire new customers at a profit?
Facebook Ads for sure….However only if your strategy is on point. You’ll see what I mean when you look at our Facebook Advertising Case Studies – the results speak for themselves.