Today we are talking about profits, we are talking about measuring and metrics and things like that which could well be boring for a lot of people.
And to be honest, if the thought of metrics and profit and numbers is boring for you, then I recommend that you switch this off.
That you delete all podcasts, business podcast that you, if you have your own business that you close it down, and you go get yourself a job. Because then someone else can worry about it and you don’t need to worry at all.
However if you want to grow a business, it’s extremely helpful to know about the numbers.
If you don’t, you are not going to manage. Okay. So what is the first one? And this is by the way, follows on from last Monday I think it was when I gave some others, I gave you the top 3. But you need the full picture.
#1 Your Profit Margin
So number 1, it’s hardly surprising, you need to know your profit margin. Yes. Your profit margin. Now you are thinking, say you are selling eBooks and things. There is a profit margin.
You might just think to yourself. Well no, I have made it once, I’ve paid for it and that’s that. But if you sell products, you need to know your profit margin. And you need to make sure that it is the correct one. Alright. That it is the actual profit margin.
I recommend that if you think you know what it is, google it and then make sure you are measuring the right one.
Because a friend of mine measured something very very similar called the markup and they got it wrong at it. Nearly cost them the whole business. So that’s the first one.
#2 Conversion Rate
Now number 2 is your conversion rate. And there are conversion rates, well we’ll come to that in number 3, but because there’s different ones.
But a conversion rate quite simply is for every x number of people that you either meet or that you talk to, or that visit your website, how many of them convert to the goal that you hope for.
Now for most, conversion rate is how many of them bought something. How many of them converted to a sale. For some it may be a, conversion may be visitors to website to sign up to your list.
Or people to a webinar opt in page, to sign up for a webinar. So it doesn’t have to just be money. It can be something else.
But you need to know that conversion rate and you need to have a goal. So that you know if you’re being successful or not.
Because otherwise you are just doing stuff and you are not measuring, and you are not trying, because you don’t know whether you are successful or not. You are not, you would have no idea if you’re doing it correctly or not. Would you? Now the next one.
#3 Segment Conversion Rate
Number 3 is the segment conversion rate. Now what I mean by that is what I hinted at just before. If, let’s take a website for instance.
For a paid traffic, okay so for pay per click, google AdWords, let’s just call it google AdWords. If you are bidding on keywords in google AdWords, you tend to be bidding on high intent keywords.
Ones that where people will be taking an action. That says worth your money. Therefore the conversion rates from people on those are likely to be higher than just people who just pop in along to your website from finding you in a result in google.
They may have found, they may be looking up your particular keyword but they may be looking up in relation to something else.
They also may be a long way away from becoming a customer. But you need to know that conversion rate, because it will be very different and that will affect.
So if you increase your organic traffic, people coming from search results. If you increase that greatly, your overall conversion rates are likely to reduce.
So you need to know that that was affecting your conversion rate. And that the core, so your pay per click hasn’t changed. So a segment.
And at the same time, for instance the conversion rates of your people who answer phone calls. You may outsource suddenly to a call center.
And those conversion rates from that end may go down. Because they don’t know so much. Or you need, you have a telephone appointment booking system.
You need to know the conversion rate of that at every stage of it. So that you know if it’s successful. I hope this makes sense. These are basic ones, you should be knowing.
#4 Cost Per Aquisition
Now another one I discussed so number 4. one I discussed last week is the cost per acquisition. I mentioned there google AdWords. That’s easy to measure.
So for example the cost per acquisition from google AdWords is measured automatically within the software.
However you need to know the cost per acquisition again across the board. And for example, the cost per acquisition from say social media. You need to work out the time involved and your effort. And the cost per acquisition from google AdWords.
How do you measure that? How about the amount of money you spend or time involved in writing articles and the keyword research and that side of the business.
So that you can work out the cost per acquisition. Because if you don’t know that cost, you don’t know if that effort is worthwhile. Pretty obvious.
#5 Customer Retention Rate
Then the customer retention rate. Now if this comes up, especially if you are in a subscription business. So someone pays a monthly fee or an annual fee or something.
Say for instance, software, so if you were, think of thing like Meet Edgar, the social media tool. $49 a month or whatever it costs.
They need to know how long a customer stays for on average. If that customer stays there for just 3 months, they want to get it, they want to get that figure up to 4 months. And then to 5 months. And then to 6 months.
So that’s the kind of information you need to know. Because it’s important. I am sure you can work out why.
If someone is buying your products if you deliver makeup, if you thing or Loot Crate, etc — if people sign up for Loot Crate and stay with them for 3 months.
Then if they can get that up to 4 months, they’ve increased their, the money they get from each customer, by one third, going from 3 to 4 months. That’s quite significant, important figure to know.
#6 Customer Lifetime Value
And the final one is probably most important. It’s the customer lifetime value. Which again comes down to profit margin, retention rates that I have just said, and things like that.
Because we’ve all of this information, you can now work out how much profit an individual customer on average is worth to you over a period of time. And what that time is.
You need, you need to know because when you’re trying to get a customer, say like Loot Crate, I don’t even know what it costs, say it costs $30 a month.
If they know that the average customer is going to be there for 4 months, then the average income is a $120. It’s not just $30 of that day 1 sale.
So they make profit on month 1, month 2, month 3, month 4. They can afford possibly to spend 2 months’ worth of income to get the profit that they are going to make in 4 months. And it gives them access to other channels and things like that.
Ah this kind of stuff is important. If you know those 6, you are golden. And they are not that difficult to find out. Have a word with a friend, an accountant, your mentor, just nail those figures out. Keep an eye on them. Measure them.
Monday Book Recommendation
His most famous thing was Early to Rise which is now owned by my good friend Craig Ballantyne, and Matt Smith. But one of his books is ‘Seven years to Seven figures’.
Now the guy, of all the people you want to know, you want to listen to, if you want to find out how to make a load of money, speak, listen to someone who makes a lot of money regularly.
This guy does. He does it himself. He know how to do it and this is so smart.
It’s so smart. 7 years to 7 figures. Michael Masterson, you will love it.