January 21, 2008
It really is a numbers game
I just got the latest, 'Woody, you're so full of shit email.'
Cool.
The Dillweed was pissed off because he didn't understand my comment some posts ago saying that marketing is nothing more than a numbers game at its core.
So let me illustrate this for those mathematically impaired.
Project - $20 per month membersite.
Lead-in - Free CD with forced continuity offer to membership
Average cost per CLICK - $.50
1% conversion rate (this means we are averaging $50 in clicks per order).
Average attrition on membership - 4 months
Lifetime value of a customer on average with these numbers - $80.
We are able to get 200 clicks per day (leading to 2 orders per day).
We are offering a 30 day free trial membership on forced cont.
30% cancel immediately.
This leaves us with 42 active customers per month (we were able to get 60 to request the CD).
42 customers per month cost us $2100 in ad costs.
Month 1 - Loss
Month 2 - $840
Month 3 - $840 - $1680 total - Still a $420 loss
Month 4 - $840 - $2520 total - $420 profit
Month 5 - $840 - $3360 total - $1260 profit
Take into account these are all AVERAGES.
So with this simple math, we realize a $1260 profit for every $2100 spent.
These are LOW numbers with every variable tweakable.
One big problem is that people want immediate results, don't track, and don't know their lifetime customer value.
By knowing that, you will see that this is a profitable venture.
Without knowing that (like most people), you will think this was a total bust with a LOSS.
Hope you enjoyed this,
Woody
Filed under Marketing Strategy by Woody Maxim
Comments on It really is a numbers game »
I've worked other industries before IM. So far, the IM ROI has been junk. Normal business often gives a 3:1 up front.
Without even doubling your money, you've got to pay for overhead, salaries (including your own), taxes, etc. out of that.. then = profit.
Though, a search engine AUCTIONING clicks for 50cents- Who's making the real money here?! Not too hard to figure out…
Maybe I'm wrong, maybe I'm a hater….Guess that's what happens when there are so few barriers to entry…
Good post - thanks.
1% sign up - with split testing how high a range would you expect the initial conversion rate to hit?
Thanks
Woody…
Great post.
The "magic" really is in the NUMBERS.
There's another HUGE "secret" in what you just posted:
THE PATIENCE TO WAIT FOR THE PROFIT.
I have a good friend who made 3 million NET after ALL expenses
last year. And he waits anywhere from 60 to 120 days to get
his profit. And his profit is relatively tight (around 20% to 50%).
So at the HIGHEST LEVELS: money management is one of
the big skills that few if any of the gurus talk about.
Rock on Woody!
John
http://www.ultimatebusinessbuildingcourse.com
excellent post woody. I always look forward to your updates.
especially when they have TechnoViking in them. I'll bet TechnoViking knows how to make mad cash between his ecstasy business and dance-offs. He don't need no stinkin' numbers. His lifetime value is a good beat to dance to.
I suspect your math is off. 200 clicks per day costs $100 per day or $3000 a month. That would leave $360 profit for a $3000 investment
Knowing your numbers in any business is important. Most people I know just want to get on with the business without knowing that. Result: effort wasted.