Scaling a Home Services Business Into a Multi-State Powerhouse Part 2

Hey, Jesse, Stoddard here. I’m excited to show you something that I think you’re going to like. This is about scaling a home services business into a multi-state powerhouse. This is documenting my fractional CMO journey—Part Two. So hopefully, you saw part one and learned how we get the show on the now today. I want first to say, why do you want to listen to me talk about this topic today? I used what I’m about to show you how to help a home services business owner make an extra $4 million in one year, just with a very simple series of calculations. With directed focus. This will ultimately help you save money and make better decisions. This will help you to take command of your advertising budget. This will help you make more informed decisions when it comes to marketing and marketing people or agencies.

(00:52):

And I gotta say warning. There is some math nerd stuff ahead, but don’t worry. The formulas are simple. In fact, I’ve seen the finance partner in a home services business try to  overcomplicate this unnecessarily and lose focus on the main thing. This is needed to help come up with a budget. If you want one, some people think a budget is important. Some people think it’s useless because it all depends on whether there’s an ROI, which I agree and more importantly to determine which media to focus on in that budget. Then this will help guide all your marketing decisions from here until you arrive at your destination. It’s super important basically. So hang in there, even if you’re more of a sales and marketing type of person or a leader, driver, you know, looking at  motivating your sales people and maybe leave the numbers to your finance person or your accountant. You’re still going to want to know this stuff.

(01:43):

If you are a finance person, I encourage you. You’re going to love this, but don’t overcomplicate it either because it’s just for guiding in general. So we call this the target  customer acquisition cost calculator, target CAC calculator. Why calculate the target customer acquisition cost? Well, first of all, customer acquisition cost is what it is, which what, you know, what generating a customer actually costs you, right? So that’s very important to know. And, it’s an absolutely critical number to understand so that, you know, whether you’re going to be profitable or not from start to finish in your advertising and marketing. It’s not always bad to have a high cost or customer acquisition cost. If the lifetime revenue generated from each customer justifies the cost. So it always comes down to ROI. That’s a little bit of a warning there. It’s always going to come down to return on investment, not just the cost of the app.

(02:40):

All right, you must know your current numbers, if you want to scale and grow a business. So this is another reason that it’s good to go through this process, because you’re going to figure out what your numbers are. You need to know your total customers  for the year,  per month, for the last couple years, the averages. You’re going to need to know your total revenue and break it down by month. Hopefully you’re going to want to know the total cost of goods sold for that revenue generated. So your cogs, which is usually service, materials and labor, but other costs associated with it. You’re going to want to know your gross,  which is a simple calculation of revenue minus the cogs. Of course, you’re going to  want to know your total spent on sales specifically to generate that customer, that revenue.

(03:29):

So it’s usually more than you think. And sometimes it’s too high. When I say that, the first thing that should come to mind is commissions. So if you’re  paying sales people,  you’re paying salaries and commissions and bonuses, you might be also paying for their truck or their gas, their estimation tools, their cell phone, their laptops. You may have meetings that you have to buy donuts for. You might have to send them to training. There’s a lot of costs when it comes to the sales department. So you’re going to want to get a  good handle of what that is  or at least a good rough estimate. And then similarly, the total spend on marketing, which is what you usually complain about, but probably should be higher than you think. You’re probably complaining about spending too much on advertising if you’re like any other business owner on the planet, because it seems like a lot.

(04:18):

If it’s working properly and you’ve got the right stuff out there, it’s one of the most valuable things you do. It’s probably more valuable and less easy to replace than the sales person, right? They hate to hear that, but a good at it, well placed the right customer in front of the right customer, the right message on the right media is very difficult to achieve. And once you do that, it’s like a cash generating machine. All right. So also your lead to CLO sale closing ratio, not what your salesperson tells you, but what the number proves from lead all the way to sale. What does that cost? What’s that ratio? So if you get a hundred leads and you close 10, your 10%, right? The average revenue per customer lifetime, which is a RAPCL more on that later, we’ll talk about that a little bit more later.

