Mark S. Hey everyone and welcome to episode 18 of the Custom Apparels Startups Podcast my name is Mark Stephenson.
Mark V. And I am Marc Vila and today we’re talking about Know your Numbers Part 2 -The Theory of Buying Customers.
Mark S. Or part do, depending on if you are in Louisiana or Montreal or someplace listening to us. And by the way Episode 18 that means the CAS podcast can now vote, I wonder who they’ll vote for. Not the right podcast for that conversation.
Mark V. Always an entertaining time with you Mark. I am going to have more coffee after that.
Mark S. So this is an important podcast, not that they are all not important but in the last one, in episode 17 we really talked about how important it was to calculate the value of a customer, the value of a customer for this sale and their potential for going forward. But that doesn’t mean a lot if you spend too much to acquire that customer.
Mark V. That’s exactly true and what’s particularly interesting about it for me is that some folks don’t want to spend any money on their marketing or growth or they don’t want to buy customers, per-say using that word; because they don’t have the money for it or they don’t appear to have the money for it. However if you do your math then not only do you make more money.
Mark S. Frequently it is not that they don’t have the money; it is that they don’t have the money for THAT. They’ll have the money for a lot of other things like trying something else new or buying some new do-dad or spending two days hunting in Alachua County but they don’t have the money to invest in marketing. A lot of the times is because they don’t know if it is worth it.
Mark V. Or you hear the stories, oh I went to this event and it cost me $1500 I walked away with $200 and it cost me $20 to eat lunch; then I think there is another side of it of folks of who are always throwing the money into the marketing and not paying attention to the numbers and end up crashing and burning at some point of time.
Mark S. And that’s more often; the theory of buying customers is really to think about your customers just that in cost of acquisition. So for example if you go to a marketing event, whether it is a fair or a show or something like that, you have a fix cost, how much did they cost to rent a table, how much was my time involved in getting ready for the show and participating in the show and how many customers did I get and how much money did it make. And that’s simple math so you’re going to know at the end I spend a 1000 dollars on it and at the end I made $2000 on it and there is some things in between but it is kind of that simple.
Mark V. Yeah, that was essentially worth the time, but how do you know that if it is going to be worth the time, that’s the tricky part and I think that is the hardest part about spending any money on trying to get new customers.
Mark S. Or spending any time because a lot of people won’t even realize that they are marketing when they hop in the car drive around and hand out business cards, so they won’t ascribe a cost to it and they don’t keep track of the business that resulted from that.
Mark V. So I think that maybe we could start doing a little bit of math here and breaking it down a little bit if you’ve got something to share with us.
Mark S. I have a little bit because I actually use these kind of calculations in my daily life as a marketing guy and I am pulling my sleeves down, fixing my collar as a say marketing guy. So, let’s use the driving around example because that’s the easiest one.
So let’s figure out the cost of what it costs you to hop in the car with a trunk full of samples and business cards and maybe a couple of brochures and just knock on doors, just introduce yourself to the business in the area and see if you can get some business.
Mark V. So it is going to cost you, you’ve got the gas.
Mark S. Right, so let’s make up a number here, let’s say the gas is 50 bucks.
Mark V. Sure, that’s a good trip day.
Mark S. Okay?
Mark V. That’s a good day you put a lot of miles on that,
Mark S. And how much do you pay yourself for that day because labor has to be a part even if it is just you for every calculation.
Mark V. And that is really a good point coz you should factor that in especially for growth because what you might hope is to say “one day it will be cool to pay somebody to do that”.
Mark S. Because if you don’t assign some kind of a labor value to your time then what you’re going to find is by the time you’re ready to hand it off or you think you’re ready to hand it off to somebody, you realize there is no money there to pay them coz you never worked that into the cost of your business.
Mark V. So, one easy thing you could do is just say “if I were to hire somebody, how much would I have to pay them in hour-commissions or whatever it might be”, even if you rough estimated.
Mark S. Which I am going to do right now in keeping mind -this may seem like a huge amount of money in some parts of the country and be ridiculously cheap in others.
Mark V. Yeah.
Mark S. Hiring somebody to go knock on doors in Manhattan is a little bit more expensive than hiring somebody to do that in Florida. So let’s say 20 bucks an hour, so 20 bucks an hour somebody is going to drive around for 7 hours that is 140 bucks, so you’ve got 50 bucks for the gas and 140 bucks for the labor; is there any other cost?
