How much should you spend to acquire a new customer?

by Adam Killam on August 5, 2010

I received an email this morning from a newsletter I subscribe to written
by Bob Bly. Bob is a legend in the copywriting industry and has published
over 70 books, including The Copywriter’s Handbook.

In his newsletter this morning, Bob details how you can figure out how
much to send on acquiring a new customer and I thought the message
was particularly relevant given that my readers and my clients are in the
business of generating new customers and keeping old ones happy.

Even if the majority of your new clients come from referrals, you can
still invest money in making sure you continue to receive referrals.

If for some reason you’re not looking for new clients, something
to consider is investing money in keeping your existing list of customers
active and happy. In either case, putting money back into your business
is a way to keep it healthy keep it growing.

Bob’s newsletter describes how to determine how much to spend on
acquiring (or keeping) customers. Personally I prefer to think of money
put into marketing as an investment. It’s an investment into your business
that should pay you a return.

Read through Bob’s ideas below and let me know what you think.
I think you’ll find he has an interesting way of thinking about the
value of a client.

Best,

Adam

*Note: Bob allows people to spread, share, and copy his newsletter
and blog content as long as you attribute his site as the source.
——————————-

Dear Direct Response Letter Subscriber:

To determine how much they can afford to spend to get a new
customer, many marketers base that figure on the average size of
the first order.

Therefore, if the front-end product or service is $500, they
won’t spend anywhere near that to acquire the customer, for fear
of operating at break-even or even a loss. If they want to double
their money on the promotion, the most they’ll spend to make the
sale is $250.

But savvy marketers know that the amount of money you can spend
to acquire a new customer should be based on the customer’s
lifetime value, not just the revenue from the first order.

Lifetime value refers to how much money your customer is likely
to spend with you during the period he remains a customer of your
business.

For instance, if the average unit of sale is $500, the average
number of purchases per year is two, and the average customer
remains a customer for 5 years, the lifetime customer value is
$500 X 2 X 5 = $5,000.

Based on the average lifetime value, you can see where it would
in fact be well worth spending $500 to acquire a new customer.

The business owner who understands lifetime customer value as it
relates to customer acquisition has a tremendous advantage: He is
willing to spend more to acquire new business, because he knows
its true value.

Example: A company selling books to corporate librarians planned
a marketing campaign to get new corporate accounts to start
ordering books from them.

I asked the owner what he would be willing to spend to get a new
account. He said about $300.

Forget advertising, I advised. Just open up an account for every
company you want as a customer – and put $300 in it!

Send each prospect a personal letter telling them they already
have an account with you — and that it contains $300 they can
use at any time this year.

Instead of a sales or marketing campaign, my client gave the
money he would have spent to generate leads and makes sales calls
directly to his key prospects, so they could try the service at
no cost. It worked like a charm!

Today online trading services use the same tactic. They send you
a letter telling you they have opened an account for you with $75
or so in it. You get the money when you do your first trade.

Need to stimulate business? Calculate lifetime customer value,
decide what percentage of that amount you want to spend on
acquiring new customers (10% is a common figure), and invest that
amount of money to acquire new customers.

It will likely be more than your competitors think they can
spend, giving you a huge edge in winning new business.

Sincerely,

Bob Bly
Copywriter / Consultant
590 Delcina Drive
River Vale, NJ 07675
Phone 201-505-9451
Fax 201-573-4094
www.bly.com

Follow Bob:
Twitter, http://twitter.com/Robertbly
LinkedIn, http://www.linkedin.com/in/bobbly
Facebook, http://www.facebook.com/people/Robert-Bly/535042603

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Free Conversion Rate Optimization Tool

by Adam Killam on July 29, 2010

The always excellent team over at Conversion Rate Experts (brilliant name) has done it again and brought a great (and free) conversion optimization tool to my attention.

The tool is called KISSInsights and what it does is enable you to post a small unobtrusive pop up survey to your home page or all of the pages on your site if you choose.

Conversion rate optimization tool KISSInsights

The idea is to engage with and request feedback from your website visitors. By serving a quick mini survey you can find out what people think about your site, what they are there to do, and more. Really you’re only limited by your imagination as far as what you can ask or the knowledge you can gain from your visitors.

KISSInsights keeps it simple and when you sign up, they ask you a few questions that will help you quickly customize and setup your first survey. One of the things I really enjoyed about their site and the sign up process is that they make it easy and obvious what your next step should be at each stage. I learned a thing or two about conversion just by going through the process (great work guys!)

I going to recommend you test adding the feedback survey to your site for 3-4 weeks and then gauge your response. It’s always a great idea to collect visitor feedback and this is a simple and elegant way to do so. Just make sure you take action on what your visitors are telling you!

To get started, visit KISSInsights. It will be obvious what to do from there!

