As business owners and managers, we need to look at a variety of numbers to gain a better understanding of our businesses. In this article, we are going to consider two very important metrics in business marketing – Cost Of Customer Acquisition and Advertising ROI (Return On Investment).

One of the most important numbers we need to always be mindful of is the “Cost of a New Customer” or “Cost of Customer Acquisition”.

Understanding Customer Acquisition Costs

If you are unfamiliar with this concept, let me give you a quick tutorial on this advertising metric.

Suppose you run an advertisement in your local newspaper for your furniture store. Suppose for the sake of this example that you paid $1000 for your display ad in the newspaper.

Now, suppose your advertising brought 4 new customers into your store, who bought from you. Suppose also that the average spend for each customer was $1500.

With the example I am drawing, your $1000 display advertisement in the newspaper brought in 4 customers who spent a total of $6000 in your store.

I am going to keep this example simple, so that more people can keep up with the numbers.

On the basic premise of our example, you generated 4 customers after an outlay of $1000 in advertising. So your basic Cost Of Customer Acquisition was $250 per customer.

If your business received fewer customers, from your outlay of $1000 in advertising, then your Cost Of Customer Acquisition is more expensive.

But, if your business earned more customers who spent money, then your Cost Of Customer Acquisition would be much smaller.

In its simplest form, the Cost Of Customer Acquisition is the money spent to get the customer to your store divided by the number of new customers acquired. We will look at this in more detail, later in this article.

The Best Way To Measure Sales And Marketing Performance

Entrepreneur Magazine in a 1999 article reflected on the Cost Of Customer Acquisition in the dot com world. The article suggested, “the cost of new customer acquisition is one of the best ways to measure sales and marketing performance.”

In 1999, the Cost Of Customer Acquisition for the following companies were:

• BarnesAndNoble.com – $42
• Amazon.com – $27.60
• Priceline – $32.30
• Beyond.com – $29.30

On the surface, these numbers may seem small. But, Amazon’s Average Sale is in the $17-range! This makes the challenge that Amazon and other major retailers face fairly transparent. If these retailers could only count on one purchase from the newly acquired customer, then these businesses would be losing money by the truckload.

Fortunately, Amazon continues to perform well in Repeat Business from a single customer. The following calculations reflect additional numbers that we business people should also factor into our Cost Of Acquisition metrics.

The Real Value Of A Customer

Amazon’s first-sale may only be $17, but in 1999, Amazon’s Average Sales Per Customer was $116, up $10 from the previous year. Unfortunately, Amazon isn’t very forthcoming with these numbers, so after two hours research, I was unable to come up with more up-to-date numbers for you to consider.

The point of mentioning this is that it is important for business owners and managers to recognize that the Value Of A Customer is not how much sales revenue is derived from the initial purchase, but more importantly, from the Lifetime Value Of A Customer.

If we looked at Amazon’s Cost Of Customer Acquisition only in terms of that first sale, then they will be losing money hand-over-fist. With a Cost Of Acquisition of $27.60 and the first sale of $17, Amazon could not stay in business long if they were continuously producing numbers at that level. However, once you factor in the Lifetime Value Of A Customer, then Amazon is spending $27.60 to acquire a customer that is worth $116 in sales for them. Therefore, by measuring the Lifetime Value of a Customer, Amazon is spending only 24% of their revenue in order to acquire one customer.

Few businesses invest 24% of their revenue in advertising, but Amazon hopes that the Lifetime Value of a Customer will eventually exceed the $116 value, known to have existed in FY2000.

As the Lifetime Value of a Customer increases, the overall Cost of Customer Acquisition will fall, as an overall percentage value of Cost Of Acquisition divided by the Lifetime Value of the customer.

The Compounding Lifetime Value Of A Customer

If you have a hair-cutting salon and your advertising budget for one month is $1000, and you get 30 new customers through the door, who will spend an average of $20 for a hair cut, then your basic Cost of Customer Acquisition is roughly $33.34 to gain $20 in new sales.

