You really can have all the new customers your heart desires. I’m talking about limitless numbers of new customers who can keep your business growing and growing. But as with almost everything in life, there’s a catch. Want to know what it is?
The number of customers you get is a direct reflection of the amount of money you’re willing to invest in advertising. That doesn’t seem like much of a catch, does it? It seems more like common sense. As simple as this concept is, my experience with clients has shown me that most entrepreneurs still don’t get it.
The Proof Is In The Spending
Every business hits a point where it gets all the low-hanging fruit its current marketing can provide in terms of new customers. Let’s say you’ve scooped up all the customers who are easier or less expensive to obtain. You may think you need to try some shiny, new marketing campaign, but that sometimes does more harm than it’s worth. At this point, you either have to increase ad spend or slowly die. Both options feel pretty severe: Spend a whole lot more money or risk losing your business. When you break it down that way, it’s very easy to increase your budget on advertising than it is to suffer the slow, agonizing death of your business.
The world is full of examples of this. Let’s look at a big company like Netflix that has had to wrestle with rising customer acquisition costs. In 2014, they were able to get a new customer for just $41. By 2017, that number had ballooned to just over $100.
At their $10.99 monthly subscription fee (back when it only cost that much), it essentially took 9 months for Netflix to recoup the costs of acquiring a new customer. With a few tweaks to their marketing and advertising, they were able to lower that to $97 per new customer in the fourth quarter of 2017. However, because they add millions of new customers each year, the dollars spent to gain new customers add up fast. It’s still more than double what it was in 2017 despite having better options for advertising, like Facebook, Instagram, LinkedIn, low-competition direct mail, and more.
It Works For Small Business Too
At Newsletter Pro, we also lost some revenue for 9 months to acquire customers on our lowest-priced plan. Like Netflix, I know my average customer’s lifetime value, so I’m willing to take the risk. But we didn’t used to go so negative. Years ago, we always broke even in the first 2-4 months. Sometimes, we were even profitable in the second month, but that’s not the norm today as we expand our marketing and advertising efforts to continue growing. Basically, we still get all the low-hanging fruit, but we also get some of that juicy fruit at the top of the tree, and it requires a lot more effort (and money) to access it.
Most brick-and-mortar businesses with good relationship marketing in place need to invest 5% of top-line revenue just to maintain their customer base. Typically, you’ll need to increase that investment to 8%-10% if you want solid growth. If you’re in a startup phase, these numbers will all be off a bit because you need to invest much more in marketing to get off the ground.
The moral of the story is simple: If you don’t invest significant and ever-increasing amounts of money into marketing and advertising, you will stall out or, worse, begin to decline. This hurts the valuation of your company, effectively costing you far more than whatever risk you have when investing in marketing.
Here’s How To Start
So, what’s the smartest way to spend more money on growth? A big part of it is understanding what your return on investment for your advertisement spending is. To figure that out, check out my blog post on calculating ROI. Once you understand what’s bringing money back to you and what isn’t, you’ll have a clear grasp on how exactly you should be spending the money you need to continue growing.
But when it comes to marketing and advertising, it doesn’t always boil down to such cut and dried numbers. Not all marketing tactics work that way. You also have to know when something is important enough to spend on, like engagement emails and social media posts, even if you can’t track its ROI. You have to invest in some things based on the faith that they will bring you a worthwhile return. But when you see the proven results that so many other companies — Newsletter Pro included — have achieved from spending on this kind of marketing, having faith becomes a little easier. To better understand this type of marketing, check out my blog post about the myth of tracking dollar-for-dollar ROI.
The bottom line is that no business unwilling to spend stays afloat. This is true for just about every aspect of your business and, in today’s world, might be the truest for advertising. If “you’ve gotta spend money to make money” has always seemed like just another campy business slogan to you, it’s time to reset your thinking.