While fully embracing the right mindset is the first step towards transforming your business into a marketing machine, there are four key principles that you must understand in order to impact your success. These are so important to your business success in this new economy that unless you build your marketing strategies upon this solid foundation, you will have a 99% chance of failing.
Therefore, it is critical that you take time to learn these four cornerstone principles and implement them into your business.
When business owners hire us to help turn their business into money-makers, one of the first things we do is calculate the lifetime value of their customers. The lifetime value (LTV) of a customer is the amount of sales and profit each customer brings on average to your business over the course of their buying lifetime.
No, that number is not the equivalent of how much you sell your product or service for.
However, unless you keep great records, you should probably hire a bookkeeper to dig through receipts and calculate the numbers for you.
Why is this an important metric?
The reason why the lifetime value of a customer is so important is because it gives you an idea of how much you should invest in marketing to get the customer in the first place.
Now think about that for a minute. Remember our discussion of S.O.S.? If you know the LTV of a customer, then the next time you run across a “great” marketing product/concept/service/idea, you will be able to determine how “great” this is for your business based on the facts of your specific customer’s LTV. It takes out one part of the guess work and can keep you focused on the best tools for your company.
Let’s use the following simple way to calculate your LTV:
|Total Amount of Customers for the year||100|
|Average # of purchases per customer||2|
|Average Purchase Amount||$125.00|
|(100 x 2 x $125) Total Revenue||$25,000.00|
|Cost to produce each product or service (including parts & labor)||$35.00|
|Total cost to produce product for the 100 customers (100 x $35||$3,500.00|
|Marketing Costs for the year||$5,000.00|
Total Revenue – Costs = Gross Profit
($25,000 – $8,500) $16,500.00
Gross Profit $16,500.00
Customer Lifetime Value For The Year
($16,500 / 100 customers) $165.00
So in the example used above, each customer in that business represents at least $165 in profits, on average per year.
Now, multiply $165 times the number of years your customers typically stay with you and you have the lifetime value of your customer.
However, it doesn’t have to stop there. In fact, your goal should actually be to increase the lifetime value of each customer. How do you do this? One simple way to increase your LTV is to increase your transactional average, the amount they buy from you when they do, or increasing your transactional frequency, having them purchase from you more often.
Based on our example, this business owner knows that if he spends another $5,000 in marketing in the same ways he’s investing in the market currently, he can reasonably expect to double his profits. Without knowing that lifetime value of his customers, he doesn’t have the confidence to make that kind of investment in marketing. Knowledge is power. Yes, specific knowledge of your customer’s LTV will give you the power to increase the results you expect in your business.
The best way to spend your marketing dollars effectively is by knowing where your customers are coming from. You do this through what’s known as tracking. If there was only one piece of advice that we would want you to remember from this entire book, it would be this: Track the source of every lead that comes into your business.
There are simple ways to do this:
At the end of the day, you absolutely need to know where your leads are coming from so that you know exactly what’s working in your business. Once you know where your leads are coming from, then you can begin to invest marketing in those specific areas that are generating the best leads and customers. Without tracking your leads, you’re just throwing stuff against the wall, hoping it will stick. You may be wasting thousands of dollars on ineffective marketing strategies.
Not tracking your results is using the MUSTA Marketing Method. The MUSTA method is thinking that when more customers are coming into your business, then the marketing MUSTA worked.
We cannot tell you how many businesses run using this method. We know many personally that have the capability to track and measure their results of what is working and what is not and they refuse to, because they think it will take too much time.
We are here to tell you that you cannot afford not to! Many of these businesses who refused to track their results, are no longer in business today. While you should always look at every cent you invest in marketing, in tough times it is even more important to create leverage through your investment in marketing and advertising.
Building on the previous cornerstone, the only way to truly know your return on investment is to track the results of every marketing strategy. Once you know how much you are spending and how many customers you’re getting as a result of that spending, then you will know exactly how much each marketing dollar is bringing back to your business.
For example, if you spend $500 on a mailing campaign, which generates two new customers, who then spend a total of $4,500 in your business, the return on your investment is 900%! In terms of actual dollars, you receive $9 for every $1 spent. By most standards, that is a pretty good return, wouldn’t you agree?
Super Bowl ads may get a lot of attention, however, in our opinion, most are really a huge waste of money. The ads that run during the Super Bowl are designed to be funny and cute and win advertising awards. They make the creative departments of the ad company feel very good about how clever they can be. However, those ads rarely make their companies any real profit. The big brand building ad should be gone with the wind! Those days are in the past. Every penny spent on advertising should be designed to convert–to create cash flow!
As a matter of fact, those commercials should be the laughing stock of the marketing industry because companies blindly line up and fork over three million dollars for a thirty second “funny” ad, believing that by simply putting them in front of millions of eyeballs, the ad will pay off. The reality is that most companies will receive little to no results in relation to those marketing dollars spent.
Over 90% of the business pay for regular advertising, which does not have the same powerful impact that education based marketing has. Education based marketing is designed to engage your prospects, to hook them by providing value while positioning your business as the solution to their problems and challenges, so they want to become your clients. If you go online and Google “education based marketing”, you will find over 100,000 entries with lots of examples to choose from. Business Week magazine said, in regards to educating your clients: “Don’t just pitch to your prospects—cast a wider net and offer useful information. You’ll out market your rivals and boost sales.”
When it comes to advertising, you either need to know how to write great education based marketing pieces or hire a great education based copywriter. The focus has to be on understanding the pain of your prospects and communicating clearly how you can solve this pain for them. Study good education based copywriters, even if you won’t write the copy yourself, so that you understand what should be included and recognize great copy. This education based information is the cornerstone, as you will utilize it in all of your marketing pieces, customer interactions, sales presentations, etc.
Although not exhaustive, here are some basics that you should consider when creating any marketing piece:
Here are the basics to consider:
At this point, you may be thinking that these cornerstone principles seem like a lot of hard work. So here’s a little bit of encouragement for you — most change is difficult in the beginning. Once you understand your customers’ wants, needs, desires, and challenges, then you can utilize your specialized or researched information to educate them on why you are the solution. You will transition your focus from ‘selling’ to ‘educating’ and it actually becomes fun! You start to build a relationship with your prospects and customers and they come to appreciate you for the value you add to their lives.
Just like so many other things in life, building that solid foundation upon which you will build your empire (or legacy) does take design, some planning, and a bit of work. Your willingness to actually implement these strategies on a consistent basis is one of the most important factors that will contribute to your success in business.
Build a solid foundation for your marketing and everything else will fall into place. Are you ready to build that solid foundation?
By the way, if you are ready to monetize your business more effectively and accelerate your business results, let’s connect. I know we can help.