But if only half of your 30 new customers become regular clients, then you can anticipate 15 of those customers coming to your hair salon at least once a month for the remainder of the year. Therefore, the first 15 customers will be worth $20 each, and the next 15 customers will be worth $240 each over the course of one year ($20 x 12 months). All told, your first 15 customers will put $300 in your cash register, and the next 15 customers will put another $3600 in your cash register.

Thus, in the hair salon example, your $1000 in advertising could generate new customers that will generate $3900 in new sales. Once you start to consider the Lifetime Value of a Customer, within the Cost of Customer Acquisition, then you will realize that the Cost of Customer Acquisition – although it might be higher than the initial sale – holds out the possibility and promise reducing itself as the Lifetime Value of a Customer increases over time.

As the end of the year winds down, you will be able to see that a $1000 expenditure was turned into $3900 in new revenue. In essence, for every dollar you spent on advertising that month, your return value was $3.90 over the course of one year.

In the second year, if only half of the original 15 regular customers or roughly 8 people stay with you for the full course of the second year, then the $1920 in revenue (8 people X $20 each X 12 months) you can expect from those customers could almost be considered free money. Of course, you will still have service fulfillment costs, but that second year will give you nearly $2000 in revenue that you will not have to chase.

Even if half of the customers drop off during the following calendar years, then a 50% customer attrition rate will allow you to have customers that could stay with you up to five years. Calculated against a 50% decrease in customers over each calendar year, your $1000 investment in advertising may translate into $7500 in revenues over five years ($3900 + $1920 + $960 + $480 + $240 = $7500), from the initial investment of $1000 in advertising.

The interesting thing about this scenario is that it is based on an advertising budget of $1000 ONE TIME. But, most businesses will continue the advertising process every month in every year. Therefore, the above example could compound month-after-month. Every month should bring the same or similar results to your business for the month and year.

Advertising Is A Process, Not An Event

Many small business owners have a dire misunderstanding of the nature of advertising and the value to be received from the advertising.

When business owners or managers fail to track and measure the new business generated from the advertising, then the business owners and managers will fail to see that advertising is an expense that can return huge dividends to the business.

When businesses fail to track and measure advertising successes, people tend to only see the money leaving the business without every seeing the reward coming back into the business. As a result, many business managers will employ advertising for a short time, then cancel the advertising, under the false belief that the advertising was not returning value to the business.

When businesses fail to understand the Lifetime Value Of A Customer, it is hard to appreciate any advertising method that fails to pay for itself in its first cycle. If Amazon was to only look at the initial sale generated by a new customer, they would quickly cancel all of their advertising efforts. Fortunately for Amazon, its management understands that the initial $17 sale is not the measure to use to determine the value of Amazon’s advertising efforts. Amazon’s management understands that the true Cost of Customer Acquisition should not be measured by the initial sale, but by the Lifetime Value of a Customer. In doing so, Amazon has ensured that it will continue to be one of the largest and most successful retail outlets on the planet.

When business managers fail to understand the Lifetime Value of a Customer, it is hard for them to appreciate and understand the compounding nature of the revenue stream for a business. It is hard for them to understand that money invested into advertising today, can deliver huge rewards over the next several years.

A Wake Up Call For Small Business Owners

According to Scott Shane, author of “Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By“, only 29-in-100 businesses will remain in business after ten years. That means that a full 71% of businesses started in any calendar year will be out of business in only ten years.

It is sad to say, but the reason most businesses fail is that business owners and managers fail to understand the nature of advertising, the importance of tracking and measuring advertising results, the Lifetime Value of a Customer, and the compounding nature of the revenue stream.

I don’t want to see your business on the trash heap of yesteryear. So, it is my hope that you will take this article as a wake-up call, as to the importance of advertising and its potential to lift your business into profits.

Next, Learn Here More On How To Advertise Online……And Then Watch This FREE 26 Part Step-By-Step VIDEO Course

The global financial downturn is driving millions of people to try to earn extra income from the Internet, without losing what little they have.

