Introduction To Marketing | Business Marketing 101

What's going on, everyone? If you've ever struggled to figure out all the different numbers in marketing and figure out what's important, what's not important, what's good, what's bad, and you just can't get your stuff to convert or you can't make, you can't make sense of all this stuff, then this video is for you. Alright? So when I got into marketing there were so many different numbers. KPIs, CPL, CPC, like CTRs, I like, I was like, I was, I had no idea, my head was spinning, I was trying to figure it out. And over time it's kind of like you start to distill down what are the big buckets of things that matter. And then once you discover what those three are, then you can open up the drawer and look for more details and whatnot. And so what I want to do is outline the three numbers that I'm looking at at a high level in any business that I'm looking to invest in or I'm looking to partner with or whatever, alright? And I'll show you the relationship between them that I am looking for and hopefully that will help you for your own business. So the first number is what my cost of acquisition is, which I call cac. Alright, that's not, I call it, that's what people call it, right? Cost of acquisition or cac. Right. So how much does it cost me to acquire a customer? Now this number should include everything. So that means your sales commission, that means your ad spend, it means the marketing team that created the inquiries, whatever your software that's associated with it. It's all of the costs of acquisition put together that is cac. All right? Number two is ltv. Now I define this a little bit differently because I think it's important. So LTV is not the total revenue that I'm going to get over the lifespan of a customer, but for me it's the total gross profit that I'm going to get over the lifespan of a customer. So let me give you a simple example. So if I were selling meals, for example, or selling food, and my cost of delivering food, let's say was nine bucks, all right? And I know that someone's going to order $700 a month of food and it cost me $9 and, and I'm selling it for 10, that means I only have a 10% margin, gross profit, gross profit on the meal sold. And so $700 of food over the lifespan of a customer might sound like a huge LTV, but the reality is it's actually only 70, which is what I'm going to make on that customer. And so the reason I use gross profit is that if I were doing marketing for food, for example, and my marketing was like, hey man, we're spending $200 to acquire a customer who's going to pay us $700, I would be like, that's horrible. Because we only make $70 on the 700, which means that we're spending 200 to make 70. Right. And that's why it's so important to understand the gross margin of your business. Right? Because this is where all of your decisions should be based off of. Alright? It's on that margin. The third number is what I call 30 day cash. Now in the formal business world, the fancy world, they call this, they use a different metric, they call it payback period, which is how long does it take you to pay back your cost of acquisition? Right? Because inherently whenever you're getting a customer, there's usually a cost that's put into it and that cost might. There's always a cost. You're either paying in time or you're paying in money, or you're paying in someone else's time, which is then payroll hours. But there's always a cost. There's a cost of acquiring customer and then you have the payback period. I use 30 day cash for this reason. I think that virtually every business can gain access to a credit line, which means a credit card or an Amex or even a bank can glow in you, whatever, where over 30 days they can use that money and then pay it back virtually interest free. Credit cards are all interest free for the first 30 days, or at least all the ones that I'm aware of. What that means is that if I can know what my 30 day cash value is and if I can get that to be at least equal to my cac, then it means that I can use other people's money to acquire customers. This is why we've had such big growth in the companies that I've had, is that I don't actually need to use my own money to acquire customers. I can use someone else's money, acquire them, get the money in the first 30 days to pay back the debt. And now I'm left over with customers, and ideally customers and profit that I can still continually upsell into continuity. If you can understand the words that I'm saying right now, you'll understand how big of a deal this is. All right, so what are the relationships that I'm looking For so for me, for ltv, like if I'm looking at it because there's different relationships that I need to draw here and when I'm looking about how the marketing's working. Alright, so my LTV to CAC ratio I want to always have greater than 3 to 1. All right? 3 to 1 is the number that I am looking for. Which means that I need to be able to generate more than three times the cost of acquisition in gross profit. All right? So that means that let's say my gross profit I'll get another number. Let's say that my gross profit on a service that I sell is 80%. All right? We'll use that as a number. And so it's 80% is my gross profit and I have a thousand dollar lifetime, that's how much they're going to spend with me over the lifetime. Which means $800 is what I am going to use as my number. Now if $800 is what I make then I have to three to one be able to acquire customers for less than 270 or whatever. 265, $66. Right. So my cost of acquisition has to be less than $266. All right? That's the total thing. Now that's the first relationship that I'm going to look at. The next relationship that I'm going to look at is the 30 day cash of requirement compared to my CAC. And so for me, if I have a one to one relationship between my 30 day cash and my CAC, then that means that I am breaking even on getting customers, all right? And I'm breaking even within a window that I can use other people's money to finance the acquisition. And that's where this gets super cool. All right? And so using the example that we just had, if $260 is what it has to be under right for me to get three to one, then let's say that if I can just get my, if I can get my 30 day cash to be greater than 260, then it means that in the first 30 days I'm breaking even in my acquisition for free. And and then I'm still going to collect the other 500 and whatever dollars that's remaining from this process. And so Those are the two biggest relationships that I'm looking at. What's my LTV to CAC ratio? And what's my 30 day cash to CAC ratio? Alright. I want this to be greater than three times what it cost me to acquire a customer and that is how I know I'll have sufficient profit to grow the business. I want my 30 day cash in my CAC to be at least greater than 1 so that I know that I can use other people's money OPM to acquire customers. All right, this is what it looks like visually. Person comes in the business, let's say I pay, let's say I pay $200 in CAC, alright? So I'm now negative $200. This person now comes into my business, you know, they've got their little money, they come into my business, they decide to give me money right? Now at this point, this could be, you know, day one and this could be day seven, whatever. Because it depends how long it takes them to give me money, right? And so maybe the first time they give me money, they only give me 50 bucks. I'm still negative. But by day 30, let's say I have another upsell or two. And at this point now I've made $200 on this customer. What this means is that now I've covered my cost of acquisition and then at the end of this point I'm going to continue to sell them or they'll continue to buy. Let's say it's on recurring Day 60, Day 90, Day 120, etc. And I was able to break even to then get all of this money that happens on the back end for free. That is the power of this concept. And so to summarize this, the three numbers that you need to always know when you're marketing is going to be your cac, your LTV important point is that it's the gross profit, not the total revenue and the 30 day cash that you can make per customer. And you need a break even on 30 day cash to CAC. And you want this to be at least three times greater than your cost of acquisition for you to have a viable business. And that is the game that I try to play. So anyways, I hope that was valuable for you. I hope when you're looking at your business model, you're looking at your marketing, you and you have these metrics, you can make decisions empirically, quantitatively. And the nice thing is if something's below these metrics then you just know that you have to fix it. Is there an upsell? Is there some sort of liquidation thing? Can we give them some sort of special offer in their first week or two? Can we sell them ancillary products? Can we have an affiliate relationship? Can we refer stuff out in order to increase this 30 day cash number. The reason this is important is if I can make this really really big, then it means I can spend more to acquire on customers, which means I can even open up further my acquisition net and still make more money. And obviously the amount that you add your 30 to cash is still going to add into your total lifetime value of the customer. So hope that was well for you. Hope this makes sense for your business. This is how I think through these things and I hope hope you do too. Have an amazing day. Enjoy and I'll see you next video.