That's a common reaction I get from business owners when talking to them about 'Buying Customers' as it can seem like an alien concept because too many businesses treat marketing as an expense, when in reality it is an investment.
'Buying Customers' is about understanding how much money you make from customers and using that information to do marketing that generates a return on your financial investment rather than spending loads of money on advertising to get your 'brand' out there.
So what are the three questions you need to ask yourself when planning your marketing?
- What does it cost you to acquire a new customer?
- What is the lifetime value of a customer?
- Which of your marketing strategies buy you profitable customers at a good price?
1. What does it cost you to acquire a new customer?
When I started work over 5 years ago with one of my north London-based clients they were spending £30,000 per year on adverts in Yellow Pages (remember them?). We put in place a simple system to measure the number of enquiries they got from these adverts. Over a 12-month period they got just 4 enquiries with just one of those enquiries turning into a sale. So their Yellow Pages customer acquisition cost was £30,000. (£30,000/1 = £30,000) Given that the average order value for the company was £2,000 does this sound like a good marketing strategy to you? So, you'll be glad to hear that we tested and measured a range of other marketing strategies including Google pay per click advertising, which gave them a customer acquisition cost of just £58. As a result the profit and cash flow of the company increased and enabled them to open another branch.
2. What is the lifetime value of your customer?
Once you know your acquisition cost, i.e. how much it costs you to buy a new customer, you then have to know how to keep them coming back to buy from you again because repeat business equals a strong business.
So if, as in our case study above, your average order value is £2,000 and your customer buys twice per year and you can expect to have the customer for 3 years then your customer lifetime value is £12,000. (£2,000 x 2 x 3 = £12,000)
3. Which of your marketing strategies buy you profitable customers at a good price?
So with our case study company that spent £30,000 to acquire one customer through Yellow Pages, they could not have generated a return in investment in revenue let alone profit while their lifetime value of a customer is £12,000. Whereas with their Google pay per click strategy they could reinvest £58 time and time again to buy more and more new customers.
We will exploring these concepts in more detail as well as other ideas to help you profitably grow your business at our free Buying Customers event on Thursday 9th October 2014 at 6pm in Westminster, London.