Mark V. You’ve got just actual hard copy goods you might be sharing, whether that might be samples business cards brochures, anything that costs you to make.
Mark S. Let’s say, business cards and brochures are pretty inexpensive, so let’s just say that’s going to be 10 dollars, okay?
Mark V. Okay.
Mark S. We use 10 dollars and then for samples you’re going to give away maybe 10 shirts, it is an expensive trip, we’re doing it right. 10 shirts and the cost is going to be 5 dollars a shirt, that sounds okay?
Mark V. Alright, that’s a good number I like that.
Mark S. Okay, so that’s another 50 dollars. Wow! that day cost you 250 bucks to drive around, now think about that for a second, I want everybody to soak that in because you may have thought that you throwing a couple of things in the back of your car and driving around for the day was free. But it is actually costing you about 250 bucks, okay so your marketing cost for the day is 250 dollars and how many people do you think you could go by and see, now I am not talking about a pro that knocks on doors for a living but just a business owner that’s going to strip malls and seeing if they can generate some business.
Mark V. Based on the gas that you said there, I figuring you’re driving over 300 miles.
Mark S. Wow.
Mark V. (laughs)
Mark S. Did I mention…it’s a…
Mark V. It’s a hummer?
Mark S. It’s a hummer…
Mark V. Alright, it’s a 150 miles, but realistically you should be able to hit a real number between 25 and 50 places in a day.
Mark S. That just seems like a lot! Let’s go with 25.
Mark V. What do you think?
Mark S. I think I usually get tired after the fourth one, then I go to lunch and then I’d have to stop at Starbucks and check my E-mail.
Mark V. When I was in outside sales, our goal was we had to get 25 contact/business cards a day when we would go out. That was our eight hour day, you had to find 25, now some of those prospects, the point behind the 25 number is probably half of those prospects were not every good prospects but it was a number, it was part of playing a numbers game.
Mark S. Right, and that’s important here.
Mark V. Yeah, so we walk into (And it was an accounting firm), and It was just the owner and the secretary and that’s it. Now is that a great apparel prospect? Probably not a lot of money, however I’ll take their card if they would let me and they are in my database coz you never know.
Mark S. I just want to point out here that we’re just not going to spend this whole podcast knocking on doors.
Mark V. Yeah, (laugh)
Mark S. Don’t be afraid if this is not one of your things, we’re just using this as an example.
Mark V. Yeah, this is just an example, we’ll probably drop another example after this I think.
Mark S. Right, right.
Mark V. That’ll be a good idea.
Mark S. So let’s say that you were able to see 25 people and get their contact information because that’s really important, that means you spend 250 dollars and you got 25 leads or sign-ups and that’s 10 dollars a lead, so that customer cost isn’t there yet, right? Because you don’t have any customers. How much do you think you could sell, you’ve spent more time in the apparel business than I have, if you went and you saw 25 people give me an idea.
Mark V. So, get people to say that within a short period of time they will sign-up and buy apparel.
Mark S. Yeah.
Mark V. A couple?
Mark S. So three?
Mark V. Yeah.
Mark S. So, let’s say you get three sales and an average sale is probably going to be 20 dollars a shirts and let’s call it 14 shirts and 280 bucks.
Mark V. Okay, alright that’s a good place to start.
Mark S. Okay, so that’s 280 bucks times three (I’m doing math here) that is an 840 dollar day.
Mark V. Okay.
Mark S. So, subtract that from your marketing costs (calculating in background) you made 590 bucks. That’s not too bad.
Mark V. That’s not bad for revenue at all, and really if you factor out all of your other costs behind that, it’s still a profitable day, in the end after paying your employee (you), buying the shirts, running your equipment, paying for the marketing and doing all of that stuff; if you take all of that math out your business will have profited at the end of the day.
Mark S. Yeah, absolutely.
Mark V. Means there is money in the bank beyond paying you 20 dollars an hour to do that work.
Mark S. Right, Here is the two important calculations and that’s how much does a lead cost? So how much does it acquire you to get a potential customer? And then how much does a customer cost? Okay let’s say that once again the marketing cost was 250 dollars so we are going to take three sales equals 250 dollars divided by three. That is 83 dollars to get a customer.
Mark V. Okay, so we spent 250 dollars.
Mark S. Yup. And we got three customers
Mark V. And we got three customers, so for each customer that we got that day it cost us 83 dollars.
