You Should Be Spending More On Customer Acquisition
Many business owners spend too little money on acquiring customers. It seems counterintuitive, right? It does seem counterintuitive, right? This approach is a backward and shortsighted one that will leave you behind in a sea of similar businesses.
Customer acquisition costs
Is it possible to have a profitable business if you can sell a product for $50 and get a customer for $60? Surprisingly, yes. Here’s how.
Most businesses will not consider the above calculations and decide to stop looking into that product or service. This is not a long-term view.
Whatever business you’re in, it doesn’t matter what industry you are in. You should offer a variety of products and services. You risk falling apart if you offer only one thing, and you could lose your job during slow times.
Lifetime customer value
You may offer complementary products and services, such as upsells or backend offers. The above is just one way to look at the math. Lifetime customer value is another important metric.
You can lose money at the first end, but you will win!
It is perfectly acceptable to have a front-end product that doesn’t make any money. This can often be a competitive advantage for your company. You will gain customers that no other business can do, and they will not be there. You can also sell additional products or services to them.
Columbia Records sold 10 CDs at $1.99. Although they lost money, they gained customers and were able to sell music subscriptions to them.
Let’s do some math. If your front-end product is $50 and you have to acquire customers at $60, then you’re $10 short. If 10% of customers choose to buy a free product or service for $150 (assuming a customer value of $50 + $15), then you have $50 + $15 = $65 revenue.
You now have that customer and your competitor, who is too concerned about losing money at the front end, doesn’t.
Additional Partnerships and Offerings
What if there aren’t any additional products or services that you offer? – You should!
Always look for new ways to expand your product offerings. Consider what your customer would buy right after or before your core offerings and whether you can offer those services yourself or partner with another company that offers them.
If you sell fencing to homeowners and businesses, it’s possible that they would be interested in security systems or new paint jobs. Research is critical as every business has enormous potential.
The bottom line
You shouldn’t be afraid of losing money on the front end. It’s worthwhile as long as you can see clearly how customers can be monetized via upsells or on the backend.
Your competition will not be able to acquire your customers. As you build your customer base and continue to improve your products and services, your lifetime customer value will increase.
If you don’t want to be average, don’t follow the lead of your competitors. You can excel by challenging the status quo and shaking things up. You might be amazed at the results.