Many thousands of internet entrepreneurs have succeeded and attained financial security. So what is their secret? How do they get a steady stream of visitors to their website and how do they persuade them to click the “Buy Now” button? By far the majority of marketers use a combination of Google Adwords and Search Engine Optimization.

Google Adwords carry millions of small ads every day, for every conceivable product or subject imaginable. So it must be the way to go, right? Sure, many people are making a good living from Adwords and a few can make a fortune at it. But, if you’ve tried it, then you’ll know it the true difficulties involved.

Being potentially very profitable, this market is very difficult to break into. First, you have to learn how this thing works, then you have to constantly improve your ads and you will need to spend money before you find the best performing keywords and the most profitable ads. You can set a daily limit to your spending but just twenty dollars a day will mop up 600 bucks in the first month.

Most popular keywords cost anywhere from 50 cents to 2/3 dollars per click, so twenty dollars won’t buy many clicks and, at a click-through rate of two or three percent, you will not get many visitors per day.

There are only about eight slots for ads on each page of Google, so the competition for these slots, particularly on the first page of results, is very fierce and often very sneaky. Each of the eight “tenants” of those valuable places on Page 1 are striving to get to position one, which, on average, gets over 70% of the traffic on that page and the only way to do that is to push the others down. All the Adwords users on the second and third pages are also fighting to climb up the greasy pole.

It is now possible to buy software that will allow you to spy on details of competitors’ campaigns and to see what keywords they are using and even what they are paying for each keyword, so you can potentially bid slightly higher and gain a higher position. If you do get your ad on Page One or Two, someone will be sniping at you with this type of software. Even if you have gained a comfortable position on Page 1 of Google, it is a constant struggle to maintain that position.

There is an alternative approach to running a successful Google Adwords campaign. You can employ a specialist team of experts, with the experience and the time to do the whole thing for you. The problem is, they won’t be interested unless you’re going to be a big spender on Adwords. That’s why I say that Google Adwords may be one of the most difficult ways to make money on line, certainly for a newcomer with little money to risk.

So how about Option Two? Search Engine Optimization. Surely this is the ultimate solution!

You learn how to design and build a web page which meets all Google’s guidelines (and I’ll tell you what they are) and then you get on Page One, with a page which costs nothing to be there and wait for the money to roll in. How cool is that?

This is all you need to do. Find a suitable keyword phrase (preferably 4 or 5 phrases) which gets at least 100 searches a day and which does not have many heavy hitters in the competition. 1,000 searches a day is obviously much better but is likely to have strong, well-established competition.

Then you need to get a domain name which incorporates the main keyword or phrase and build your web page so that it includes the keywords in the Title of the page; in the Description of the page; in the URL of the page; in the Headline of the page and in the Anchor Text of all links to other websites. That’s not too difficult, is it?

Then, to convince Google that yours is an “Authority” site, you need to get multiple links to your page, from other related sites, dealing with the same subject, whether it is Health, or Family, or whatever. The more important these other sites are, the more weight Google gives to these links. I can tell you, getting these links is hard work.

Here’s a real example. My website is on Page One of Google, for the phrase “Stop Arthritis Pain”, out of 2.1 million results. Last time I looked, it was at position 6, on Page One, and has been there for months. The same search phrase is on Page One of Yahoo (at position 2), out of 21.7 million results. Impressive eh?

I’ll bet you’re thinking “that page must be pulling in a ton of money”. Well, it isn’t. The reason is, that keyword phrase is not a popular search term and only gets about 20 visitors a day, so it makes a few dollars a day but nothing significant. Think about those other twenty million pages, who are getting even less traffic than those on page one.

So, if you can get onto Page One of the big search engines, you may make a lot of money but 99.9% of the pages up there are having no impact at all, in terms of making money for their owners. In many cases, it’s a lot of time and effort for no reward.