(05:08):

Okay. So now first we’re going to focus on the before numbers. This is where you’re at now. All right, now this calculator looks sophisticated, but it really isn’t. I build things like this for clients all the time. We customize it. And this is a simplified version. You could easily make this yourself by the way, because there’s just a couple of multiplying and dividing fields. It’s not like a bunch of calculations that are intense. So we’re going to go over each part of this as we go. But we’re starting with the total customer sold for maybe the previous year. I just threw this example here for 2016, this is how many customers this home services business has had in that year. This is with their revenue that cost a good sold. That was the profit gross. This is the total spend on sales and the total spend on marketing.

(05:53):

It just happened to calculate at exactly 70 30. It’s going to be different for different businesses. I’ve seen this lower, I’ve seen this higher. I’ll usually have a business. I had a client recently who was, they didn’t care about any of this. They just wanted to know the percentage of the total spent on sales and marketing ratio to the revenue. And they found out it was like 30% or whatever total for their business, not this calculator here and it freaked him out, you know, he wants to spend less or whatever, but that’s all over the board and, and it’s okay to know that number, but it’s more important to know the other numbers that this is going to calculate like your marketing multiple, which is like your return on investment. So basically you spend a dollar and you make $3 and 7 cents.

(06:40):

That’s, what’s more important to know than the actual number here and what percentage it is of your revenue. You know, the profit is more important than that. So percentage of gross profit might be important to know. Right? But anyway, these numbers are the ones that were focused on. Then down in here we have the lead to sale closing ratio, anything in yellow is what I have my clients fill in. We’ll get to this in a second. So let’s break it down now by part. So first of all, we’re going to look at the date. Let’s see. Yeah, we’re still in the pre we’re still on— I updated these these accidentally, but these are the same numbers from the other one. All right. So it just says 2021, it really doesn’t matter. It could be, could be from last year, right?

(07:31):

For discussion’s sake, it doesn’t matter. So we have the total number of customers, the total revenue. Now you’re going to get this number from your—you want to use your real numbers when you start calculating this. And then the total revenue minus cogs is gross profit. The total spin on sales. Now, if you don’t know, estimate this number, get the closest thing you can to it and just estimate it. All right? So this is going to be a ratio. It’s going to be a certain amount of gross profit. Now, when we move on, we will move on to the total spin on sales and marketing, which added up is 2.38 million. That’s the actual spend on total sales and marketing. And then we find out the percentage of the customer acquisition cost spent on sales and the spin. The percentage of customer acquisition cost spent on marketing in the past.

(08:18):

It may change for you in the future. Now down here, the actual marketing multiple, we’re going to get into that in a bit. This is a very important number and the actual customer acquisition cost. This is pretty simple. This isn’t the number of  customers, you know, divided by, you know, the cost, right? In fact, I’ll show you that in a sec here. So you can see on the actual sheet, the formula is the J six divided by B6. So we’ve got the total number of customers divided by the actual total spent on sales and marketing. And that’s how we get this customer acquisition cost. Okay. And so this is like I said, very simple, the one this minus, this equals that. This one down here, I’ll show you in a minute, but these are all multiplied together. We’ll get to that in a second.

(09:06):

Okay. So moving on past these initial numbers, we’re going to now focus on the next ones, which are the lower left, which is the average red revenue per customer lifetime ARPCL. Okay. So that is very important and difficult to calculate. You’re going to have to go through your numbers. And what you’re looking at is— You sell a job and it’s worth $2,000. Okay. And the, or the average job is $2,000. All right. And, You’re going around doing all these jobs 2000, 2000. So you get in your mind that a customer’s worth $2,000. Because that’s your average sale price. Some people it’s five, some people it’s one, whatever you average it all out. It’s either average or the median or the mean or whatever, but you’re looking at $2,000, but a certain percentage of those people reorder or buy again later six months later, a year later, three years later, five years later, they do the job.

(10:03):

Again, everybody needs a new roof eventually. And you have repeat customers and you’ve been in business long enough, which means you probably have been in business at least a few years to know that you’ll get customers back. Or let’s say that your average job size is 2000 and you’re not counting your upsells that you do because you consider them different products and services. Well, you have to count all of that. Everything you upsell to the customer, and if they ever come back again and they buy from you again, and then you find out what your average revenue, per customer lifetime, this is customer lifetime  value. It’s similar to customer lifetime value in this case, it’s the average that you’re looking for. Okay. And then we have the gross margin, which is different for everybody, but in a lot of businesses, this is like the 50%, right?

