There will be about 50% of people to disagree with me here, maybe even more, because we have been taught incorrectly- and in a few cases, some of you just don’t want massive income overflowing in your bank accounts. You are perfectly fine with being average. Well, I am not. I want it all and I deserve it all, too. So, do you.
Why Customer Acquisition is Important
Most businesses fail because when things get hard, the owners switch into to save money mode. They cut payroll, they reduce working hours, they cut corners on product value and presentation, and they simply are too afraid to go get new customers in bad times so they try to please the customers they already have. Of course, customer retention is important. Yet, I can’t help but notice that pleasing customers is not the same mentality as getting new customers and keeping ALL the customers pleased. In truth, increasing your customer base is the fastest way to grow your business and the most obvious way to reach short-term revenue goals. It is not the only way, but it is the fastest way. Of course, nurturing your current customers and up-selling them can sometimes prove more lucrative than what you’ll make on a new client.
Why Customer Retention is Important
Don’t get me wrong, you absolutely need to keep your customers. A high retention rate will show the measurability of how reliable your company is in providing its service. If you intentionally don’t focus on keeping customers, you won’t stay in business long. Yet, keeping customers won’t help you grow as fast as getting new customers. Of course, there should be a balance but you should be in the business of getting new customers at all times. Do not, I repeat, do not grow your company if it is not profitable. I cannot tell you how many companies call me to fix them because the owner has confused growth with profit. If you are getting bigger but must spend all your income on expenses to sustain such growth, your business is NOT profitable
What Is Customer Lifetime Value
Most would refer to Customer Lifetime Value to a prediction of the total profit generated by a customer over a projected period of time. Calculating this number helps businesses see the long-term vision, in terms of how valuable a client would be if retained for a set cycle.
Let’s calculate how much it cost for us to get customers. In my case, I have a $.02 customer acquisition cost. This makes it near impossible to our spend me, if you were my competition. Here is how you calculate the cost of customer acquisition. You basically need to take your total marketing investment and divide that by the number of customers you retrieved from the investment. That is pretty simple.
If you click the picture, you can see another article that I have used as a source of this blog.
Below you can also see how to calculate how the value of a customer.
Here is a direct quote from this article. Review it, and then I will explain why you should be going after new customers all the time.
Lifetime Value of a Customer (LTV)
What is your customer worth to your business over the lifetime of your relationship? Any idea? Hello? Bueller?
The idea of determining just how much your customers are worth to you seems a bit daunting, however, that’s no excuse not to know it. This KPI is a great way to gauge your company’s ROI, and it’s a wonderful figure to help strategize future business goals. While not exact, figuring out the lifetime value of a customer involves figuring out all sales your average customer have initiated over the course of your relationship.
Need help calculating LTV? Let’s breakdown the key components: revenue and gross margin.
Revenue is the money a company receives during a particular financial period. Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold. Total revenue or sales is not the same as profit.
Gross margin represents the percentage of total sales revenue that a company keeps as gross profit after deducting the costs directly related to producing the goods or services sold. You can calculate gross margin by subtracting the cost of goods sold from the total sales revenue and then dividing by the total net sales. For example, a company with a gross margin of 40 percent retains $0.40 for every dollar of revenue it receives. You can calculate gross margin not only for your whole company but also for each product line, which is where this figure is especially valuable.
Let’s say you’re a B2B company and you sell industrial equipment to other businesses. Let’s say your company sells an industrial strength dryer for $20,000. The revenue on the sale of the dryer is $20,000. However, your gross margin on that product is 35%. Now let’s assume this is a one time purchase and it’s not likely the customer will buy anything else from you ever again.
The lifetime value of this customer would be:
$20,000 (Revenue) x 35% (Gross Margin) = $7,000
However, in the scenario where repeat purchases are typical this calculation changes. Let’s say we’re in the situation outlined above, selling industrial-strength dryers for $20,000 a pop. Now let’s assume that in the customer’s lifetime they will buy on average five dryers.
The lifetime value of this customer would be:
$20,000 (Revenue) x 35% (Gross Margin) = $7,000 x 5 = $35,000.
Why You Should Be Focused On Getting New Customers 1st
Really, it is simple. It takes more work to get new customers but the payoff is far greater if you get so many that money isn’t even a factor anymore. Of course, for most of you, money is a factor, but I would say to you that is because you aren’t focused on getting new customers. There is a basic rule in business, “He who spends the most money wins!” This is where customer acquisition comes into play. There more money you make, if you put it back into getting new customers, you will become omnipresent in your field. The more omnipresent you are, the more you will be able to dominate your lane and cash in at the bank. Omnipresence leads to major speaking engagements, celebrity status, and bigger deals. Go after your new customers! You deserve to be rich!
You can Plant Better, you can Dominate.
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Antonio T. Smith, Jr. is a prolific public speaker, a celebrity business advisor, and a businessman, who has delivered over 2000 keynotes at events such as the University of Houston, University of Wisconsin, the United States Army, Wiley College, and more, which you can listen to on his top-ranked business podcast. Antonio is an internationally recognized trainer and speaker, and best-selling author in self-help and religious categories. He specializes in Cognitive Behavior Therapy, Business and Strength Training, Leadership, Teleconference Presentations, Personal Breakthroughs, Prosperity Consciousness, Mindset Training, and all levels of effective marketing, as well as scholarship in the Old Testament and Jewish Covenants, and he owns one of the most successful technology companies in Texas. He holds a bachelor’s in Christianity and a Master’s in Theological Studies.
Antonio overcame abandonment, homelessness and brokenness, Antonio had to learn at age six how to use his mind to climb out of sleeping in a dumpster. He would spend his entire childhood homeless, was adopted when he was 14, and aged out of CPS custody at 18 years old. This Galveston, TX native has been through more in his 30+ years than most will ever experience. He has developed a “plant better” attitude, in which he teaches people to plant better seeds in order to have a better life, and has developed coaching tools, programs, courses and books designed to help the world succeed. Today, he makes profitable clients more profitable
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