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Marketing From The Heart: Issue # 4
http://www.doublein26weeks.com
By Tom St. Louis
"The Shortest Distance Between You And Greater
Profits(tm)"
November 7, 2001
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Today's Tip: Marketing Arithmetic
If you are less than thrilled with
the results of your
marketing, the reason may be very simple. You probably
don't understand and aren't taking advantage of
"marketing arithmetic".
The key to winning at marketing is
to understand a few
simple numbers, and once you do, to take action based
on their compelling logic.
"Marketing Arithmetic"
is elementary, simple and often
overlooked. Answer the following questions accurately
and you will come up with the "Magic Number" you can
use to make money on all your marketing activities:
1) What's my average transaction
size? _____
2) How many transactions on average do I do
yearly with my customers? _____
3) How many years do my customers stick with me,
on average? _____
Take your answer to Question 1 and
multiply it by the
answer to Question #2 (Example: $1000 average
transaction size X 5 transactions a year = $5,000).
Now multiply this number with the answer to Question 3.
($5,000 X four years of patronage on average adds up
to $20,000). Multiply that number by your gross profit
margin - let's assume 50%. Therefore, the lifetime
value of your customer is $10,000. ($20,000 X 50%
= $10,000)
Now you have your Magic Number. Based
on this
arithmetic, you would acquire an asset with a lifetime
value of $10,000 every time you won a new customer.
Knowing that, would you work harder to get one? Would
you work harder to keep one? Would you reward referrals
more generously, more open-heartedly?
And how would your marketing investments
change? Would
you be able to evaluate your investments more logically
to make better decisions?
How much should you be willing to
invest to acquire a
$10,000 asset? Theoretically, it should be a
no-brainer to invest at least $1,000 or $2,000, but
many won't and cannot justify why they won't. Fear
stops them.
When fear trumps logic, your business
is in trouble.
Here's another error that too many business owners
make because they don't understand the logic of
marketing arithmetic and cannot override their fear
of "costs". If you ran an ad for $400 which brought in
$1500, of which $700 was profit, the ad did not really
"cost" anything. The $400 was a profit-producer -
period.
When you re-run the ad, it does not
"cost" you an
"additional" $400. I don't care what your accountant
says. Of course you will deduct all those "business
expenses". But you must realize that something which
brings you a profit is not a cost, even if you do it a
thousand times. Too many business owners convince
themselves that they "can't afford" to continue to
deploy a winning tactic, because they are afraid of
the cost.
There is no real cost associated
with a winning tactic.
On the other hand, the cost of NOT continuing with or
ramping up a winning ad or tactic is huge.
One of the common insanities during recessions is
business owners cutting their marketing budgets,
citing "costs". That's like saying; "I want to
preserve energy so I will let my heart stop for a
couple of months."
Working with "marketing arithmetic"
allows you to
advertise more often, to justify running bigger ads, to
send extra letters to prospects that have not yet
"bitten". In short, it is the measuring stick of profit,
and that's what marketing is all about.
Once you know your marketing arithmetic and commit to
its irreducible logic, fear will no longer rule your
business, and you will grow.