Seems Like A Number You’d Care About

By Mark Riffey

Whether you love what you do or 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.

Ever sit down and figure out how much it costs to open each day? Taxes, licenses, shipping, utilities, insurance, and yes…take home pay are obvious, but that’s not everything.

35 prospects
How much does it cost to get 35 people to visit your store? How much to get 35 people to call? How much to get 35 people to visit your website, subscribe to your blog, watch your YouTube channel, etc?

Each of those ways of getting a new prospect (often called a “lead”) have different costs because the advertising (or whatever it took) to motivate them to action has different pricing and each convinces different numbers of people to act.

I said nothing about how many people that advertising reaches, be it 350 or 35 million. What matters is how many people say “Hmm, I might be interested. Tell me more.” and show that by calling, stopping in, going to your website etc for every dollar you spend.

Divide the investment by the number of people who said “Hmm” and you know what a prospect costs for each way you obtain them.

Seems like a number you’d care about.

10 customers
Now let’s say 35 prospects turn into customers: They buy something.

Each one 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.

If you know how much it cost to get those 35 prospects to call you, stop in etc, AND 10 of them bought something, then you can also figure out how much it costs you (per media, per ad campaign etc) to get a new customer.

Seems like a number you’d care about.

42 orders
After a year, say these customers make 42 purchases. Now you have another important number: cost per sale.

Not cost OF sale. Cost PER sale.

What’d you have to do to get those folks to 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.

All 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. Each day, he goes to the same places and buys the same things.

What are you doing to encourage that?

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.

Assume that you know that you’ll make 7 sales today, based on some specific prior effort 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.

Want to learn more about Mark or ask him to write about a business, operations or marketing problem? See Mark’s site or contact him via email at mriffey at flatheadbeacon.com.

Stay Connected with the Daily Roundup.

Sign up for our newsletter and get the best of the Beacon delivered every day to your inbox.