Forbes published an article earlier this month, titled, “The Real Reason Disney Created Disney+” Disney+ of course, is the mouse-owned streaming service where you can watch The Mandalorian, Hamilton, and tons of the Disney back catalog. The article posits, accurately, that for years, the real money makers for the Walt Disney company are their twelve theme parks.
So while economic pundits went on and on about debt spending, Bob Iger felt it was worth the $4-Billion to buy Lucasfilm; $4.24-Billion to acquire Marvel; and $71.3 Billion to take over competing studio FOX. It’s hard to believe now that Disney was the one begging for a seat at the table back in 1948 when FOX & Paramount owned most of the movie business, from production to theater chains.
No, Bob Iger didn’t think his company was too big to fail. He counted the cost and knew that combining those three entities, along with his own studio and their step-sister Pixar, would generate enough income – in the theme parks alone – to justify it within ten years.
Of course, he didn’t plan on a pandemic deeply cutting into the profits. But the company is stable enough to endure this time relying on other income, like Disney+, which outperformed their biggest expectations even before people were stuck with streaming-only entertainment. And they still have $12-billion a year in toy sales to soften the blow.
There’s Always a Price Tag
Before we dive in, let me clarify a couple things. Every customer has a cost. At the bare minimum, it’s the expense of generating the product or service you offer. So the raw materials and manufacturing to create a widget is a set cost. Every customer who buys that widget must, generally, cover those expenses. Preferably with a margin for profit. If your service is more intangible, like writing a blog or rebuilding a website, the minimum cost would be for the labor – or the value of your time if you’re a sole proprietor.
In addition to that, you want to account for the expenses that brought that customer to you. Even if they’re just a walk-in, you had to pay for that space they entered. For the sign above the door or in the window, alerting them it wasn’t just a vacant room.
But we’re not talking about just one customer who buys one thing. As we discussed last week, there is much more to consider. Are your targeted customers looking for long-term solutions (a weekly blog post for years) or short term fixes (a luxury ride to the airport). And are they likely to be repeat customers (a termite inspection before you buy a home, and then contracting for quarterly treatments after it’s bought).
We need to also calculate the cost of keeping an existing customer (up to 5x less once established) and keeping the company name top of mind for later purchase decisions. As Grow the Dream has taught for years, you cannot rely on any marketing unless you have a measurable metric to determine its effectiveness. So we must calculate the basic expenditures, giving us a baseline from which to begin our measurements.
The 400 Blows
You’re probably familiar with that age old adage, “it takes 100 No’s to get a Yes.” And even though we’re aware that it’s part hyperbole, like the 10,000 hours rule, there is also a measurable metric truth to it. Not only must you take into account the cost of making a sale, you must also factor in the cost of all the attempts to make the sale that failed.
I mean, if you’re really up and running properly, you have sales clearing, and dozens or even hundreds of other not-yet-sales bouncing around in some part of the sales funnel you’ve built. Yes, time is also a factor. Time is money in foldable form. And we’re looking at the cost of all of the resources required to generate a customer sale.
In an ideal world, you would know how much is required to get one average sale, down to the second and the penny. You should also know the profit from each sale. Averages are good for this, because the more data you have, the tighter your calculations will be for both. With that info, you can calculate how many customers you need to have to break even, pull ahead and properly cultivate and grow your business.
To take that one step further, we want to look at the cost of acquiring and keeping your ideal customer. Averages are great, but the closer we are to the center of the target, the more valuable that client is to us. Your ideal customer may cost less in the long run than one a little to the left or the right, metaphorically speaking.
So those averages become one benchmark – always pressing to the higher standard of the ideal customer.
What Price Glory?
In an ideal situation, we would have as much data and detail as possible. Of course, we are seldom in an ideal situation, and, as the saying goes, if we wait for perfect conditions, we’ll never start. The great thing about a strategic marketing approach is that it’s a living document. We start with what we know, and build onto that. As we learn more, we adapt and develop it, with each iteration becoming more precise and, hopefully, actionable.
But we do have to start somewhere., so consider these elements that should be accounted for. Be as specific as you can. Barring that, try to have an estimation, at least, for the value of these resources and expenses starting out. If you’re starting completely from scratch, there are some good resources to make more educated guesses. I recommend Hubspot, Neil Patel, The Futur and business periodicals like Inc, Forbes, Fast Company and Entrepreneur.
Remember to consider the individual cost of things like your marketing costs. Online, print ads, direct mailers, search engine ads, social media – anything that brings people in. The expense of building your own website (even if you do it yourself). Renting or buying a building location or store front – even a mall kiosk or flea market table.
What are your follow-up costs? Do you need a newsletter? How about a Customer Relationship Management (CRM) system. If you start with a cheaper one, will it scale as you grow, or is that an expense to budget down the line. Or will you try and keep your own contact database? At the very least, the free version of MailChimp will keep you from getting dinged for spam.
Play For Today
Will you be offering classes or webinars? These can be both an expenditure and a source of income. You can use these purely for marketing purposes. Or you can leverage income from ongoing classes and extra-informative one-off’s. We’ve done both at Grow the Dream – in fact, it was a significant part of our business model in the past.
How will you leverage organic search traffic? It’s no secret that we believe developing a solid content blog is a crucial part of gaining this Google attention. Will you write it yourself? Will you contract it out? Even if you shift the focus of your topics once you’ve targeted your ideal customer, starting with something is better than nothing.
You’ll need to identify and track where conversions happen on your site and in your various forms of attracting customers. Remember, if you don’t measure it, you can’t manage it. So make sure you have the means in place to identify where each customer came from. This is another area where you’ll plan for everything, but as you develop your marketing strategy, you’ll spend more on the most profitable areas of influence – the sources where most of your ideal customers come from.
Remember, a transaction or conversion is every time something of value is exchanged. So while sales are the ultimate indicator of success, knowledge of how every transaction happens is invaluable. Every time a visitor gives you their email in exchange for a lead magnet, you have started the chain of yesses.
It could start earlier, with finding you on Google, or a link from another website. You need to track it all. But not just that first step – even after they’ve found you or returned, keep track of where sales happen. The decision to put something in a cart – real or virtual – is another yes. Reading an entire article, especially one as long as this, is a time investment and another yes.
Filling out the contact form, agreeing to a brief sales call, signing up for an event. Keep track of it all.
While the City Sleeps
One thing often neglected in these calculations is connection. Do your sales require a certain level of touch? A convincing face to face interaction? Will automation do the trick or will it just serve to chase potential customers away? Is there an acceptable balance of machine-generated communication? Consider the cost of both using and rejecting automation.
Don’t neglect salary expenses, even if you’re a solopreneur. You need to pay yourself a reasonable sum for your time and expertise, otherwise you won’t have a business for long, especially if you have a significant other and/or children you’re responsible for. And don’t forget to line item any freelancers, independent contractors or lease expenditures.
This is not the time to skimp – be honest and if you err, err on the side of higher expenses, not lower.
Also, make sure you calculate a positive value for retaining customers. Just like the expense of keeping them around, you should track their continued value. This becomes especially important if you offer monthly, quarterly or annual products that can renew like gym memberships or Netflix.
This will also come into play heavily next week, when I break down the lifetime value of each customer. I hope you’ll join me. If you have quick questions or need clarifications, pop them in the comments. For longer, more specific questions, or to get more information on how we can help you grow your business, please reach out!