(10:52):

Because you usually have materials and costs and probably roughly 50% for a lot of service business, maybe a little less, maybe a little more, maybe you have a higher margin items and you can get that down. Great. Okay. And then you have your referral multiplier, which we’re going to get into. Also later, this is the average number of times that somebody refers you. So for every one customer, they are going to refer you 1.31 times. And how do you calculate that? In this example probably looked at hundreds of customers and we thought, you know, 30% of them are referring, 31% or so are referring to somebody else. When we run that number,  a multiplier is one because it won’t be less than that for math sake. Plus the 0.31 of average, of how many times that person would refer.

(11:46):

Right? And then we multiply all three of these numbers together and we get customer lifetime value. Okay. Because the customer is spending about this in their lifetime. The margin is about less than half of what you keep as their profit. And then those people are going to multiply 1.3 times more people into that equation, which then gets you a real customer lifetime value of 1,875. That’s what’s actually worth to you on the bottom line. So let’s go through the definitions again, in case I went through too fast. The average revenue per customer lifetime ARPCL. Remember that ARPCL is the total avenue generated by the average client over his or her lifetime with you. For example, your average client may buy from you over a two year period before moving on.

(12:42):

If you don’t have a lot of data, give your best guess or use what little data you have and go with a conservative number until you’ve further proven why it should be different basically. Then gross margin. Remember that the gross margin is gross profit expressed as a ratio. So for example, if your revenues are hundred bucks and your cost of goods sold is 30 bucks, then gross profit is $70 and your gross margin is 0.7 or 70%. In this instance, you just enter it as a decimal point. The referral multiple. Remember to start with one to account for the initial client sold, like I mentioned, then add any referrals to that. So for example, your AV you average one referral for every new client that you bring into your business.

(13:29):

Your referral market, referral multiple is two. So every time you get one person, they bring another, well, that would be two. That’d be amazing. Right? As a side note, you may average one referral out of every 10 new clients. So your referral, your referral multiplier is 1.1. Okay. So in my previous example, it was three, you know, out of every 10. So with three, you know, a little bit more than that. We had that example 1.31. Now we’re going to go back into over here. We’re going to look a little closer here. We have those numbers now. We’re talking about the (over on the right) customer lifetime value is this times this times this and the target marketing multiple. And this is a very interesting number that we’re going to get into here. I’m going to talk about it for a second.

(14:15):

In layman’s terms, this is how much ROI you want on each dollar spent. It’s like saying I want a four X return on my money spent on my ads. So this is by the way, this is way over simplified, but at least the concept’s easier to grasp and it doesn’t need to be that complicated because your data’s probably not that accurate anyway for most companies. So we’re getting back in the napkin. You’d think that you would want this number as high as possible, right? That’s sort of true, but not the complete picture. So I want a 10 times return on my investment or 20 or 30. Maybe you, of course you do ultimately in your business for you as an owner, however, for advertising and marketing budgeting purposes, it’s a little different. Okay. At least you have options. So if the marketing multiple is too low, you’re not running effective marketing and you can’t stay in business.

(15:04):

If you spend a dollar, make a dollar, you got costs and you’re going to lose money, right? When you run an ad. You need to spend a dollar and make two.. Or 1.5 or 1.1, you know, at least a little bit of profit. And you know that you also have a bunch of expenses. You want that to be a certain amount, minimum. You’re leaving money on the table, regardless if you do that. Now if the marketing multiples too high, like 10, 20 or 30, well, you’re not maximizing growth and scale. Think about it. You could be spending a lot more if it’s working so well. Why aren’t you maximizing that ad spend? Why aren’t you spending more to get more and more and more customers, okay. Maybe you’re doing it because you can’t handle more business, which means you should be hiring more to fulfill the business.

(15:49):

You could be getting a lot more customers and you are essentially leaving money on the table again. And leaving yourself vulnerable to a competitor, copying you easily and stealing market share. Here’s why I say this. Let’s say you’re marketing multiples like 20 or 10, like this 10. Okay. So you spend a dollar you’re making 10. Well, somebody else goes that ad works. They copy the ad and they start spending a bunch of money on the ad. And there’s so many potential customers out there that they’re stealing them. And they copying you basically. Now, if you were to maximize as much spend as possible early, you would have all of that market share from that successful app. Right. That marketing multiple was working for you really well. And if  there’s going to be a ceiling because there’s only so many customers in the marketplace, you’ll know naturally when you’ve gone too far.