Mark S. Yes.
Mark V. Now this is a great time where you take and you say “but how much was that sale for each of those customers?”
Mark S. Right the average sale was 280 bucks.
Mark V. So, then you start thinking by the time I take the cost of my shirt was it worth to do that and then this is where we go back to the value of the customer and we do that math.
Mark S. Okay, so I feel the need to say this one more time, coz I imagine people are like driving in their car and saying “what the hell are they talking”. So what we figured out was that the cost of driving around for the day in time and gas etc… Was about 250 dollars. You would put in your own number here, I have no idea what your costs are. Okay, and then if you spend the day doing that you could probably get 25-leads or potential customers. So that means that the cost of each one of those potential customers, it costed 10 dollars to get.
Mark V. Yes.
Mark S. That’s kind of one calculation is how much does it cost for you to get a lead. The other calculation is how much does it costs to get a customer, so if we sold three customers out of that, so we drive around the day and we got three customers and the average sale was 280 bucks, that means you made 840 dollars for the day and you subtract the marketing costs and what you get is a net 590 dollar profit day… or sales day.
Mark V. Or sales day, revenue day. Yeah, absolutely, the another thing to consider with not just this example but all of them is that everything has got a long term value to it, so you got 25 leads and you closed 10% of them roughly, however you still got 20 or so people that gave you their card or said I might need shirts maybe one day I don’t know possibly, that might meet them again in the future, so it is one of those things where there is like always a long term gains on all of them.
Mark S. See episode 17 of the CAS podcast where we talked about the initial value of a customer and what that might mean for your business down the road.
Mark V. Yeah, so we’ve got this initial cost that a cost to get each individual customer, how much we profited out of that deal and it is that at the end that we actually made money but going back to the previous episode we’re going to take that math and expand it over time and realize that I didn’t just make a 150 dollars profit today, but I’ve earned myself say 7000-10,000 dollars profit over the course of a three year period.
Mark S. Right, Now one thing we are talking about before the podcast is to remind everybody is that when you do those initial value calculations from episode 17 that there is no guarantee for the longevity of the customer, so you should do these calculations and you should know them but it is going to take a while for you to work out the average longevity of a particular kind of customer etc.. to get those good long term numbers, but you got to start somewhere and when you start with knowing the value or cost per customer the initial value of the order then you’ve got a pretty bright future because you’re watching your numbers.
Mark V. Yeah, that last little bit you said was what I was thinking about, when you are watching your numbers then you can start just allowing statistics to take care themselves, probability to take care themselves, flipping a coin right now, we could flip it tales three times in a row.
Mark S. Yeah, it could happen.
Mark V. The probability theory is as long as I keep flipping into infinity it is going to get closer and closer to 50-50 and the same thing with your averages is that if you continue to calculate these averages and continue to get better at calculating them, you can say that this one customer that I got is a 5000 dollar long term potential, they might be worth nothing more than that sale but then again it is an average over time that you have to keep saying that, you have to keep working out.
Mark S. It is something that once you get the block intact and the nuts and bolts kind of thing of what to do every day then it is going to pay out well down the road, now one of the things that really gets me excited as a marketing guy is about knowing that cost per customer and how you got there is that just for the driving around example, lone for example, let’s say that you’re driving around and your cost is 250 dollars and you got 25 names and E-mail addresses and you got 25 leads or potential customers. Let’s say you get a little bit better at that, let’s say you work up that if you wear a different kind of T-shirt or if you say something different or if you bring a different kind of sample or you figure out that it is a good idea to go into a big building instead of a bunch of small buildings and what if you can change that number from 25 to 30. Then all of the other numbers change because now you are spending the same amount of time and the same amount of cost but your cost per that customer acquisition goes down, so now you see 5 more people so maybe the number of sales per week goes up. So your cost stayed the same because you’re better at one thing then it has an exponential impact on the business.
Mark V. And that’s what’s great is you can pick any of these things across the board and try to adjust it and if you improve then all of the numbers improve with it, so you can also say that the average sale was… What was the average sale again?
Mark S. It was 280 dollars.
Mark V. 280 dollars if you can say, if I can get better at it by increasing my sales by 10%
Mark S. Right!
