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A number you’d care about

Last time, we talked about those 10 things that cause small businesses to fail, and zeroed in on the business model as most important of all.

There’s usually a reason you got into the business you’re in, but whether you love it or just chose it for the money, the math that makes the business work…actually has to work.

It’s more complicated than how much you spend and how much you make.

How’d you come up with the prices for your stuff?

If you’re a retailer, you probably had someone tell you about keystone. Or maybe you’re using manufacturer’s suggested retail pricing (MSRP). Or maybe you’re 3 cents under your competition because that’s what you felt you needed to do to get the sale.

Ever sit down and figure out how much it costs to open the doors every day – even if you don’t have a door?

Ever think about taxes, licenses, shipping, insurance, and yes…some money for you to take home?

35 prospects

How much does it cost to get 35 people to call you? How much does it cost to get 35 people to visit your store? How much does it cost to get 35 people to visit your website and opt-in to your email newsletter, subscribe to your blog, your YouTube feed or “Like” your Facebook page (or whatever)?

In fact, each of those ways of getting a new prospective customer (often called a “lead”) have differing costs because the advertising (or whatever it took) to motivate them to buy has different pricing and each one convinces different numbers of people to become a prospect.

Note that I said nothing about how many people that advertising reaches. It doesn’t matter if it reaches 35 or 35 million. What matters is how many people raise their hand and say “Hmm, I might be interested. Tell me more.” and show that by calling, stopping in, going to your website and so on for every dollar you spend.

Those things have a cost. In fact, it’d better be an investment. If it isn’t, you’re doing something wrong. Divided by the number of people who said “Hmm”, you know what a prospective customer costs. Most people have no idea what the number is.

Seems like a number you’d care about.

10 customers

Now let’s say 35 of those prospects turn into customers. They buy something.

Each one probably has a different “buying profile”. In other words, customers you meet online might buy different things than walk-in/phone customers do, or they might spend more or less, or they might buy more or less often.

If you don’t pay attention to these things, you won’t know how to deal with them.

You also won’t know which source of buyers purchases the most profitable items, which source returns the most items, and so on. Seems kind of important, doesn’t it?

If you know how much it cost to get those 35 prospects to call you, stop in or what not, AND 10 of them bought something, then you can also figure out how much it costs you (per media, per ad campaign and overall) to get a new customer.

Seems like a number you’d care about.

42 orders

If over the course of a year, these customers place 42 orders or make 42 purchases, you have another important number: cost per sale.

Not cost OF sale. Cost PER sale…to get the sale.

What’d you have to do to get those folks to order or purchase? Nothing? I hope not, because you’re depending on random behavior.

What if that random behavior changes?

If you do expend any time, effort and/or money on marketing, you ought to know which efforts/expenses are working and which aren’t. If one is working, you keep using it and try to improve it’s performance. If one isn’t, you either stop doing it or tinker with it a little and see what you can do to make it work.

Either way, those efforts have a price tag.

Seems like a number you’d care about.

Groundhog Day

In the movie Groundhog Day, Bill Murray’s character relives the same day repeatedly. He goes to the same places and buys breakfast (etc) day after day.

What are you doing to encourage that from your customers?

Recurring revenue is a critical part of every (YES EVERY) business model. Maybe not the same person every day, but definitely on a regular basis.

What if you woke up every morning and knew that you’d make 7 sales today, based on some prior effort, history or activity?

What if you knew how much of that effort, history or activity was needed to keep making that happen?

Seems like a number you’d care about.

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