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Fun Video: The Growth of the Web & Social Media

by Adam Killam on July 28, 2010

I came across the video below and a couple of thoughts jumped out at me. Take a look and see if you agree with the conclusions I drew from it.

Thoughts:

1. When something works in advertising and marketing, repeat it.

I’ve seen this kind of video before where someone compiles a bunch of stats and figures about the crazy growth of the web and presents them in an interesting way with catchy music. It’s a content model that has worked to generate videos and other types of content that have gone viral in the past.

The take away here is that you could  create something similar for your industry with a little research and some elbow grease. (A Realtor for example could produce a video on the latest round of MLS statistics or perhaps do a video that covers the goings on of their local industry year by year for the past several years.)

If you see someone else doing something that works, copy it or re-purpose what they’ve done for your industry. If you see a general concept like this executed well, find out if you could create something similar for the niche you work in.

(Note the link overlaid on top of the video by JESS3. A great way to bring visitors back to your site and the real reason why the video was created in the first place!)

2. Video has arrived

It’s interesting that on a lot of the main stream web marketing sites that I frequent I still do not see much being said about video. I have to admit that even though I have a Flip HD I too have been lax in putting it to use. But assuming the stats are true: video could be a huge opportunity for you to reach new customers. Youtube is serving up over a billion videos per day. The average North American is watching 168 videos per month (and likely growing). Think about it.

3. Email is still huge, and of course Social Media is here to stay.

I’ve run out of steam here so I’m not going to elaborate on the last point. It’s just interesting to note that email is still huge (and in some ways not a surprise.).

So, did watching it spur any ideas for you?

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‘Promoted Trends’ expands Twitter advertising horizons

by Alex on June 29, 2010

It seems like Twitter is finally finding its revenue model. At one point, the only way for an advertiser to generate buzz on the world’s most popular micro-blogging website was to tweet and be re-tweeted. Hopefully, if the company was well-known enough or the topic went viral, the topic being tweeted about would make it to the holy grail of Twitter: the Trending Topics list. A small box to the right of the main page, Trending Topics a reflect what is being most tweeted about in a user-specified area. All Twitterers see the Trending Topics box, so to appear there guarantees even more exposure.

Twitter is now changing that. Advertisers can now pay to be featured in Trending Topics – and so far, it seems to be a hit with advertisers. Coca-Cola is the second company (after Disney/Pixar) to buy a sponsored trend. Rumoured to cost tens of thousands of dollars, Coke’s trend was timed to coincide with world cup fever, when traffic on Twitter would be the heaviest.

cocacola

Coke reported 86 million views, with a user engagement rate of 6%.  I think that is a pretty healthy return on investment – and quite a step forward for Coke, who could have just as easily shelled out millions of dollars for a more traditional advertising campaign.

One minor concern is the relevance of trending topics to users. If they know that certain trends are being paid for (or the tweet within certain trends are being paid for), how interested will they really be? It will be interesting to see if user engagement drops as sponsored tweets become more ubiquitous. However, I doubt that will ever happen; Google’s AdWords connect people with the products they’re searching for every day, so it will be interesting to see if Twitter’s sponsored tweets manage to do the same.

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Is iAds the new AdWords?

by Alex on June 24, 2010

Apple vs. Google: It’s really starting to look like a clash of titans. The two companies have dueled in numerous marketplaces – smartphones, operating systems, and the like – but their most recent battlefield is a market upon which Google built its massive success. It’s also a market from which Apple hopes to draw 10% of its revenues by 2012. This market is none other than advertising.

The world of internet advertising has been conventionally dominated by Google. As times changed and people began using internet from their phones, Google adapted its ads to show up on mobile devices. However, AdWords ads remain at the mercy of Apple when it comes to iPhone users, as they could lock them out of the system at any time.

Apple, for the time being, isn’t going after Google directly. The company is targeting users in another mobile device activity that is swelling in popularity – mobile applications. Mobile device applications, known as ‘apps’, are becoming as popular and well-used as the internet on smartphones, and Apple is well-aware of this.

Thus was born iAds, the platform for advertising on apps. So far, it’s been a hit with advertisers: in its first 8 weeks of release, Apple has over $60 million of committments to advertise on iAds in 2010 – much of it from large companies such as Unilever and Citigroup. Analysts feel that this strong showing so early in the development of iAds is promising, even a long-term threat to Google. However, this is not to say that Google should be worried too much – $60 million is nothing compared to the billions of dollars of annual revenue Google generates from AdWords.

While it is too early to tell just how great of a success iAds will be, things are already look up for the newest addition to Apple’s product offering. It is also too early to say whether or not Google and Apple will end up fighting for control of the market, as there is still plenty of opportunity in the market itself, and many niches and media for each company to develop.

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