Want A Crystal Ball To Accurately Predict Your Success? Use this.
Today, we are going to talk about a very useful weapon in your arsenal. Just imagine if you could predict how successful your business is going to be and know exactly how much you will make in the following month…
All the answers are in this episode.
So for today, I wanted to touch base on something. It's crucial actually. You're in a business and not enough people do it. So it's about numbers and metrics that you need to know in your business. Okay. You don't need to be like a super freak about every single metric. There are only three that you need to master. If you master these, then you know where your business is going.
You know, if you're making money, for example, if you're getting revenue. People are actually paying you. But for whatever reason, you're not making as much profit as you want. Or it can be even more so you can be losing money even though people are paying you then knowing these numbers will actually help you. You'll find the problem and correct it.
I'm going to be straight up with you guys. I am not a numbers person, so I need to discipline myself to go and look at some of these numbers to figure out where the business is going and stuff. It's not a reflex. I actually have to force myself. You know what I mean. Right?
So the first one is that I suggest you follow, is “cost per lead”. So what does the cost per lead mean?
So what is a lead? So lead is someone who walks in your store. If you have a store, it's someone who lands on your Web site. If you have a Web site or someone who registers to your landing page or something like that. Right.
So depending on the business, you have, it can be something different. But usually it's someone who seems to be interested in what you are saying. Right. So they haven't actually opened their wallet yet. So this is a lead.
So the cost per lead is how much money did you spend to get that person there? OK. So understand something. There are millions of websites on the Internet. So that means that if you don't do any advertising the probability of people lending on your Web site is very, very slim.
So basically, you will have to do some sort of advertising. You can do that on social media for free and stuff like that. But, you know, generally speaking, you will use, you know, some sort of like advertising, some sort of channel where, you know, it’s advertised. So how much money do you need to spend before someone actually spend.
So understand this. The cost per lead is a very subjective. Well, you can have this cost per lead of five cents and the cost per lead of one hundred dollars. So you need to make sure you’re not overspending unnecessarily.
You need to know how many leads you need in order to make a sale? So it's the same thing as your conversion rate. So why is this interesting and important? Right. So let's say, for example, the lead is a dollar, right? So you're paying a dollar and you know that you need thirty five leads.
So you need to pay thirty five dollars before you make a sale. OK. So this is how you need to calculate this. So here in this case it's thirty five dollars. So you know exactly each sale that I make will cost me that much money. All right. Then you know, afterwards, once you know the numbers, maybe you can try to reduce your cost per lead in order to improve your conversion rate and increase your profit margin.
The third metric that you need to take into account is the average order value. How much are people paying on average? So why is this important? Because this is going to tell you how profitable the businesses is. You can see if you’re heading straight to the wall or if you are actually making a lot of money and stuff.
So if I give you the example of this 50 cent lead. Right. So there is this 50 cent lead. You need to talk to, let's say, 12 people before you actually make a sale. OK, so you’re like dude these are these are nice numbers, right? So twelve people and I will make a sale. But let's say that now you're selling a seven dollar product. All right. So 12 people x 50 cents is six dollars.
Want A Crystal Ball To Accurately Predict Your Success? Use this
So it will cost you six dollars to make a seven dollars sale. So your profit is one dollar. And you could realize that. Oh, you know what? I actually need to talk to 20 people before I make a sale. Because you're making sales, right? You're making money. Right. So people are buying and stuff. But now when you look at it, you are spending money on 20 leads. So you're spending ten dollars to sell a product that's costs seven dollars.
So why are you doing now? You're losing money. So the cost per lead that I told you before needs to be correlated with the average order value. It could be that you're actually making sales. I know people who are making a lot of sales. They're like, oh, dude, man, it's booming.
I'm making sales and stuff. But when you look at these three numbers, it's very easy to understand that you know what? In six months, you're under. Right. You're going to lose your business in six months because what happens, they cost you more money to generate a sale than the sale actually brings you. So even though you thought you were making sales and everything, you're actually losing money.
So if you track these three numbers, they will tell you where your business is going.