Mark V. Which is about 20 or more so dollars then across the whole thing you’ve made that much more money, your cost per customer…
Mark S. If you increase your average sale by 30 dollars and you went from 3 sales to four sales a day now that’s another 120 dollars of an initial value in the same time and the same cost.
Mark V. Exactly so you can improve these little things, not everybody is going to want to drive around.
Mark S. Right, that’s why I like that cost per customer number because it may even give you an excuse to not to drive around.
Mark V. Yeah.
Mark S. So you got that seven or eight hour day, what other marketing activities could you spend money on, spend that $250 or so on so that we can apply this calculation to.
Mark V. We could turn around and say, what about some sort of local advertising.
Mark S. Okay, so like a news paper ad, or magazine ad or a newsletter ad.
Mark V. Like maybe I have a community newsletter that I know it goes out to something like 10,000 homes within my zip-code or so, and there are all types of ads in there, there is usually 3 or 4 plastic surgery type of places.
Mark S. Right! “Where do you live, I don’t know.”
Mark V. There is a bunch of pizza and Chinese food and a karate place and they are very typical things that you see in a community ad and I think that an apparel thing could work in there.
Mark S. It could, I might not, it might completely bomb or might be awesome.
Mark V. So that is something that you could do and it is something that you can try out and see if it works. So how could we start doing a little bit of math on that maybe?
Mark S. The first thing that you’d have to do is figure out how much is the ad cost, and I think that the 250 dollars is actually pretty reasonable.
Mark V. Yeah, I want to say that (I remember a friend of mine looked at it once before, and I think this one particular was around $500 for a corner ad but also that five hundred dollars ($500) went out to become $10,000.
Mark S. Yeah, it’s a lot, it’s a lot.
Mark V. So, it cost you a little bit more but you have a farther reach.
Mark S. So, let’s say its 500 dollars then, so the important thing about doing one of these ads especially is -it’s worthless if you don’t have a way to track the results. So I mean if you do an advertisement this month and next month you’re sales go up unless you have some way to know that it came from that ad. You’ll have no idea, you won’t remember -okay so is November usually a good month for me, did something else happen that boosted my sales or really was it because of the advertisement.
Mark V. Did I spend three months driving around in the car and then say “Ah, I am getting tired this is not working for me, I am going to post an Ad.” and the next month you made a ton of money, was all your money from all that…
Mark S. It probably is, it is probably from driving around.
Mark V. So you got to figure that out, we could probably do a… I am sure we will do a whole podcast on tracking these things. But you could say offer a specific product code or coupon code or send people to a certain phone number or a certain E-mail address or a certain website.
Mark S. Yeah, all that stuff is possible and not difficult and not very expensive to do.
Mark V. Yeah, exactly so, you got to track that and make sure that again, if you spent $500 how many people called you or went to the website.
Mark S. Which would be leads or sign-ups that how many people gave you information and how many potential customers introduced themselves to your business. Okay, I really don’t even have a number for this; I don’t have a way to estimate this.
Mark V. If I am going to be real I think it is going to be maybe 5.
Mark S. 5? You are even more Pollyanna about this kind of advertising than I am.
Mark V. Laughs.
Mark S. So if it is five then that means it cost you a 100 dollars for a lead or a 100 dollars potential customer.
Mark V. Yeah, now I would say though because they are coming to you, the close rate is probably going to be particularly high.
Mark S. Right, so, let’s say you make three sales.
Mark V. I would say so because they came to you, they said oh! We do need shirts for this event.
Mark S. Right.
Mark V. This is a shirt company right here and they’ve got a little five percent off on coupons sounds awesome; I’m going to give them a call.
Mark S. So, let’s say that everything is the same as our driving around for the day example, let’s say the average sale is 280 dollars. It is a family reunion shirts or something along those lines, then you’re at a net because we spent 500 dollars, we got five customers introducing themselves to us that means we spent a 100 dollars for each lead.
Mark V. Okay.
Mark S. Okay? The sales were 840 dollars because we had an average sale of 280, we made three sales, so our net profit was 340 and it cost us $166.67 per customer.
Mark V. Now this is a scenario where I would start questioning, should I do this again?
Mark S. Right, we just saw that the cost to buy a customer with the previous method of driving around, our estimate was 83 dollars.
Mark V. Yeah, and by the time you factor in the cost of your apparel and all these other things, you’re probably pretty close to Zero. So then what do you do in this scenario, is a whole thing to consider.
