When marketing is done right in your business, it has the power to fuel amazing growth. Today I am going to share the most powerful marketing rule I know. If you read this rule and put it into correct practice in your own business, then it has the potential to rocket you past the competition on your way to success.
When I jumped into the role of business ownership nearly a decade ago, I had no idea what I was doing. I had no business education. I had no schooling. I had no experience in running a business, marketing & sales, or management. As you might guess, it wasn’t long before I had to shut my doors and start over.
I went through this start-a-business, struggle-to-earn-profit, and reluctantly-close-my-doors process two times before I chose to take a break. For more than three years I studied, reviewed, and examined businesses from dozens of industries in search of the right way to build a business. During those three long years of study I learned hundreds of principles about successful businesses, but today I’ll share one marketing secret that will instantly put you ahead of your competition.
This secret is,
Whoever can spend the most money to acquire a new customer wins.
On the surface this may seem simple, or even foolish, but let’s dive in a little deeper…
When most owners think about marketing, they think they have a traffic problem – website traffic, phone traffic, or foot traffic. Though, the actual truth is they don’t have a problem with traffic.
If I were to tell you for every website visit, phone call or person that walked in your store I would pay you $10, you could get people in the door, right? You could spend $5, $6, or $7 to get someone in the door, on the phone, or online without loosing money. If you had a way to increase the value of those visits through up-sells, repeat purchases, and referrals you could even spend the full $10 or more and still make money over the lifetime of your customer.
If you knew you had $10 to spend to bring someone in the door, on the phone, or online, the problem now becomes how to spend the $10 to get someone to take action. Could it be a coupon, a referral fee, or some kind of free gift for all new customers?
In my experience the problem is that most businesses don’t even know how much they spend right now to acquire a customer, much less how much they can spend. Don’t feel bad though, because most of your competitors are in the same boat. This is an opportunity for you to excel.
Here are three steps to determining how much you can spend on acquiring a new customer…
Step 1 – Discover Your Customer’s Lifetime Profit Value (LPV)
You can get super detailed here, but to keep it simple the LPV of your customer is simply the average profit from each transaction multiplied by the average number of transactions your customers make over two years.
Example: Let’s keep things small and say my LPV is $150. This means for every customer I acquire, I will receive an average of $150 profit over the next two years.
Step 2 – Decide How Much of The LPV You’re Willing to Spend to Aquire a Customer
Let’s say over the two years a customer is worth $150 profit to you. Now ask yourself, “How much of the $150 am I willing to spend to get a new customer?” Whatever that number is, will be your Marketing Cost Per Customer (MCPC). You can spend that much to get someone to your site and make a purchase. That’s easy, right?
Example: From my $150 LPV I decide I’m willing to spend 50% or $75 to acquire a new customer.
Step 3 – Determine How Many Leads You Need and Divide
The last step to finding your marketing cost per customer is to determine how many leads it takes to find a customer and divide. Basically, what is your lead to sale ratio and then how much can you spend to acquire a lead. This number is your marketing cost per lead (MCPL).
Example: In our example my business needs to find 3 qualified leads to get one customer. So If I have $75 to spend to get one customer and I need 3 leads, I have $25 to spend on each lead.
Finding the Lifetime Profit Value of each customer, the Marketing Cost Per Customer, and the Marketing Cost Per Lead are the first steps to building a marketing system that is predictable and scaleable. You can keep breaking this formula down though. For example, how man website visits does it take to get a lead or how many post cards do I need to send in order to get a response that turns into a lead? Keep breaking down your numbers until you know exactly what you need to spend on your marketing activity to get a predictable result.
Whatever you do though, remember the rule… Whoever can spend the most to acquire a new customer wins.
Increasing profit margin and your marketing effectiveness will allow you to increase the amount you can spend to acquire a new customer.