A well established method, used by High Street businesses for many years, is gaining credibility in online marketing. Make money by giving stuff away for FREE! We’ve all heard of BOGOF – “Buy One, Get One Free!” How about, “Get this valuable stuff, without buying anything”? Many internet marketers, smarter than I, claim to be making excellent earnings with this method and without the aid of Google Adwords or the Search Engines.

This is a quote from an expert, who has many profitable websites from using these methods -

“There is no more powerful way to sell your product than by ‘preselling’ it with free and useful information, typically with a free ebook.”

Next, Learn Here More About Google Adwords … And Then Watch This FREE 26 Step-By-Step VIDEO Course

The number one reason I chose to pursue Internet marketing as an online entrepreneur was the freedom it provides. Having an online business allows you to take your business with you wherever you go and work on it at whatever time suits your schedule. Now, that’s the kind of freedom I am after!

But, in order to make your work at home, online business a success, you must possess a certain amount of self discipline so that you can properly use your energy and time productively.

Here’s a few of the most important elements that I learned that will keep your confidence, focus and productivity strong as you pursue your own dream of working at home…and succeeding.

The most important thing I learned was what things produced money for me and what things didn’t. For me it was no question…article marketing and list-building were the two most important elements to pursue for my business.

In other words, they were the best use of turning my time into money as they provided the best results.

Hanging out in forums and chat rooms…although very entertaining, was simply not cutting it. Forums can be productive for you if you monitor the way you use them and don’t just hang out killing what could otherwise be productive time.

Another important step to take is to cut yourself off from the noise…cut off the world that takes you away from your focus.

For example:

1) unsubscribe from your thousands of mailings. That is a chore in itself, but if you don’t do this, you will continue to be bombarded with offers that will only distract you from your goals. Choose to follow 1, 2 or possibly 3 mentors at a time…and no more. Trust me, the others aren’t going anywhere and will still be around when you’re finished with your present ones!

If this idea scares you, then create a separate email account and resubscribe for those hundreds of promos you will be getting and check it occasionally.

2) Do those things that make money for you first such as sending an email to your list, writing articles for the directories, checking your support desk for any help needed etc.

3) Shut your computer down and accomplish any offline tasks that are nagging at you to complete. I have found that if there are things that I am not tending to in my offline life, they will continue to nag me and unconsciously I am not getting the most out of my mind energy because of this subtle disturbance to my peace.

Value your time: Learn to say “no.” Sounds easy enough doesn’t it and yet there are those that have trouble saying “no” to anyone or any offer that comes their way. You need to choose what and whom gets your valuable time…you only have so much of it. Use your time to enjoy your family or to benefit your business in some way.

Learn to say “no” to time wasters. Learn to say “yes” to your life (family and business)

Set up your work hours and stick to it. For me, this was early in the morning. I would get busy on my business…coffee in hand while most everyone else was sleeping.

If you’re busy writing an article or blog post, time yourself! That’s right, buy a typical timer and set the alarm for the amount of time it should take you to complete this task. This will keep you honest with yourself but more importantly it will keep you accountable for your time!

Don’t spend 3-4 hours on a short report or blog post that should be written within 20-30 minutes. After timing yourself for awhile you might be surprised at what you find. Use this information to improve your time management skills.

Create a daily action list. I create mine the night before so that it is ready and waiting for me when I sit down at my desk in the morning and I never have to guess at what needs accomplishing. It is simply a compilation of tasks that I want to accomplish that day. Better to keep it simple…especially at first until you get comfortable with your own time frames. Don’t make the list so long that you are defeated before you begin.

I move from one task to the other until I’ve completed them all. If I have miscalculated my timing and everything does not get done that day, whatever is left undone goes to the top of my “to do” list for the next day.

Don’t forget the breaks! We need to take 15 minute breaks to stretch our body and give our minds a rest. Ideally you should never work more than three hours straight without some sort of break. But, come right back after your break!

And, last but not least, take ACTION. This is the most important step of all. If you don’t take action, your dreams an ideas remain just that…dreams and ideas. Combine your dreams with action steps…persistently and consistently…and watch your dreams manifest before your eyes!

