Figuring <i>The Lifetime Net Value</i> Of Your Customers
...so you'll know when marginal pay-per-click ads are actually profitable.
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Here's a question that belies the common notion that SE marketing success, or lack thereof, is dependent on front-end profits...
I am advertising my site through Overture (now Yahoo Search Marketing) and Google AdWords and am getting 40-50 clicks a day. However, my clicks to sales conversion is about 0.59% – 10 sales/1681 clicks – this doesn't seem very good, does it?
Well, not so fast – maybe it's better than you think. However, we can't possibly know until we learn...
What is the lifetime-net-value of your average customer?
To illustrate why that's important, allow me to share a story...
Ever heard of the analgesic balm ICY HOT?
Many years ago, marketing legend Jay Abraham told me how he teamed up with a guy from a patent-medicine production company who didn't want to pay for advertising. He was, however, willing to take a front-end loss on new individual sales if it meant he would be acquiring a new customer.
Why? ...well, you see, this crafty ole fellow had already studied the arthritis market. He had been selling Icy Hot on a smaller scale for years. In that time, he learned that one out-of-three new customers who ordered would reorder over and over again. In fact, when he averaged it all out, he learned that the average repeat customer would reorder $10 worth of Icy Hot six times a year – for LIFE! ...that's $60 a year.
In those days, a jar of Icy Hot sold via mail order for $3. It cost about 48¢ to manufacture, package, and ship. Obviously there was profit to be made, but the ole guy simply wanted nothing to do with betting on advertising that he had to pay for up-front.
His numbers told him that he could ea...