(16:37):

Okay. And then another thing is most businesses and a lot of MBAs do this, when I’m working with finance guys, I’m not really a finance guy, by the way, I’m kind of more of a marketing guy, but you have to know marketing math. Right? For most businesses, a lot of MBAs theorize that the best ratios around four. So in redneck accounting or back of the napkin terms, I’d say getting a four X return is a pretty good rule of thumb. Okay. That’s usually the maximum right there. So let’s go back here and look, we have this marketing multiple of 4.7. We’re looking at what our return on investment is with this.

(17:27):

Let me look, show you the sheet again, just to make sure there’s no confusion. You can see that this one was calculated again, the gross profit divided by the actual total spent. We know they have a number to start, which is 3.07. We want to increase it. This year they were trying to increase it and hit 4.7. That was a push. You know, we wanted to really get it up there. That was determined by looking at this and seeing, well, what would happen if we added another one to that? So we were multiplying it by four instead of three, you know? So it’s a little bit arbitrary, but we wanted to see what the numbers would do and then see what was realistic. So we played with it a little bit. That’s all right.

(18:17):

Let’s go back to the sheet here or the slide. With that being said, we look at the lower right. And we see what happens. With that multi marketing multiple. Now we see the maximum overall customer acquisition costs. And now these figures, I’ll go into that in a second. How they’re calculated. We also can see the maximum sales customer acquisition costs. That’s the percentage of overall CAC allocated to sales. Remember you have customer acquisition costs and it’s divided into the sales guys and gals and the marketing guys and gals and vendors and agencies and media spend, and you know, the cost for the ad, et cetera. So all of that combined is you’re going to divide it. Now, in this case, it was 70, 30 based on the numbers above. And then you have the percentage of customer acquisition costs allocated to marketing that is allocated to the lead gen side.

(19:08):

Now, why is that? And it’s about half now. Why is that half of this? Because when you hire marketing, you don’t just pay for the actual lead gen ad. So for example, if I’m going to run Google ads, I’m paying for someone to run my Google ads. That’s a marketing cost, but then I actually have the ad spend itself. Right? So we’re saying that the ad spender is the lead gen cost, the actual lead gen cost, and it’s roughly half. And you might think, geez, really that much for the marketing help? Yes. Because I’ll give you another example. You run a Facebook ad, you hire a graphic artist to do your logo. You hire a graphic artist to create,  do the design. Maybe you hired a photographer to get a good photo. You know, you put together the ad then had to write the copy for it.

(19:54):

Somebody else had to make sure that they were following up with all the people. You know, you’re paying the salary of somebody to respond to all the comments and the likes. Somebody else had to  manage the actual analytics and the ad itself in Facebook or wherever and place it and test it and cetera, et cetera. And then you also have to pay Facebook actually just to run the ad. So it’s always more than you think. And so those numbers are not out of the ordinary. And then finally we have the maximum cost per lead, C P L kind of put it in target there because this is going to eventually become our target cost per lead. Right now it’s the maximum that we want to spend in order for the rest of the calculations to work. Okay. So I’m going to show you those calculations really quick here.

(20:32):

So you can see how this one is basically E 11, that’s your customer lifetime value divided by your target marketing multiple. So, and you can see it backwards. If I spend $400 and I’m getting a 4.7 X return, you would say, right, and you get 1875 customer lifetime value. So I spend 400, I make 1875, which is a marketing multiple of 4.7, the maximum sales really easy. You take that. And it’s just 70% of the MCAC. You take this and it’s just 30% of the MCAC, same thing. We take this and we take our percentage of marketing budget allocated to lead generation, which is about half we’ve figured that out from past numbers and we get 60. And then this one, we take that 60 and multiply it by your closing ratio, which gives you 34. Now we know our maximum cost per lead, 34.

