A key factor in any size business...

Hi Mike,

Excellent post!

I think knowing your costs to acquire a customer is the first step in a very "scientific" approach to marketing....

To find it out, though, means tracking ads and the results they bring, which is (unfortunately) too much hassle for most people.... However, it's important to do to succeed!

Certainly, the most successful online marketers I know of track their marketing. If they pay for an ad, they know exactly how many dollars that ad brings in, because they track the results....

The approach I know of usually goes like this....

* Calculate your profit per customer
* Calculate your conversion rate (that is, our of those who see your ads, how many of those end up buying?)

(You have to do some tracking first, to know the numbers from your business to make the above calculations....)

From the above figures, you know the profit-per-lead you make.

For example, let's say you make widgets, and the average customer spends $50 buying your widgets. Let's say 50% of that is profit, so you make $25 profit per customer.

Now, let's say you're running an ad, and on average you find that of those who receive that ad, 5% buy your widget.

That means your profit-per-lead in this case is 5% of $25, which is $1.25.

Knowing this, you know that in similar circumstances, if you want to double your money with each promotion, you can afford to pay up to $.62 per lead. That is, you know that if you spend $.62 per lead, you can expect to get around $1.25 per lead back.

Of course, there are other factors.... Not all leads are of the same quality, etc. But at least it gives you a starting point! If leads cost you more than $.62, then you know you need to look elsewhere for leads....

- Dien Rice


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