Mark S. Yeah, coz you have a couple of choices, you could really believe in this method of advertising for some reason and you could work on that cost, so you could try to cut a better deal for the ad on the front end by calling the company and saying ” hey, it’s just not working that well, can you do something better for me on the ad cost?” you could try changing your ad and running a couple of different versions and seeing if that impacts it. You could try answering the phone differently but you are still back at the same spot with, what happens if it increase the average sale a little bit by asking that question about caps or things like that, what if I get a better landing page or answer the phone better or offer a better price, so you could decide to kind of mess with each one of those variables or you could say “you know what? It is already twice as much expensive as driving around forget it!” and move on.
Mark V. Yes, And also we could completely flip both of these scenarios, I don’t think this is a case…
Mark S. No, no these are real case studies.
Mark V. Yeah, this is -because you could have the flip, this local ad and your local paper could be… if you sign -up for a year it is only 150 dollars a month.
Mark S. Yeah.
Mark V. And then now you’re getting five customers for every ad and you’re like “this is a no brainier, I do nothing, I do one piece of work and they bill my credit card for 100 something dollars, but I know that every month I am making 500 or 800 dollars in sales from it.”
Mark S. Yeah, that’s the attraction from that kind of place an ad thing because your labor is no longer involved because you don’t have to do that kind of calculation because often times you’re free from an opportunity value to running an ad VS driving around because now you’ve got 6-7 hours that you could do other things.
Mark V. Exactly-exactly so there is a case for all this, but the point of it all is just to start knowing these numbers and paying attention to it so you can say “driving around is not worth it or advertising in this local paper is or is not worth it”.
Mark S. And you’re going to have to try these things, you’re going to have to invest in experimenting and you’re going to have to make stuff up, you’re going to have to estimate, join the Customer Apparel Startups Facebook group and ask other people about how much does it cost you to do a local show, we’re talking to a customer kind of offline right now who did that, she’s doing her first kind of market or fare and she’s got some baby embroidery stuff and it is how much it is going to cost me? How much is it the time take? How much can I sell it for? So, in the end after the event she can figure it out, okay? Was it a profitable thing that I want to do again?
Mark V. Yeah, what’s great about it is, you had mentioned about the labor cost in there and paying yourself and this is what is important about it and scary in the number about it, okay? If you do this and you say I am going to pay myself 20 dollars an hour or whatever number that you’re going to pay yourself and figure out what your cost it, at the end that final number on profit per shirt might be a dollar and you’re going to say “What kind of a business am I in?” But don’t forget, you also paid yourself.
Mark S. You’re paying yourself.
Mark V. You paid yourself a salary or an hourly wage and at the end you put some money in the bank outside of your paycheck, which is really cool.
Mark S. You know I dont think i have done one of my pet peeves or high horse things in a long time.
Mark V. You’ve done it a lot!
Mark S. So the point behind a business technically is to generate profit, profit is the number that you put in the bank at the end of the month after you pay everything off. And that includes your salary, if you find yourself with no money in the bank or you’re going into your personal account or you’re just using a 100% of the money to kind of add to your family income, you’re not really in business… you’re in kind of a hobby that is self sufficient. So that dollar that Marc just mentioned is nothing to sneeze at, it is a big deal because even Amazon for the first decade that it was around didn’t do that, they didn’t put any money in the bank at the end of the month.
Mark V. Yeah.
Mark S. So the profit is a big deal I don’t want to gloss over that,
Mark V. I am glad that you bring that up again because it’s two things that are not thought about enough are paying yourself and putting it aside for the bank.
Mark S. I think we should beat these scenarios to death because I got a couple of others.
Mark V. I actually have a thought and I am going to lose it if we go into another example, but the thought is-is that on that driving around scenario or the ad. Scenario you can’t let one day, one set of data to find the success because that first day, you might go out and make a three thousand dollar sale, and you’re going to say “I’m going to do this every day because it is fantastic” and then get to scourge because that doesn’t happen again or you might do it for a bunch of days and you’re saying every-time I go out I am making a 100 dollars… do I want to spend that money somewhere else etc.. But you got to do it overtime a little bit, because you’ll find that again… you’re going to get customers that you didn’t sell right away are going to come from ads and from going out and also the fact that you’re going to have better days than others. You’re going to go out or do whatever you do run an ad, go out and do something and get nothing and then you’re gonna get another one where you’re going to blow the numbers out of the water; you’re going to make 10 sales in a day.
