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By Brad Sugars

Last month, we looked at the “Five Ways” and showed you how easy it was to get a 61 per cent increase in your bottom line … If you missed it, call for a back issue, because it truly is a great “secret” of business.

This month, we’re going to see how you can use those numbers to achieve an UNLIMITED marketing budget for your business.

That’s right – unlimited. Most companies aren’t good when it comes to figuring marketing budgets, and use a variety of figures, whether it’s a set amount per month, a set percentage of sales or just a number they decide on when a salesperson calls to sell advertising …

So if you could have an unlimited budget, how big could you grow your business? Let me show you how this works before I get into specifics.

Imagine you went to the bank and gave them $100. Then, 30 days later they gave you back $200.  How many $100 bills would you go to the bank with every day?

Now what if you could use that information to create an unlimited number of new leads and customers in your business?

Well, you can – if you focus on your “Acquisition Cost” and the “Lifetime Value” of your customers, topics we’ve looked at before but that now take on new meaning in light of the “Five Ways.”

Acquisition Cost is simply the cost of “buying” your current customer. If you’ve put $1000 into advertising and had 100 phone calls, you’re paying $10 for each of your leads. If only 10 of those leads “convert”, or make a purchase, you’re paying $100 to capture each sale.

Now, what’s this customer really worth?

Typically not much on a first purchase. But, even if it was just $200, you are putting in $100 and pulling out $200.  That said, in most retail businesses, a “bought” customer doesn’t begin to provide break-even or profitable revenues until the second, third or even fourth purchase.

However, the value of every purchase after those initial buys are just like gold for your business.

This is where the idea of the “Lifetime Value” of your customers is so important. Simply put, “Lifetime Value” is the amount of money your average customer will spend with you over a buying lifetime.

I’ve used the example before from my old dog food business. In that business, I knew my average customer would spend $800 a year on their dogs, and the average dog lived about 10 years. I presumed a customer would stay with me half that time, meaning the “Lifetime Value” of my dog food customer would be $4000.

What if I knew I could spend up to $38 to acquire each customer to get $800 a year per customer through my door?

Well, for my first month, I’d do better than break even. By my second month, my customer would be fully profitable, and at the end of the year, my marketing efforts would generate a better than twenty times return on my initial marketing “investment.”

So how often would you spend $38 to get $800?

It’s really just simple “marketing math.” Determine how much each new customer spends with you, figure your gross profit and “presto!” – you have your new marketing budget.

Let me explain …

In my dog food business, my customer’s first purchase averaged 6 weeks for delivery, totaled $108 and had a gross profit of $38.  Thus, my marketing allowance for “buying” each new customer – up to a total of $38 – was simply that.

Do your numbers and know that as long as you can cashflow the timing between when you pay for the advertising and when you get your customers’ money, your marketing results will be the same as if you were using the bank.

The idea of the unlimited marketing budget is to get you thinking in terms of your marketing efforts as investments rather than expenses. And with any investment, you are always looking for a return.

It also forces you to look at your advertising and marketing efforts in a whole new way. Why  toss thousands of dollars out your door looking to build a brand image when you could spend those dollars more tactically to actually increase your bottom-line – and build a brand as you’re doing it by buying customers?

Once you’ve bought your prospects and turned them into customers, know you’ll need to get them buying more, spending more and staying longer with your business. Why?

Because profits really come from repeat business, and your Return on Investment (ROI) is really determined by how long you keep customers.

Now you can see how these two factors – Acquisition Cost and Lifetime Value – add a powerful dimension to the “Five Ways” formula. Again, it works for any business in any industry or category.

In the next few months, we’ll get into more details about how to lower your Acquisition Costs and increase your Lifetime Value. We’ll also look at specific strategies to boost each one of the “Five Ways” factors in your business.

I would also be interested to hear what kind of results you get from these useful tools, now that you’ve realized their real secret is in the incredible value you can gain from getting the best information possible for your business.

A free resource

Our interactive “Five Ways” calculator remains active at the following link:

actioncoach.com/free-business-calculator-profit.php

It’s simple, it’s free, and it’s designed to give you an idea of how powerful the “Five Ways” can be for your business.

This article is reprinted courtesy of My Business magazine, one of the leading business publications in Australia.