A timeless classic I doubt many of you have heard. You probably know the artist who wrote it, but I’ll bet money you forgot he wrote it. Bruce Springsteen wrote this song as social commentary on America’s addiction with TV.
In the song he tells you he stayed up with his baby “’til half past dawn.” But, “there was 57 channels and nothin’ on.” In the end he loses his baby because of TV and does what any rational man would do. He channels his inner Elvis and shoots the damn thing. The TV, not his baby you psycho!
Interesting story, but what does any of this have to do with business? Well, pull up a piece of grass and let me tell you.
Re-arranging Chairs On The Deck Of The Titanic
People are abandoning TV at a rate that makes people rushing off the Titanic look slow. As you might imagine this is not sitting well with cable & satellite companies. They’re stuck in contracts with networks that were signed before anyone could’ve imagined streaming becoming as popular as it today.
Consumers tired of their bills going up every time they renew are pushing back and closing their wallets.
This further complicates the situation for cable & satellite companies as their cost per viewer on a lot of the channels you’ve never heard of skyrockets. The companies respond by dropping channels, but not prices.
It’s a vicious cycle really. But it does highlight a great point. Numbers…they matter.
If I’ve said it once I’ve said it a-thousand times. Know your numbers. Use them to make decisions about your business.
Even though the cost per channel number cable & satellite companies complained about is very high level it’s better than not knowing any numbers. I’m sure they also have numbers like profit per subscriber. Cost to acquire a new subscriber. Renewal rates. And subscriber lifetime value. But if they don’t, they should.
The same goes for your business. Do you know what your average sale was for 2016? Do you know how many customers, clients and patients you had?
These are two VERY basic numbers you should know. If nothing else so you can start making some basic decisions about marketing your business. Let me give you a quick example.
Break Out The Calculator
OK, let’s say that last year you had 500 customers. These 500 customers generated $20,000 in gross sales. A basic average sale calculation gives you an average ticket of $40, perfect.
Now let’s say that last year you also spent $1,000 on marketing. Well doing another very basic calculation you’ll find that your marketing generated a 20-to- 1 return on investment. What this means is that for every dollar you spent on marketing it generated $20 in sales.
But let’s dig a little deeper to see how much it cost you to make those sales.
Let’s say that all your expenses, both fixed and variable, totaled $15,000 last year. This number gives you a cost per sale of $30. So on average your business made $10 for every customer last year. That’s great, but what can you do with this number?
Well, this is where it gets interesting.
Advanced Money Math
Now that you know how much money each customer is worth you can start tracking leads. What’s a lead? A lead is customer before they become a customer, when they first walk into your business, before they buy.
Let’s say you start counting the number of people that walk into or call your business every day for a month. At the end of the month that number 60 let’s say this is the number every month. If you use your 2016 numbers you can estimate your cost per lead. In this case it’s $16.67, that’s how much you already PAID to have that person call or walk into your business.
More importantly though, is that every one of those leads is a walking-talking $10-bill in pure profit.
If you knew these two numbers, would you do things differently in your business? Would you let an employee ignore the phone or someone who walks in? If you do it’s like taking a $10-bill out of your wallet and ripping it up into pieces.
Why It Matters
Late last year I started a new business. We develop and market nutraceutical (supplements) products that help people live a healthier life.
We didn’t really do our full launch until this year though. So far we haven’t started to scale the business.
We’re testing our marketing message so it resonates with our target customer and we come as close to break even on the first sale as possible. Our numbers look promising.
Number one, as I already mentioned we’re still testing our marketing message. To be cash positive at this point is an accomplishment in and of itself. Once the message is dialed in, cost per sale will drop.
This is because there’ll be more buyers sharing the cost of the marketing that doesn’t change.
Number two, the more important reason is that business make all their money on the back end. From repeat buyers because at that point your cost per sale is almost zero. So, the goal of any business is to have as many repeat buyer as possible. To reach critical mass. Our goal is to get to 5,000 customers by the end of the year.
By monitoring our numbers I’ll be able to tell how our marketing is performing. When it’s time to try something new. When to retire a current product and introduce new one.
It’s decision by numbers, not emotion or hunches. Because numbers is the only thing that matters in business.
57 Channels (And Nothin’ On)
So, TV land complaining about their numbers should make you wonder what’s going on with yours.
Should you focus on return customers because you lose too much money on each new one? Are you letting $10-bills walk out of your business because you didn’t know any better? Definitely things you should look into ASAP.
By the way, did you know that out of the 199 channels available on cable we watch 15 channels per week at most? Amazing! I guess “The Boss” was right all along.
“Life is a series of missed opportunities, so go for yours.”™
To read Victor’s previous columns, click HERE.