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Clicks, Conversions, Clients Course > Module 3: KPIs, Metrics, and Data Points

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LESSON OVERVIEW


Video 05: Determining Cost of Customer Acquisition

  • How much are you willing to spend to convert each customer
  • In the last video we talked about what's your customer lifetime value and I touched on this in that video because it's very important to understand your numbers, especially if you are trying to acquire a variety of customers from all sorts of locations, for your physical or digital product. 
  • Rule of thumb: if your offer is $10k, you need to be willing to spend $10k to figure out what's going to work for the offer. 
  • Down the road, maybe you could spend $1000-$2,000 to acquire a customer, which means you'd make anywhere between 5-10X the amount of money that you've spent. 
  • Let's say your product is $50. Well, it might take you $50-$100 for you to acquire the data you need to see whether or not you have some audiences you could scale to then lower that cost per purchase.
  • Because it's a lower ticket item. It's going to require a lot more variables to find whether or not something's going to work for you, whether it's on the audience side or the ad side. 
  • So let's take that a step further when you have something like a digital product, and let's say the products through a webinar, it's a $500 course, and you need to send people through that funnel so that they watch your webinar. 
  • Maybe watch the replay and then eventually buy.  It's possible that you have to spend $3000-$4,000 to bring in enough registrations so that enough people could see your webinar. And then hopefully you can get, let's say in this case, if it's a $500 product, you're going to need at least six purchases to break, even at a $3,000 ad spend, or you're going to need eight purchases in order to break, even at $4,000 in ad spend.
  • These are all numbers that are important in the very beginning, because remember, as you begin testing new accounts with new offers and new ads and new everything, you're essentially just trying to break even.
  • You want to find what is working first so that you could scale later. And that was the whole premise behind the earlier videos was that once you find something that is working, whether it's at break even, or making you money, then you have the opportunity for scale. 
  • So that's how you're able to determine what it's affordable for you when it comes to acquiring that new customer. 
  • So remember when you were figuring out these numbers, if your product's a thousand bucks spend a thousand dollars to figure it out, it's $10,000 spend $10,000. 
  • If it's 50 bucks, you could spend 50 bucks to figure it out. But it's very possible that you might need to spend two or 300 to find more audiences that you could scale so that you can have more buyers thus, bring down that cost to acquire the customer. Because I know as a $50 product, you probably want to acquire people for 20 to $30 so that you can scale from there. So that's how you're able to determine how much you're willing to spend, to convert each customer. 
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LESSON TRANSCRIPT


David (00:00):

Hey, everyone. Welcome back in this video. We're going to talk about how much are you willing to spend to convert each customer. Now, in the last video we talked about what's your customer lifetime value. And, you know, I touched upon this in that video because it's very important to understand your numbers, especially if you are trying to acquire a variety of customers from all sorts of locations, for your physical or digital product. Now with any product, I often tell people this, let's say you're probably this $10,000, right? It's a coaching product. You're going to put a lot of time and effort into helping these people. If you're going into a brand new account with brand new ads, brand new, offer, new everything. I tell them this, if your offer is 10 K, you need to spend 10 K to figure out what's going to work for the offer.

 

David (00:48):

No, that doesn't mean that for every purchase you're trying to work for free. But if your offer is 10,000, you need to at least spend $10,000 to figure things out. So that way down the road, maybe you could spend a thousand or $2,000 to acquire a customer, which means you'd make anywhere between five to 10 X of the amount of money that you've spent. Now let's take it even further. Let's say your product is $50. Well, it might take you 50 or a hundred dollars for you to acquire the data. You need to see whether or not you have some audiences you could scale to then lower that cost per purchase. Okay? Because it's a lower ticket item. It's going to require a lot more variables to find whether or not something's going to work for you, whether it's on the audience side or the ad side.

 

David (01:34):

So let's take that a step further when you have something like a digital product, and let's say the products through a webinar, it's a $500 course, and you need to send people through that funnel so that they watch your webinar. Maybe watch the replay and then eventually buy it's possible that you have to spend three, $4,000 to bring in enough registrations so that enough people could see your webinar. And then hopefully you can get, let's say in this case, if it's a $500 product, you're going to need at least six purchases to break, even at a $3,000 ad spend, or you're going to need eight purchases in order to break, even at $4,000 in ad spend, these are all numbers that are important in the very beginning, because remember, as you begin testing new accounts with new offers and new ads and new everything, you're essentially just trying to break.

 

David (02:21):

Even in the beginning, you want to find what is working so that you could scale later. And that was the whole premise behind the earlier videos was that once you find something that is working, whether it's at break even, or making you money, then you have the opportunity for scale. So that's how you're able to determine what is affordable to you when it comes to acquiring that new customer. Now, here's the thing. How much are you willing to spend to get each customer? I know people who have a $10,000 program and they're willing to spend a thousand dollars to get that customer. Yes, 2000, not a lot leftover, but they can do that at scale and they could do it more and more and to make it worth their while. So remember when you were figuring out these numbers, if your product's a thousand bucks spend a thousand dollars to figure it out, it's $10,000 spend $10,000.

 

David (03:08):

If it's 50 bucks, you could spend 50 bucks to figure it out. But it's very possible that you might need to spend two or 300 to find more audiences that you could scale so that you can have more buyers thus, bring down that cost to acquire the customer. Because I know as a $50 product, you probably want to acquire people for 20 to $30 so that you can scale from there. So that's how you're able to determine how much you're willing to spend, to convert each customer. And remember it's all math and what works for you and your business, what feels comfortable in the very beginning. So you can take things to the next level. 

MY NOTES


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