TURNING ADVERTISING INTO PROFIT:
The secret to predictably growing your sales.
Imagine for a second if, just like the weather, you couldn’t predict when your water and electricity would work. Everyday life would be tough and incredibly uncertain wouldn’t it? That’s why we pay for reliable electricity, and why much of the UK pays for water.
Think about your website traffic in the same way.
- If you’ve been relying on organic traffic from Facebook – BOOM! After the recent changes you better re-think.
- If you rely on organic search traffic from Google – WATCH OUT! Many a business has disappeared overnight when Google has changed its algorithm.
- If you rely on people walking in off the street into your business – BEWARE! What if access or visibility of your premises is blocked by on-street works for the next few months?
THE SECRET TO PREDICTABLE SALES
Transforming paid traffic, i.e. advertising, into profit is the secret to predictably growing your sales, whether your business is online, offline or both…
… and being able to outspend your competition to acquire customers is the secret to dominating your market.
“He or she who can spend the most to acquire a new customer wins.”
- Ryan Deiss, Digitalmarketer.com
This quote has been repeated over and over by some of the best direct marketers of our time. But it isn’t about blowing through your budget and spending more for the sake of it. No, the basic premise is, that if you can outspend your competition, then you’ll get more customers than them. Make sense?
But the problem is, if you’re like me and most other marketers with set marketing budgets, this might be hard to get your head around. That’s because the statement needs to be developed to:
“The business that generates the highest value per customer will be able to spend the most to acquire a new customer…
...and they will win.”
- Paul James, Ardmore Advertising
Think of it this way…
Google Search advertising is auction-based. You bid on keyword searches against your competitors, all vying for top spot to get the most traffic and customers. Let’s say that the required bid is £5. This means you pay £5 per click and normally no more than 2-5% of that traffic will convert into a sale. At 2% each customer will cost you £250. If the value of that customer to your business is, on average, less than £250 you will lose money.
Therefore, you either need to reduce your cost-per-click (and lose traffic and potential customers) or increase the value of the customer beyond £250.
If you can get to a customer value of say £400, you’ll have some room to play with. The challenge then changes to bidding more than your competition, but just enough that you dominate the auction and traffic, which will lead to faster growth.
Now we’re talking, right?
But how do we use this philosophy to grow sales profitably?
HOW TO SPEND MORE THAN YOUR COMPETITION AND WIN
We need to start by asking three basic questions:
1. What is the immediate value of a new customer (Average Customer Value – ACV)?
2. What is the lifetime value of a customer (Customer Lifetime Value – CLV)?
3. What am I currently paying to acquire a customer (Customer Acquisition Cost – CAC)?
The name of the game for most businesses is to break-even or better as quickly as possible, i.e. CAC is less than ACV. Once it is you can begin to scale up your advertising and pull these three core levers to growing sales:
1. Get more customers – by increasing your budget, finding and targeting new audiences of non-customers, or outspend your competition by increasing your CAC up to a maximum of your ACV.
2. Increase the average transaction value – by increasing the immediate value of a new customer transaction, which may include increasing the price, adding upsells and cross-sells with one-click upsell technology, or creating a bundled offer that adds value for customers and increases revenue and margin for the business.
3. Increase the frequency of purchase – the first two levers enable you to acquire more customers at break-even or better. But the frequency lever is the key to increasing CLV and growing your sales and profit. Some key tactics include email marketing, messenger marketing or retargeting to turn customers into repeat buyers.
THE THREE STEP PLAN TO TURNING ADVERTISING INTO PROFIT
To pull the three sales growth levers and turn your advertising investment into customers, sales and profit there are three key steps:
Step 1: Calculate how much you can afford to pay to acquire a customer, your Target Customer Acquisition Cost (CAC), by working out the current value of a customer.
Step 2: Develop a customer acquisition marketing system to predictably acquire customers at or below your Target CAC.
Step 3: Develop a customer monetisation system to increase the value of the average transaction and turn customers into repeat buyers, by introducing repeat sales, upsells and cross sells.
GET STARTED BY CALCULATING YOUR TARGET CAC:
We have developed a CAC calculator tool to help you get started with step 1. The tool is based on a recent blog post by Digital Marketer, which outlined a basic 5-step formula to calculate the immediate value of a customer, so you can set your Target Customer Acquisition Cost:
Step 1: Estimate How Much a Customer Is Worth
Step 2: Subtract Refunds & Cancellations
Step 3: Subtract Cost of Goods Sold
Step 4: Subtract Overhead Costs
Step 5: Subtract Desired Profitability
CAC CALCULATOR DEMO:
Now that you’ve calculated your target CAC, it’s time to develop your customer acquisition and monetisation systems. Need some help?
Contact Paul James, Account Director, to set up your Sales Growth Strategy Session to discover:
1. How to track and adjust your advertising to align with your target CAC and hit break-even as quickly as possible.
2. How to develop your customer acquisition system to get more customers.
3. How to develop your monetisation system to increase the immediate value (ACV) and lifetime value (CLV) of your customers.