Get the Numbers Right Before You Throw Fuel on the Fire

Thomas Taylor - Monday, February 06, 2017

The more time I spend working with growing businesses, the more I see that the biggest success factor is usually sales. It's stating the obvious but there is a bit more to it that that. When you see different tactics applied across a number of businesses you get to see some patterns.

So what works?

Always, I think, the first determinant of success is how much the founders of the business are committed to, and involved with, the sales process. In the early years perhaps it could be as much as 50% of their time, and over 25% of the firm's revenue number, spent on client acquisition. The cost should include the real cost of everyone's time.

Now those amounts are not necessarily for everyone because it depends on two important factors.

1) CAC - Customer Acquisition Cost - all the acquisition costs, including your time, divided by the number of new customers in that period.

2) LCV - Lifetime Customer Value - the marginal profit from the average new customer over the years, or months, or if they are just one-off sales.

Once you know these numbers things start to make a lot more sense. For some, LCV can many times CAC. So spending more is a no-brainer right? And that explains how some organisations with high-cost sales and marketing functions do so well. But also why some don't.

Of course, this all assumes that any dollar spent on acquisition will be as effective as another, obviously totally wrong, but doing nothing at all is guaranteed not to work as well.

The biggest mistake I see people make (usually really nice people) is to feel so uncomfortable with sales that they try to employ a high-cost salesperson, or outsource it. I have never seen such a magic bullet, but quite a few of disappointments. Until you get to the fairly large scale the numbers usually don't stack up. And no-one else will ever be as committed as you.

If you can, always start by employing the most junior support functions first, ones that will help you spend more time in front of prospective clients.
If you want a hand calculating these numbers give me a shout.

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