They Say “Know your numbers!” Ok. Let Me Show You Which Ones...
3-minute read
There are 3 basic numbers you need to know...
The way I will explain them to you is called K.I.S.S.
K.I.S.S = Keep it super simple. (This is how we learn as human beings.)
Ok...
Number 1: Know HOW MUCH MONEY does it cost you to get a new customer.
The KEY word here is “customer”, NOT prospect. You calculate the money you spend on a specific marketing channel and divide it by the number of customers you got.
Let’s say you spend for social media ads $2000, you got 400 prospects and out of them, 100 became clients.
Your cost to get a new client from social media marketing is 2000/100 = $20.
Of course, each marketing channel will have a different cost.
Once you do the simple calculation to every channel (except referrals), you will get a pretty good understanding.
The fancy word for this number is CPA, which means cost per acquisition.
Once you know this number, here is what you can do:
1) You can understand your break-even point. In this example, you need to sell something that can bring you at least $20 profit in order to make your money back.
2) You can see which marketing channels brought you the best results.
3) You will understand if the entry price of your product or service can support an advertising cost or you need to change strategy and sell a package at a higher price.
Pro tip 1: Referrals are also marketing channels. And they are the best ones. Find the referrals who brought you the most customers and spend money on them in a form of a thank-you gift.
Pro tip 2: “The company who can afford to spend the most amount of money to get a new customer is the one who wins.”
*I will show you how to get there even if you sell a low-priced product/service.
Let’s move on…
Number 2: Know how much money does a customer SPENDS with you the first time.
If I am a new customer and buy the first product you offer, which costs $20, and then you cross-sell me a second product for $10 and I buy that too...
I just spent $30 and ordered 2 products.
By knowing the average amount of money people spend with you, you can predict how much money new customers will probably spend.
The fancy name for this number is AOV. Average order value.
This is how you calculate it...
You take the total revenue and divide it by the number of orders.
Ex: $30.000 revenue / 234 orders = $128.20
This number will change and your job is to keep it as high as possible by upselling or cross-selling a new product/service.
Number 3: Know how much money a customer is WORTH to you!
This is the most important number and takes into consideration the factor of time.
You must know how long a new customer stays with you and how much money does he/she spends during that time.
The fancy name is LTV. Lifetime value of a customer.
Ex: I do business with you for 1 year and during that year I buy 4 times the same product which cost $100.
This means that I (as a customer) am worth to you $400.
Let’s go deeper...
This also means that if you had spent $399 in the beginning on advertising to get me, you would still profit $1 during our relationship.
You can’t guess what your LTV will be from the start, but once you have 5-6 months’ worth of data, you will get a pretty good idea.
The higher the LTV, the more you can spend on getting a new customer. This is the secret to spending more on ads than your competition and still making a profit.
To increase the LTV, you simply need to sell more to your existing customers.
I mean, think about it...
You already spent money on ads to get them, at least, make sure you sell them again.
The second sale is easier than the first one because those people trust you.
The best part? Selling number 2 has NO advertising cost to it.
I hope this helps.
To your success,
Alex.
"The second sale is always easier than the first one. Do it. "