Becoming an online entrepreneur is one of the most exciting opportunities that has ever come along. Becoming a success at it, is all about your self discipline.

Next, here you will find more tips on “How To Work From Home”… and then watch this FREE 26 Step-By-Step VIDEO course

For many people the prospect of writing a sales letter is a daunting one and can frighten even the bravest of entrepreneurs. If you don’t feel ready to tackle that task yourself then outsource it and hire a copywriter to do it for you.

There are 6 golden rules to follow when you are looking to hire a good copywriter so check these out and get answers from the person you are looking to hire.

Rule One – How Good Are They?

For many people the only way to get first class copy that pulls in order after order is to hire a talented copywriter.

Easy isn’t it? BUT… not everyone who decides to call themselves a copywriter is one! Copywriting is a specific skill that not all writers have and you want someone who can write a simple sales letter that has impact and will pull in sales for your product or service.

You need to know if they are earning a living from copywriting and if it is their full time job or just something they do to earn a bit extra on the side.

Rule Two – How Much Do They Charge?

The old adage of ‘you get what you pay for’ has been around for years for a reason. When you are starting out it’s tempting to choose the lowest quote for a job, but I am sure you’ve heard the analogy for a £500 brain surgeon versus the £50,000 brain surgeon….who would you trust more?

An hourly rate is charged by some copywriters; this works to your disadvantage because what incentive have they to finish your job on time and on budget? Ask if they charge for revisions or not, and you also want to know exactly how many revisions are included in the price. Personally, I prefer to hire by the project and have a set number of revisions for free so that way I know exactly what my costs are going in.

Rule Three – Are They Dependable?

However good someone may be, if they are not dependable then you are going to be looking at trouble along the way. You usually hire a copywriter because it’s not a skill that you possess, or you have a deadline that you can’t meet by yourself.

I suggest caution if someone says they can accommodate last minute rush jobs. It sounds good, but what it means is that to do your job they will push someone else’s job to the back of the queue to get your business. The problem here is that the next time you hire them yours could be the job that goes to the end of the line.

When asking for references always include a question about how reliable they were on delivering on time.

Rule Four – Can They Work Long Distance?

Copywriters are available all over the world, from individuals working out of their home to huge teams contracted to an agency. If you are hiring a copywriter outside your own country, then make sure that they are fluent in your own language.

Many horror stories abound of people who hired ‘cheaper’ copywriters and then spent days correcting language, grammar and spelling. With the technology available today for live emails and video conferencing a professional copywriter can work with anyone, anywhere on the planet. Your ideal is someone who can work without constant supervision or ‘hand holding’ and is happy to have no face-to-face meetings.

Rule Five – Are They Easy To Work With?

They may be on the other side of the world, but your copywriter is going to be part of your team so they must be easy for you to work with. You are hiring them, so find someone you get along with. Not someone who doesn’t listen to your suggestions, refuses to take direction from you or is unwilling to compromise.

You are the client and they have to respect that, but in a good team the leader knows when to listen. They have an expertise you don’t so if they make suggestions to you listen, take on board what they are saying and ask questions.

If you still disagree then acknowledge their concerns (on paper or email) and explain why you want to go with your suggestions. Not only will things go more smoothly, but you get an opportunity to learn more about what makes a good copywriter and add to your own skills.

Rule Six – What Have They Done Before?

You ideally want to hire a copywriter with experience, but what kind of experience? It must be relevant to your market and your products. If they have written sales pages aimed at teenagers and your niche market is senior businessmen then it could work, but you are taking a risk.

So check them out and ask for samples of what they have done before and contact details for at least two references. You can also tell a lot about a freelance copywriter by the company they keep. Ask to see their client list, and notice how comfortable a fit it is with you and your business. Would you like to be associated with people or companies on their list?

Summary

By asking these questions and listening to the answers you are on your way to successfully hiring your first copywriter. Once you find someone who you are happy to work with AND who produces great work for you, stay with them and develop a long lasting relationship.