“Back Of The Napkin” Math
One of the biggest issues I’ve seen when it comes to business owners deciding to launch a campaign (or outsourcing campaign management to an agency/freelancer or team member) is having not first done some “back of the napkin” math on what they can actually afford to spend to acquire a new customer.
What do I mean by that?
I mean the idea of sitting down and thinking about what you would happily pay if you could get a brand new customer right now.
If you could pull out your business debit card, swipe it, and immediately get a new customer, what would you happily pay?
And I’m talking about in the context of “real life” numbers.
Not paying $1 for a customer.
But understanding your specific business model.
Your specific pricing.
Your specific margin.
Your average "customer lifetime value".
Taking all of that into account.
What would you happily pay?
Using basic “back of the napkin” math.
And then beginning the process of “back tracking” to get to what I call “early indicator KPI’s”.
Meaning, if you’re happy paying $1,000 to acquire a new customer (for example), what step would come before that?
Maybe your sales process requires meeting with a prospective customer in person.
On average, how many in person meetings does it take for your business to get a new customer?
Maybe it’s 5 meetings? (a 20% “close” rate)
Okay, then we would say that you would happily pay $200 to get an in-person meeting. ($1,000 to get a new customer % 5 in person appointments).
Great.
Then, on average, how many leads does it usually take for your business to get an in-person meeting?
40?
Great, then we would say that you would happily pay $5 to acquire a new lead for your business. ($200 to get an in person appointment % 40 new leads).
So on and so forth, down to a happy “cost per click”, etc.
This is what I call “back of the napkin” math.
When you have this basic framework, you can then launch a campaign and can know (within a general range) if you are on track or not.
I created a quick podcast going over this in more detail - if you’re interested in checking it out.
Hope this was helpful!
Until next time,
Colin