(21:26):

All right, let’s go back to our presentation. All right. So now we’re seeing this 34 is a pretty awesome number. Isn’t it? That tells you what you can spend on average, you know, per lead, some are more, some are less. But when we look at the whole company average, I know what my, what I’ve been able to spend on leads. And this is just gross leads. We can even call them prospects, depending on how you define your marketing, qualified leads, sales, qualified leads, et cetera. But you know, some people only call them a lead. If they’re an appointment set and you go out for an estimate, a bid or an inspection, some people call it a lead. If they just hit the website, right. I differentiate.  I call prospects or just where you got any information, like an email or phone and a marketing qualified lead is where they actually fill out a form.

(22:11):

And then your call center, somebody’s calling them. And then a sales qualified lead is where it’s actually appointment on them to go out for their inspection. So in this case, it’s kind of a rough number, but it’s typically more on the marketing qualified lead is what we’re talking about there. So we can spend $34, you know, at home advisor, whatever, not that I’m saying that you should, I’m just an example. Right? Okay. So now we’re back. So we’re taking, now you look at the big picture and you see how beautiful this is. You go, wow. I can actually see what’s going on in my business. I can see this, the amount that I spent on my marketing, what it produces and where we’re at now. So what if I use this to determine where I want to go from here? All right. So we do that.

(22:54):

Now let’s talk about using target customer acquisition cost calculator to set your goals. So we’re going to go ahead and now we’re going to talk about the after numbers where you want to go. Okay. So how to guesstimate goal figures, first of all, so you’re going to need to figure out your goal revenue. And that is to take your last two years and determine averages for each month, take your total revenue and increase by a percentage growth that you think is possible. We would use like 20% or 30 or 40% growth, which is really aggressive for a company. And you could use five or 10 or three, if you want to be super conservative, but a stretch goal is great. Pick a stretch goal. Then you figure out how each month will look if increased by that percentage. So for example, I want to go from 13 million, do $13 million to 18 million or whatever.

(23:43):

Well, then you’re going to know what the total revenue increase would be. (percentage) But what you want to do is figure that out by month. And if you know your historical trends per month, you can divide the total amount by 12. (Not just by 12) So it’s the same for each month, but you could say, we get a boost in October and November and things are a little slow… January. And you can actually use that percentage based on the historical record to figure out what your target is for each month. That’s if you want to take it to the next level, you figure out how each month will look, if increased by that percentage, then you have the goal revenue for each month, too complicated, just do it for the year and divide by at 12.

(24:26):

Okay. And then the next part is total spent on marketing. So you take your last couple of years and you figure out how much a customer is worth, which we kind of did talked about before and your closing percentage, and you take your revenue and you divide that by the average sale, and then divide it again by the closing percentage. So basically your revenue divided by $2,500 or $5,000 or whatever it is, or $10,000, and then divide it by your closing percentage. You close 50% of the leads that you do inspections for, and you’ll get a number of leads required. Basically, you’re just trying to find out how many leads you should have to hit your target. You multiply that number by the average cost per lead. If you need 5,000 thousand leads and you know that each one’s going to cost you, you know, a dollar, then, you know, you got a rough estimate of $5,000 that you’re going to need, right.

(25:14):

You can also break this down by month, again, same concept. We’ll have training on that another time. These you’ll notice are numbers for the future, the  last one, was based on a previous year and sorry for the discrepancy in the upper left. But basically the idea was it was last year, and now we’re talking this year, Or the, the current year, or maybe the next year. What we’re looking at here is we’ve taken total customers sold and we’ve increased the revenue and which increased cost of goods sold, which increased profit. And then we use the same ratios. We determined what would have to be here. And we talked about, you know, what would be an estimate for how much you would spend on marketing and, and sales, which got you here.

(25:59):

You kind of guesstimating this based on the amount of leads that you need to hit this total revenue number and then your average value, and then you can determine what it is that you should be spending on this. That’s an easy number. Like I talked about in the last slide. It’s not that hard to figure that out, but we’re also going to play with some of these other numbers here. You’ll see in the lower left, we’re going to play with that. And I’ll talk about that in a second. So let’s compare the before and after. On the top, sorry, we have the before and on the bottom, we have the after. If I can move myself out of the way here,

(26:41):

Before we had 5,080 customers, and you can now see based on our calculation of how many we need to hit our revenue target, which is 19.3, we need 8,372 customers. So this is not that complicated because we did 13.8 the previous year, by the way, these are real numbers from a real client I worked with— total revenue. And it was so long ago and I’m not mentioning their name. They probably wouldn’t care because this is all old news. Everybody would know it anyway by now because it happened in the past. The total revenue they wanted to hit was 19.3. Didn’t quite make that. Got to 18 million, but pretty darn good. You know, it’s a stretch goal and still hit close to the stretch goal.

