“You have to be able to take the traffic your marketing machine pulls in and send it through a sales process that makes it more valuable to you than the value the market placed on it. And if you don’t have that capability yet, then you need to make some changes” – Rick Schefren.
The Vending Machine Analogy
The essence of Rick Schefren’s statement is better illustrated by the vending machine analogy. Image you are stood at a vending machine and you put $1 into the machine to buy a Coke or something, but instead of getting a Coke, you get $0.90 change. A little annoyed at your misfortune, you put the 90 cents back in and you get $0.81, and then $0.73. In other words, you are losing 10% every time. I can guarantee that you would soon realise that something is wrong and stop feeding the vending machine your money.
Now imagine that you go to another machine and when you put in your $1, instead of getting your Coke, the machine spits out $1.10. Feeling happier about your good fortune, you put the $1.10 back in and this time the machine gives you $1.21 and so on. The machine is giving you 10% more that you put in…every time, such that for every $1 you put in, you get back £1.10. This time I am sure you would be prepared to stand there all day feeding the machine with your change.
This is what we are aiming to do with paid marketing. The money you spend getting traffic to your website is like putting change into the vending machine. The sales you make from the traffic is the change you get back. Your goal is to turn your website into a machine that gives you back more change than you put in.
Understanding The Value Of A Lead
So, what has this vending machine stuff got to do with lead generation and list building? Well, we know that the money is in the list and the fortune in is the follow up. As marketers we hear this all the time, but how many of us know what this really means? In order to gain an appreciation of how this impacts on your marketing you have to understand the value of a lead when using paid advertising to promote your business and grow your list..
1 (One) Lead Has A Lifetime Value Of $1 Per Month
This means, if you go out and start promoting your capture page and people opt-in by giving you their email address, then you are building your list and generating leads. Each name and email address is considered to be a lead. When you do your marketing correctly by targeting the right audience and you provide them with a lot of value, then each of these leads is estimated to be worth around $1 per Month. The following example shows how an understanding, or otherwise, of this value of a lead can affect your marketing, for better or for worse.
Suppose you spend $25 to generate 10 leads
The actual cost of each lead is $25 divide by 10 leads
Which equals $2.50 per lead
And, as we established above, the lifetime value of each lead would be $1 per Month
1st Month EXAMPLE:
Let’s say in the first month of your marketing you spend $25 per day on ads, Monday to Friday.
That would mean your Monthly advertising Budget would be $500/Month (Assuming 20 working days in the Month)
The table below shows the cash flow impact of your advertising
Month 1: You Spend $25/Day on Ads = $500/Month
10 Leads/Day = 200 Leads Per Month
So, in Month 1 you spend $500 on marketing and you get 200 leads. If you don’t understand the numbers you will see this as failure and conclude that the strategy did not work or the lead source was no good. But you should ask yourself how many lists have you joined and whether you buy the very first time you become someone else’s lead. I would hazard a guess that you do not.
What you want to do is take the total amount that you spend each and every month and subtract that from your total number of leads and you are left with the net value of your leads. As the table shows, in the first month this is at a negative $300. Now this is where a lot of people quit because they are not prepared to commit any more money to what they see as failure. Now it is quite possible that you may have made some money from this first campaign, but the thing to understand is that, even if you did not, it does not mean that the campaign was a waste of time and money. You need to see the bigger picture.
Take a look at what happens in Month 2. The budget stays exactly the same because you need to commit to a marketing budget, month on month, over a long period of time. Successful businesses continually market their business and so should you if you want yours to be successful.
So, you spend $500 in Month 2 and you get 200 more leads. Now you have 400 leads and the net value of your leads is at a negative $100. Again you may be tempted to quit here because you did not make any money, but hang in there.
Look what happens in Month 3. Again you spend $500 on advertising to generate 200 leads, but now you have a total of 600 leads and a net value of your leads of a positive $100, because the value of every lead is worth $1.
Now, of course some people will unsubscribe and the numbers may not be exactly as shown in this example, but the point I am trying to make here is that, in addition to being consistent with your list building and continually following up with your leads, you have to be committed to learning these strategies and implement them over a long period of time to reap the benefits. That is what all the so called Gurus do and that is why they are making money.
So imagine what the value of your leads will be 12 months from now if you do this consistently. Provided you are doing it right by targeting leads that are interested in what you have to offer then every lead that you get will be worth $1 to you.
Understanding the value of a lead is so empowering because the realization that for every dollar you put into your business you can get back $2, $3 and more, puts you in a position to make a lot of money and allows you to have longevity in the Internet Marketing business.