Building a big brand will involve spending money.
It’s good to be shrewd, but you can’t save your way to making millions.
When it comes to building a business, I’d like to encourage you to work out 2 key metrics.
- The cost of acquiring a customer
- The lifetime value of a customer
You could do this for each user type and archetype or you may focus on your Core customers as they are the most valuable in terms of revenue. The pursuit of Core customers can also lead to a large Crowd of spectators forming as you seek out those who will engage deeply and open their wallets.
If you measure these two metrics and the latter is more than the former, you have the potential to grow your business. The challenge is often cash flow.
For example, if it costs you $50 to acquire a new customer and that customer has a life-time value of $75, you could make some serious profits. The problem is that the acquisition cost comes now on the front end, and the lifetime value comes on the back end, possibly over a couple of years. This means you might run out of money in the short term.
If it costs you more to acquire a customer than the lifetime value of each customer, you don’t have a business.
To begin with, you have to estimate what these figures will be. Guesstimates are a legitimate thing to do and accountants call it forecasting. It is, of course, essential that you measure these metrics and your conversation rates at each step of your sales funnels to see where your projections are realistic or pie-in-the-sky.
