Get the Numbers Right Before You Turn Up The Heat

Thomas Taylor - Thursday, October 03, 2019

The more time I spend working with growing businesses, the more I see that the biggest success factor is usually sales. I know that's stating the obvious but there is a bit more to it. 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. As always, the cost should include the real cost of everyone's time.

Those amounts are not necessarily for everyone - 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. New customers usually cost a lot more than people think. 

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 why some organisations with high-cost sales and marketing functions do so well. But also why many 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 this work, but quite a few big 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.

 

 

Photo by Juan Gomez on Unsplash


 

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