(27:22):

I’m proud of it. And then the cost of goods and then the gross profit margin. And then here we knew based on our calculations that we needed 1,008,000 to be spent on marketing to hit this number. If all the ratios remain the same, now we try to improve some of the ratios, but that’s really simple math right there. You know, you know what you did in the past and you can kind of predict what you would need to do for marketing in the future. All else being equal. And then sales were easy to figure out because it was also a percentage. And if we, once we figured this one out, then we knew that if it was still 70 30, then this would be 70%. If all things being equal again. And then we know what our total spend on marketing is.

(28:04):

Okay. Now let’s look at this section of it. If we look over here, we’re going to see the total spent on sales, total spent on marketing, but now we have actual, okay, this is still the actual marketing multiple, right? The four and then what we decided to do here. Okay. And the actual customer acquisition cost, okay. 398. And we knew that the percentage of the budget is 0.5 and the lead to sale closing ratios was 0.5, seven, almost 60%. But we assume, because we’re more aggressive and we’re getting more leads. I dropped it to be conservative. I said, now we’re only hit 50% instead of almost 60% closing ratio. I did that to be conservative. Also the total spend on marketing was up, but now we’ll notice that the marketing multiple, you know, which is right around the same.

(28:57):

It’s calculated based on the same ratios. So it was no surprise that that’s around the same. Okay. And let’s move on to the next part and the lower left. Here’s where it starts getting really interesting. We know what our customer acquisition cost is? The $398, about 400 bucks. But now it used to be worth 2,700 each customer and we pushed it now, how do we determine this? We kind of did a combination of percentages. How did we figure out that it was 3,300 instead of 2,700 well sort of a percentage increase. But also we knew we were rolling out new services and we had tested some things. We knew a certain percentage of people would buy them. And we also knew that we had to increase prices. That was a big one. We wanted to, and we needed to because the cost of materials was going up and this is pre COVID by the way.

(29:44):

Who knows now? Right. But things had to go up. And we also knew though, that because of some of the increases and some of the new services that our margin would inch up a little bit too. We’re able to increase that. So a lot of thinking had to go into these numbers. You could just guesstimate ’em, but you know, want to, you know, we were trying to be as accurate as we could. And then we also knew that our referral multiplier could go up slightly. We were going to create campaigns for referrals, which we didn’t even have any. We probably could have had a much higher referral, multiple, but I wanted to be conservative even with campaigns, for referrals, which didn’t even exist before. It’s not like we were just tweaking a successful and we were making one. I didn’t want to assume it would work very well, but I figured it would work a little.

(30:26):

We went from 1.31 to 1.33…very modest. So these were very conservative numbers that we picked, but our customer lifetime value went up considerably, mostly due to just these minor adjustments. And now we’re at from 1875, we’re at 2458. We also drop the target marketing multiple. We said, Hey, let’s quit pushing for five in six and seven. And let’s just go down to the four and see what happens. Right? What if we were happy with four? Well, what it did was it allowed us to have an overall customer acquisition cost of 614 bucks. Notice the difference. The reality before was 399 to hit the numbers 398. And now we have more wiggle room. We can spend up to $600 to acquire a customer. You might go, well, why would you want to, well, you don’t automatically want to,  of course spend more money, but being able to afford to spend more money to acquire a customer helps you dominate the competition.

(31:19):

Never forget the company that wins is the one that can afford to spend the most money on marketing. It’s counterintuitive, but it’s true because if you spend the most, you can outspend your competitor. Wherever they go, you can dominate Google ads. You can pay more per click. You can do whatever you want. And, but how do you do that? Well, you, you can do that if you mathematically can afford to do it because you’re getting more money out of the customer or you’re getting more margin or you’re getting more referrals or you’re selling at a higher price or, you’re upselling better or any combination of those things. Because the other guy that’s selling on a low price and doesn’t have all these things in place can’t afford to pay more. You can dominate them and eventually saturate the market and steal all the leads that they could possibly get into the point where then they aren’t even in the market anymore.

