How Much Does It Cost You To Buy A Customer?

 

In this business tip, I am going to focus on marketing and how to market an investment and not an expense.

Lots of people look at marketing as an expense in their business. They're skeptical about marketing. They're afraid to put money into marketing because they think it really doesn't work, and all they do is they spend money and they see no results. And that's because their marketing focus is all wrong.

When you do marketing right, it needs to be looked at as an investment.

So what do I mean by that? Some people might not like to hear this, but when it comes down to it, Marketing is Math. It's all about understanding how much does it cost you to buy a customer?

In other words, if you spent a $1000 on advertising and get 10 new customers, you spent $100 to buy each customers. Spend a $5000 and you get to 10 customers, you're gonna spend $500 to get each new customer.

The next thing we need to look at in marketing is how do we buy customers at an effective price? How do we buy customers for less than what we actually make from them?

To me, this is really is what marketing is all about. It's all about the investment. It's really important to understand how many new customers do you want to buy each week or each month.

Too often people say, "How many new customers do you want?" They'll literally say, "Hey, I want as many as I can get." And that's a little bit unrealistic. That's not really a way to set a goal.

Let's say you want to buy 60 new customers and your average sale for each new customer is $180, and out of that, $38 was profit. So what you need to do is buy customers for less than that $38 profit, simple as that.

So your first sale, you made $38 profit, now we need to go back and see how can we get them to become repeat customers, and that's where we make money. Repeat customers is where the profit is. That's why it's so important to be testing and measuring your marketing results.

If you knew, for example, your radio ads bought you customers for $25, meaning, that for every $25 you invested in your radio advertising, you got a new customer. So if you wanted 60 new customers, you need to be investing $1500 a week or a month, whatever it is. This is not really that complex.

Think of it this way... If you went to the bank, and you gave them $25 and then they gave you $38 back. You'd be giving them $25 all day long as often as you could, Right?

See, most companies don't invest in marketing successfully. Why? Because they're not testing and measuring. Our role with marketing is really to turn it into something that makes us a ton of money. It means that we understand our purchasing costs, or what cost us to buy that customer. If it cost us this much to buy a customer, then we made this much.

An accounting mindset is really important when it comes to marketing. Where does your account put your advertising expense insurance? It's an expense, right? Well, not really if you do marketing correctly, and that's really what we're talking about today.

In most cases, specifically in businesses, we don't see it that way.

Our definition of marketing is profitably buying lifetime customers. You don't invest money to buy a single term customer. In other words, a single transaction customer. You invest money to buy a customer that's going to keep coming back over and over and over again or maybe just refer people that are going to come back over and over again.

The goal is, we want lifetime customer. So ultimately, we want to build a business that gets customers to buy again and again. Does that make sense?

The more customers you need to buy, you're going to need to invest more in marketing. It's no more complex than that. Once you know what it costs to buy a customer, you just keep buying. You buy as many as you're able to handle.

But beware, you don't want to buy too many that you can't handle because then your customer service is going to go down and you're going to start losing customer.

I hope you find this business tip useful. And if you want to learn more how to apply this to your business, I invite you to schedule a free strategy session with me.

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