For the last 2 months, I’ve been getting requests on business and marketing after hitting my first 10k in net profit in 30 days, whilst also handling my academic commitments and also running my entire company as a one-man outfit.
So question is, how I did I do it, in a short compressed period of time, just less than half a year after quitting my last formal role?
Now, I’m going to give you a business lesson that no business school teach, yet, these exact principles can be replicated across any business. The first principles approach, from yours truly.
The Art Client Acquisition
Every business needs to sell a product or service in return for CASH. This is true whether you’re selling coke bottles or a private University selling degree certifications.
READ: CASH, NOT FUCKING FUNDING. NOT FUCKING RAISING MONEY. CASH FROM CUSTOMERS.
The second question, is, how do you acquire clients that’ll hand you CASH in exchange for a product or service?
This is also known as the art of client acquisition, as I so dearly put it.
This is giving out flyers, tagging your friends on Facebook, sending text messages to your relatives, or if you’re Coke, associating happiness with sweetened soda on giant billboards (some times with scantily clad women)
However, in this digital world (god sent thankfully) there are many other ways to acquire clients, such as Google advertising and Facebook advertising. I’ll go into the benefits of using such platforms another day.
Now, let’s talk about the first principles of acquiring ONE client.
If you paid for $100 worth of advertising, and you made a sale of $300 within a time span of 30 days. You’ll have a RETURN OF ADVERTISING SPENT (ROAS) of $200.
Let’s say you’re selling coke and your cost of goods is $100. You spent another extra $100 on advertising (let’s say you hire your niece to give out a thousand flyers, 8 hours of your niece’s time and the flyers both cost you a total of $100)
That’s a NET RETURN OF $100, excluding labour cost (you).
So that’s measured on a PER ORDER BASIS. Can you add in a TIME FRAME?
Here are the TWO important metrics you need to know:
Average Order Value
Your 30 Day revenue/ Total number of orders = Revenue PER Order in 30 Days
Long Term Value
Your 335 Day revenue/ Total number of orders = Revenue PER Order in next 335 Days
In this case:
Your average order value, in this case, is $300.
Your return on advertising spent is $200.
Your NET return on investment is $100 (excluding labour cost, assuming you’re a one-man outfit)
Long Term Value
Okay, moving forward, what if the customer purchases from you ONE order of coke for another $300 for the next 11 months?
This is termed a long term value.
That’s a total order value of $300 X 12 = $3600
Interestingly, if you spend $300 to acquire one client on your first 30 days, you’ll be in the ‘red’ in the first month, but you’ll be in the GREEN for the rest of the 11 months.
The question is, how can you position your products and services in a way that gives you positive cash flow month after month after advertising spent and cost of goods sold?
Business is a Number Game
Now, as I mentioned, there are hundreds of ways to acquire a client, from hiring your nieces to running complex Facebook advertising campaigns.
However, the first principles are similar:
Cost Per Lead = How much are you paying per lead?
If you spent $100 on an ad campaign to hire your niece and print a thousand flyers, how many leads are you getting from that $100?
If you get 10 enquiries, you COST PER LEAD IS $10.
Now, let’s move on to another important metric, your cost per customer acquisition.
Cost Per Customer Acquisition = How much are you paying to acquire one customer?
Your cost per customer acquisition = TOTAL COST OF GOODS + ADVERTISING SPENT/ TOTAL ORDER VALUE
If it costs you $100 to purchase bottles of Coke, and another $100 on flyers, and you get 10 enquires, and you made ONE SALE at $300
Your cost per lead = $10
Your cost per customer acquisition = $200
Your RATIO of cost per customer acquisition = $200 / $300 = 66.7%
Your goal as a business owner is to always lower the RATIO OF COST PER CUSTOMER ACQUISITION by either decreasing COST or increasing ORDER VALUE (average order value, long term value)
This is true for ANY BUSINESS.
To add on, in the example I used above, I have not included referrals that come from acquiring one customer from the first 30 days.
Referrals from any customer can be apportioned to long term value.
If you acquired one customer in the first 30 days and he or she refers you another customer with the same TOTAL value within the next 11 months, you’re technically acquiring another client for FREE from a monetary standpoint, and your NET COST PER CUSTOMER ACQUISITION is lowered.
Now, is a business just a numbers game? YES and NO. Have you ever wondered why people pay million dollars for a Ferrari or queued up for days outside an iPhone store?
That’s right, brand equity. You can define brand equity in many ways, however, I define brand equity by the ability to position your product or service preeminently in any marketplace. This is your competitive advantage. This is why you are able to charge a premium on your services. This is what keeps you away from competing on PRICE.
This is why the same cup of Starbucks if sold separately in another cup without its logo, isn’t going to sell for a premium.
This is why a car, with the same specs and price without the branding of a Ferrari, will never sell for it’s the same price.
Check out this short clip from The Founder, based on a true story.
Brand equity is going to largely determine the LONG TERM VALUE of ANY COMPANY. So is there a way to increase brand equity in any company? I call it the 3 Ps. Promise, position and preeminence. I’ll cover these 3 Ps in another article, another day.