The Need for Greed
I’ve noticed a common trend with non-direct response businesses.
They’re greedy bastards!
Here’s what I mean.
Most people, who do not understand sales funnels and direct response marketing…
…Try to make the maximum amount of money the first time they make a sale.
What’s wrong with that, you ask?
Well, everyone knows the most expensive and hardest part of business is acquiring new customers.
So it makes sense you would want to maximize how much money you make from them.
After all, you have to recoup your advertising, marketing, and selling costs — right?
Most business owners have absolutely no idea how much their customers are worth long term.
They might be able to tell you their average order value…but when you ask them what they’re worth in 30 days…60 days…90 days, 180 days, or 1 year?
Or how many referrals the average customer brings in.
Virtually all of them have no clue.
Not knowing that number leads them to try to charge the maximum amount of money in the first transaction.
Gary Halbert said, “we’re all in the arithmetic business.”
Here’s what he meant.
If you know your average customer is worth $1000 over one year, and your product costs $200…that means they will buy from you 5 times.
Let’s say it costs you $150 in “hard costs” to fulfill your product or service plus acquire the customer via advertising.
Most people, who don’t look past the first $200 transaction, will try to make the maximum amount of profit when they first acquire a customer.
It’s a lot easier to do what I’m about to suggest.
See, smart business owners who do the math and realize that every customer is worth $1000 might be willing to spend 25% of that number to acquire every customer.
That means they not only give away the first product, but they might even discount the customer $50 for the next time. Or give them a $50 gift card.
Or even better, a month after working with you, they send you a free gift for working with them.
Let’s say you’re a plumber.
Put yourself in the prospects shoes.
Nobody likes having to call a plumber. It’s usually not a pleasant experience…
Can you imagine if every time you needed a plumber, they charged you an arm and a leg…
The plumber already has 2 strikes against them.
Enter the direct response marketing savvy plumber.
Not only does this smart business owner give you amazing service, they don’t charge you anything…and they even give you $50 for choosing to work with them.
Your first thought is going to be WOW…this is amazing. Nobody has ever treated me like this before.
You’ll tell all your friends.
Who will you call next time you need a plumber? Yep you guessed it.
The one who treated you amazing the first time around.
Of course, this accomplishes a few strategic objectives for the plumbing marketer.
- They’ve acquired a customer. With way less resistance than usual by harnessing the power of the prospects greed gland.
- They’ve made a raving fan who is going to refer people over and over.
- They’re more likely to further increase their long term value from customer loyalty.
Of course, you don’t have to give away free services. This is just an example.
You can sell for your cost, or whatever number you’re comfortable with.
Let me repeat,
The two most important numbers you need to know are…
Your long term customer value…and… the % of that value you’re willing to spend to acquire a new customer.
Most business owners foolishly advertise according to an arbitrary budget.
They’ll put 5 or 10% of their revenue towards advertising.
If this brings them 100 new leads, they’re happy.
Dumb, dumb, dumb.
Look, if you had a vending machine that gave out $10 every time you put in $1, would it make sense to only budget a maximum of $10 for it?
No. You would spend as much money as you could. I know I would.
But the only way to set up that vending machine is to know your long term customer value.
To summarize it all up,
- You don’t need to profit on the very first sale.
- Know your long term value, at least your 30 day customer value and…
- Make sure you know what % of that value you’re willing to spend to get a new customer.
- Advertising budgets are stupid if you’re doing it right.
I could go on, but I this is enough for now.
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Thanks for reading.
PS. If you need any help with your marketing or advertising, reach out to me here or on Facebook.