FFR049 - How Much Money Can You Afford To Lose To Acquire A Customer
Today I’m going to cover the importance of knowing your numbers to ensure you remain profitable and are in control of your business. Two of the most important things I got from reading Brian Kurt’s book “Overdeliver”, were the...
Today I’m going to cover the importance of knowing your numbers to ensure you remain profitable and are in control of your business.
Two of the most important things I got from reading Brian Kurt’s book “Overdeliver”, were the lifetime value of a customer, and also how much it costs to acquire a customer.
Most people have heard of loss leaders... where the first thing you sell a customer on the front-end actually loses you money, but then the subsequent purchases from a customer ensures you end up making a tidy profit.
Those purchases might come straight away from order bumps or OTO purchases in the same funnel... or they might come from purchases they make at a later date.
Either way, it was worth losing money initially because you eventually made a profit and also acquired a paying customer at the same time.
So the point is if you analyse your numbers, you can work out on average how much it costs you to acquire a customer per channel.
Let’s say this number is $20... then it means you can spend up to $20 to acquire a customer and still end up profitable. But you have to crunch the numbers to get an accurate figure.
Brian Kurt referred to this metric in his book, Overdeliver, as a “bogey”... which is a marketing term I’d never heard of before.
Now, what shocked me when reading Brian’s book, was he mentioned that for one particular product they used to sell... they didn’t expect to make a profit until 3 years after the customer had purchased it. Yes 3 years!
And it got me thinking how professional they must have been with getting right on top of the numbers, especially considering this was back in the 80’s or 90’s.
His team must have had access to world class statisticians or analysts... and they must have been using cutting edge technology for the time. Personal computers had barely even become available back then.
It’s worth noting though that they were selling subscription plans for educational books and newsletters... so recurring revenue was the driving force of the business.
Their churn rates must have been low and once someone signed up they most likely stayed a customer for a long time. So the lifetime value of one of their customers must have been pretty high.
So they were really playing the long game and because they had such an accurate and predictable grasp on their key metrics, they could afford to wait so long to start making money from their customers.
And it’s a really good example of a professional marketing team who tracked every aspect of the business meticulously and who were able to create predictable models of revenue. To me that’s just amazing.
And even with the technological advances of the last 30 years and the flashy tools that are available now, I would estimate only a small percentage of businesses these days would be that on top of their marketing metrics.
That said, I couldn’t help but think that if you can eliminate the bogey from the outset (or in other words make money on your very first sale) then it would be a lot easier sleeping at night.
And after reading Russell Brunson’s “Expert Secrets” book many times, he lays out a blueprint of how you can use info products at the front end of any type of business...
And if done right you actually make money while you are acquiring paying customers. It turns the theory of a loss leader (or a bogey) on its head. And this is actually how Russell managed to grow ClickFunnels so fast.
It’s really the same sort of principle as putting $2 into a vending machine and watching it spit out $4 each time... in other words you can keep doing it over and over indefinitely. Another term for this is a self liquidating offer.
But if you keep putting in $2 and get nothing in return, then before too long you’ll be broke.
I haven’t had a chance to read the revised version of Expert Secrets yet, as I’m still waiting for my box set to be delivered... but even the original version lays out the path to creating profitable funnels, and scaling a company quickly.
So if you haven’t read the book yet then I recommend you go to ExpertSecrets dot com and devour the information. Because if you’re into funnels and online business then you’ll love it.