I bought some excellent marketing training from Todd Brown a few years ago. He has incredible stuff. His marketing focuses primarily on using paid online advertisements to acquire new leads. The concept I explain here is something I learned from him: balancing the cost of paid ads and the results one gets from them.
This concept is essential for anyone growing a business to know and understand. It helps contextualize the amount of money it costs to acquire a new lead or customer or the amount of time it takes to acquire leads and customers using organic strategies such as social media or a blog.
When running online advertisements, are you supposed to make a profit immediately, break even, or lose money upfront to gain a new lead or customer?
An exciting concept in sales and marketing is to make the main objective of an ad to gain as many new leads or customers as possible, not to make a profit. On the surface, this sounds strange. I think it is expected to want to make a profit right away to cover the costs of the ads. But here is the reasoning.
The primary concept is that the asset is in the leads and customers, not profit.
This is because each lead and customer has a long-term monetary value. People buy multiple products over time, either by purchasing the same product repeatedly or buying different products at different times. Hopefully, a customer should not be one-and-done, meaning only one purchase is made.
Suppose you calculate the average long-term value of the lead or customer when factoring in multiple purchases over time instead of the profits from an initial product sale. In that case, the long-term value is much higher than the value of the initial purchase.
The long-term value of a customer is what you should be willing to spend to acquire a new customer.
In other words, as long as the cost of acquiring the customer is less than the average long-term value of a customer, it is profitable. It takes longer to capture the revenue, but it is still profitable.
The shift in mindset is that the asset is in the customer and not the profit generated from running the ad.
Feel free to share your thoughts if you have any insight or experience.