Then 1 day whilst reading a book on venture capital ( this one if you’re interested – http://www.amazon.co.uk/Enterprise-and-Venture-Capital-ebook/dp/B0051SIUOE ) I saw something that changed everything.
Allow me to demonstrate with a simple guide.
Lets suppose I’m selling a bucket and spade.
The bucket and spade costs – £100
The gross profit margin is 50% so for every bucket and spade I sell I make £50 gross profit
Simple so far.
OK so now how much money can I spend to sell my bucket and spade?
If you answered £49.99 go to the head of the class!
nb if you are selling things on the back end and you know your numbers often times you can do things MUCH differently. simply substitute life time value for bucket and spade.
OK now lets go to our marketing startegy.
Lets suppose we have 3 different strategies:
1. Google Adwords
2. Facebook PPC
(3 is a terrible number, better to have 10 but 3 is simple to follow right now)
Now remember that I can spend up to £49.99 to acquire a customer and still make a profit.
So, just to emphasise, my aim now is to acquire as many customers as possible within my target range <£49.99
On Google I can acquire customers using keywords, suppose I have 100 keywords I bid on;
– buy bucket and spades
– bucket and spade reviews
– things to take to the beach
Now each of those keywords has a different type of person doing the searching.
– buy bucket and spades (this person is ready to buy right now)
– bucket and spade reviews (this person is doing research)
– things to take to the beach (this person is looking for ideas)
So it makes sense that each keyword will convert differently, someone who wants to buy a bucket and spade is going to be much easier to sell a bucket and spade too than someone looking for ideas.
Making sense so far?
So each of those keywords will have a different customer acquisition cost associated to it.
– buy bucket and spades – costs me £5 to make a sale (the number of clicks I get on my advert x the cost per click x the conversion rate)
– bucket and spade reviews – costs me £25 to make a sale
– things to take to the beach – costs me £49 to make a sale
Based on how many people search for my keyword, then click on my ad then buy the product. So the cumulative total marketing spend (customer acquisition cost) increases or decreases based on the search intent of the keyword.
Read that again.
The cumulative total marketing spend (customer acquisition cost) increases or decreases based on the search intent of the keyword.
Now that’s Google, but, facebook and linkedIn are also the same, each ad network (google, bing, facebook, linkedIn etc) has a different customer acquisiation cost profile to it.
So Facebook’s range may be as cheap as £10 up to £50 for me to buy a customer.
So is it smart for me to focus on what it costs me to get someone to click on my ad?
It’s smart for me to know my numbers, establish how much I can spend up to to buy a customer then do everything I can to buy as many customers as I can.
Some customers are cheap, some are expensive (relativly) BUT as long as they make money I don’t care.
Some keywords are cheap some are expensive. It’s all irrelevant. What matters is does it make a profit.
This little insight has helped me become one of the highest earning affiliates in the world, it’s helped me launch numerous businesses and is now helping my clients who engage me to do their digital marketing for them.
Try it in your business, you’ll be streaks ahead of your competition when you do.