Buying customers may sound strange at first. You have a product to sell to customers – you didn’t want to buy anything from them? But thinking about sales and marketing as simply buying customers can help you make more sales, and if you get your pricing right this can lead to a lot more profit.
The usual way to do this is by looking at your Customer Acquisition Cost (CAC) and Customer Lifetime Value (LTV). In this article, we explain it more simply by assuming 1 customer = 1 sale.
No matter your product business, there will always be sales and marketing costs associated with quickly gaining new customers. For example, it could be the cost to advertise your web shop on social media or the cost of sponsoring your product on Amazon.
Sell directly to consumers
Let’s say you are currently selling directly to customers via your website and you receive 500 sales a year.
On each sale, you end up with an average of £20 in your pocket (after paying suppliers, taxes, etc)
£20 x 500 sales = £10,000 in your pocket.
Sponsor on Google Shopping
Next, you sponsor your product on Google Shopping.
You pay £10,000 in 1 year for the sponsorship which creates 1,000 extra sales.
Effectively each sale from your sponsorship costs you an extra £10. Without sponsorship, you made £20 profit on each sale but now you make £10.
1,000 customers x £10 = £10,000 extra in your pocket.
Social media advertising
Now you promote your product with £10,000 of social media advertising and this time you make 2,000 extra sales from it.
Each sale cost you £10,000/2,000 = £5
Without advertising you made £20 on each sale but now you make £15.
2,000 sales x £15 = £30,000 extra in your pocket
Double down on what works
In this made-up example, social media advertising worked out better than Google sponsorship and delivered a healthy return on the investment. You could spend more on social media advertising and end up with more in your pocket. An investor might even pay you to get in on this money-making machine.
If you spent £10,000 on social media advertising and acquired 500 customers, then you might have broke even, or worse, lost money from the advertising. If this is the case you can try optimising your ads-
- Build multiple ads and measure which performs best
- Show your ads to your main customer group to reduce your cost per click
- Create more effective ads to increase your conversion rate
- Adjust your price until your marketing costs fit with a profit left over
- Source add-on products to increase your revenue per customer
- Encourage referrals to spread the advertising cost over more customers
Once you are selling your product at a price customers are willing to pay, in enough volume you can make a business, and you have achieved a product-market fit. Congratulations! Your next task is scaling up your business by using your winning formula to benefit more customers and grow your business.
For more information on how develop and sell your product, book your free confidential idea review with one of our innovation advisers.