(32:06):

And then you can negotiate a lower price, just like a Walmart does or an Amazon does. Right. But in a different context. So now we also have our sales target. Our  target sales customer acquisition cost is a, you know, a portion of that and our target marketing customer acquisition cost is a portion, right? So let’s move on from there. So if you look at the lower right now, you see that these numbers the before and after are very different all the way down to $60. CAC for marketing or lead gen. The lead gen part portion of the marketing up to a 93, we can afford more. And our maximum used to be 34 and now our target is 46. Okay. It’s considerably more. Right. So when you find that out, now we know that to drive growth at the fastest rate, with a target marketing, multiple four, we can spend more money, not a lot, not like thousands of dollars per the lead.

(33:05):

We still want to avoid that. But now, you know, and what was really funny is after showing this to the owners, they’d always had a gut instinct that a lead they could, they could spend about 50 bucks. Now it was based on like a decade of experience, but never crunching any numbers, just kind of intuitively knowing. So it was nice that this lined up with yep. You can spend about 50 bucks <laugh> right, right. That’s in this case, that’s what it did. But notice that we can prove it with the math now, a little better. All right. Warning, target cost per lead, TCPL. Now we get hung up on this number. I want to be very careful with it. So first of all, TCPL target cost per lead that we just looked at in the lower, right. It’s a charged term.

(33:44):

It can come with a lot of emotion and preconceived notions or cause us to jump to incorrect conclusions. The target cost per lead is a magical number because it is the gateway to the entire system of numbers that we talked about that leads to the stated objective, the goal, the revenue target. But it’s also just an average rule of thumb.  I’ve seen a lot of clients that go, oh, that’s all I can pay for. Lead is $34. So if that campaign’s 35. Cut it! We only want to pay the $17 lead. That is really not the full picture. If  a particular advertising media or channel has a high TCPL, it doesn’t automatically make it bad. It means it needs to be deeply analyzed to determine the kind and quality of customer to track. Not just the quantity. Don’t discontinue or kill a great ad because it’s expensive only to find out later that it was the cause of your highest red new customers in ROI.

(34:43):

I’ve seen campaigns that were like really expensive, direct mail, for example, but it generated the best customers. And you do the math on that particular media channel and funnel or campaign. And you realize, oh, well, we get great customers from that. And they spend a lot more. So you have to be very careful because this is just a company average, right. And then finally, low CPL can sometimes mean lousy customers. And in the end, the target CPL is an overall company. Average for costs. These are generalities that are useful in the broader context of understanding. All right. So the key takeaways today on this are, first of all, small hinges can swing big doors. All right. Very small improvements and key numbers change everything. Think the numbers in the lower left corner of the sheet, like average revenue per customer, lifetime ARPCL or gross margin, referral multiplier.

(35:35):

Those are small hinges. They swing big doors. Okay. The ideal marketing multiples likely in the middle of the scale, it’s not over 10 and four is probably the best for maximum growth and scale, especially for service businesses. Target cost per lead is a magical number. That is really just an average rule of thumb. It feels magical. It kind of is right because it allows us to see how are we going to grow our business. Use it to know overall where your marketing dollars can be wisely invested to scale and grow your business. And then what’s next? Hopefully you enjoyed this training. Here’s what you want to take action on. Take the time to get your numbers together, do whatever it takes to get the necessary figures, but don’t forget. Enough is good enough. 80 to 90% accuracy is better than nothing.

(36:20):

I’ve seen a lot of people wait until they have all the perfect numbers and they never do it because it’s really tough to get accurate marketing math numbers. Especially as things are rapidly changing and you need current stuff. Begin carefully looking at sales and marketing expenditures and measure everything. Build a tracking system with your internal team and have someone audit it, create a similar spreadsheet for yourself and update it at least quarterly. And by the way, I customize calculators and sheets like this all the time, as well as a lot of other tools for my clients. If you want more information about how to do this in your business, or if you want us to do it for you, schedule a call with me, happy to chat with you. If you haven’t already done so,  go to getleadsfirst.com. You can watch a video. I have some more fantastic training and it explains how I work and what the deal is. What are the benefits to you? What are the costs, et cetera. All right. Thank you for taking time to be with me today and hopefully we’ll get a chance to talk someday. Thank you. Take care.