The conversation started with, “I just need something to feed the funnel. I lack that, but for revenue of $17 per month per customer to spend hundreds to get customers is crazy.”
When you are growing your business, what strategies do you use?
Today, there are so many ways to build and grow a company.
But how do you create consistent, predictable, and sustainable growth?
Last’s week’s newsletter shared specific calculations you can monitor to grow your business. But how do you use those calculations to grow a company?
Of the calculations I shared, the 3 most important metrics are the cost to acquire a lead, the average cost to acquire a customer, and the value of a customer to your business.
Understanding these three metrics will allow you to build your business with controlled, sustainable growth.
Here is how:
1. Knowing the average value of a customer to your business is invaluable for several reasons.
A. The number tells you how much you can invest to acquire a customer
If a customer is worth $250 to your business, then you can spend up to $250 to acquire a customer and still break even without losing money.
If you know the average value of a customer, then you can purchase advertising to acquire more customers and still break even or be profitable.
B. The average value of a customer helps you identify products that you may need to create to increase the customer value
If you understand the value of a customer, one way to increase the customer value is to offer high-end backend products. Backend products are products like Masterminds, high-priced info products, one-on-coaching, done for you services, or higher priced physical products, etc. These types of products can increase the average customer value.
C. It helps determine the type of advertising you can purchase to acquire a customer
The cost of advertising varies depending on the media and channel. For instance, the price of a banner ad inside an email is different than a sponsored email. The cost of Facebook ads are different than Google ads. Offline advertising varies depending on where you are advertising. Knowing the average value of a customer helps you make an informed decision on where to advertise.
2. What is the average cost to acquire a customer?
This number is important because it allows you to compare the cost to acquire a customer with the average customer value. This tells you if your advertising is profitable. Also, you can compare this number with different advertising channels to determine which channel is the most profitable.
3. The average cost to acquire a lead
When working with businesses, this is often one of the first numbers I calculate. This number gives you a starting point with advertising. Most companies I work with have not determined the average value of a customer, the cost to acquire a customer, or the cost to acquire a lead. The truth of the matter, normally, you need to start advertising before you can determine the average cost to acquire a lead.
For instance, with Facebook ads, I often target between $2-$3 per lead. It varies per business and niche. In most cases, a lead is someone who opts into an email list to download a lead magnet. Once the person is on the email list, then we can follow up to build trust and a relationship. It is the trust and the relationship that leads to loyal customers who will advocate for your business.
My response to the potential customer in this article’s opening statement
In case you were wondering, here is my response to the person in this article’s opening statement. Here is what I said to this potential client.
“It’s not just evaluating the initial $17/month in revenue that each customer generates. It looks at how long an average customer remains a customer. What is the average length of time a customer remains a member? Is it 6 months, 12 months, etc.? What is the average retention rate?
Plus, you need to look at what other products do members purchase? What other products do you have so customers can ascend to become higher-level customers, which are more valuable customers to your business? Do you have higher-priced masterminds, coaching, speaking engagements, etc.?
It is understanding how much a member is worth to your business. Once we know this number, we need to figure out how much it costs to acquire a lead and a customer.
If it costs $20 to acquire a customer and if the average retention rate is for 6 months, even if they don’t purchase anything else, then at $17 per month, the average customer value will be $102. At this rate, you just 5 times your money! I don’t know about you, but any time I can 5x my money in 6 months, I’m going to invest as much money as I can do this.
I know you don’t know the average value of a customer or the cost to acquire a lead and customer right now, but we are going to figure these numbers out. Next, we will start increasing your members, revenue, and profit. We are going to start scaling your company with sustainable, predictable growth.”
The businesses that can spend the most to acquire a customer win!
Often, I see business owners, mentioning that they were able to acquire a customer inexpensively. Acquire a customer inexpensively is wonderful. But, the businesses that can spend the most to acquire a customer win. Businesses who can spend the most to acquire a customer can dominate competition and market share. Being able to spend more money to acquire a customer than your competitors provides huge competitive advantages.
- It allows the company to purchase advertising their competitors can not afford
- Plus, it may allow more time before each lead needs to be profitable
For instance, if your competition has an average customer value of $100 and your average customer value is $200, then you can spend twice as much to acquire a customer. This gives you an advantage. This advantage can create more leads and customers for your business.
By knowing and managing these three numbers, you can create consistent, predictable, and sustainable growth for your business.
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