The past couple of weeks we talked about the value of a new customer and the lifetime value of a customer. I know you have these numbers in front of you now.
I briefly touched on this concept a couple of weeks ago talking about the value of a new customer. I want to discuss this idea in a little more depth now.
You will need to know the lifetime value of your customers and how soon they will spend more of their money with you. You also need to know your profit margins.
The best situation happens when you make enough profit to pay for the cost of the new customer on the first sale. This happens only with a well-designed plan, properly executed.
If you aren’t making a profit on the first sale, which many aren’t, what is your plan to make a profit? This strategy, more than any other, will tell you how much you can spend. If you know that within one month the customer will spend more, and you will have a profit, you can be more aggressive than you could be if it took six months.
The other variable you need to know is how much cash you have. If you attract a hundred customers that cost you $10 more to get than you would make on the first sale, do you have enough cash to last until they make their second purchases?
The business person who knows how much he or she can afford to spend and still make a profit wins. If you are spending more than you are making from your customers, you will obviously run out of money and be out of business. If you are spending too little, how much are you handicapping your business?
Know this number and start increasing your business profitably.