Mark S. Exactly, right and that kind of reminds me of this sales story that I read about one time: a guy went to work for a hardware company and he was a new guy and everyone else was doing really well and they were making a lot of money and literally for the first year or 14 months, the guy did not make a single sale and they thought he was going to get fired or leave, month 15 he got a contract with home depot, that’s what he had been working the entire time towards, so now his cost of sale looked terrible until he closed that deal with Home-Depot and he spent the next 10 years as the top sales person because all he did was service that one account, that’s what kind of story to reinforce what Marc said, is you can’t take what you’re doing today at some point you got to average things out but you can’t take the one day the first day, the first show, the one fair that you do, the one day driving around and one ad and may call your assumptions from it.
Mark V. Yeah, and a story like that is fantastic, but it is not a lesson that you should go for a big score.
Mark S. No! You got to feed the baby for that 14 months, you got to do something. Alright so example number tray (3) is doing an Event. Because a lot of our customer, some of our customer is this is all that they do, they go from fair to fair or from art show, trade show to trade-show and sell Rhinestone transfers or Prospangle transfers or Bling Tees at cheer competitions or any number of examples.
Mark V. Yeah and I’ll tell you these local- like farmers market community kind of things are getting really trendy and cool and if you…
Mark S. Lot of people with beards and wax tipped mustaches.
Mark V. Somebody there is going to be making some sort of organic dog treats.
Mark S. Yeah, absolutely.
Mark V. But this is just a little plug for this thing, if you have some of those local, you got to check it out and see if there is an Apparel Decorator there and if you think it is profitable to be there because the events like these are not quite fully tapped out yet.
Mark S. And let’s talk about the “R” value for this stuff at the end because I think that’s a big deal especially if you pick these events. And the great thing about an events (whatever it is) is you can do the math in advance again on what the cost is going to be, because you’re going to spend money on a 10/10 booth or a table or a tent and you’re going to know exactly what that is, it can range anywhere from a 100 dollars to 10,000 dollars which I think probably an average is about a 1000. That fair, does that seam good or is that a little high?
Mark V. Well, it really depends on what we are talking about. I don’t believe that a local farmer’s market…
Mark S. is not going to be a 1000 dollars … right.
Mark V. However if it is a massive community event where they are expecting 10,000 people
Mark S. Right.
Mark V. Or particular trade show or something like that, yeah I mean you can spend a thousand or yeah.
Mark S. So, I think it almost be worth not quite worth putting this podcast on pause while you look something up online but you should find out, if you’re a horse enthusiast or you go to dog shows or just there is local farmers markets that you know about find out specifically what that cost is.
Mark V. Yeah and you can also build up to them as well.
Mark S. Yeah.
Mark V. You can say “well, let me try the farmer’s market thing, let me see what works what I want to do, how customers react to things, because I am planning this big equestrian event that happens in the spring of 2016.”
Mark S. Yeah, good point.
Mark V. You can start to build up to these things, just like anything else that you would do, the first ad might not be the most expensive add in town, and the first event might just be a small event, but you get into these things and you do the numbers on it.
Mark S. Here is the great thing about doing any event is it gives you the opportunity to not just sell on the spot but to build up your database, to get to introduce yourself to those potential customers. So if I spend 400 dollar at a table on a local market or whatever it is, I may meet a 150-200 people they’d come by the booth and maybe none of them buys something but 100 of them sign up on my little signup sheet because they want to know when I am going to have a sale again, so then again you’ve got a great cost per lead, cost you 400 dollars to do it, you get 200 people to sign up on your sheet and that is 2 dollars a lead or 2 dollars for a potential customer.
Mark V. Yeah and that’s where again the numbers start getting really great because now you mentioned about the R value which hopefully you’ve listened to the previous podcast to this and that’s, this is the value of referral business and growth from those initial customers.
Mark S. Right.
Mark V. So that’s where you can start adding this in to, it works for all of the equations but especially in events, if now is a good time to get into it a little bit.
Mark S. I’ll tell you what let’s just finish off the math or the event and then we’ll talk about the R value, so the idea again, just like we did with the other examples of driving around and placing an ad, if you do an event you’re going to have a specific cost, maybe it is 400 bucks and maybe you get even if it is just 100 people that sign up on your sheet now you’re spending 4 dollars for a potential customers, you put those into database and we’ll also talk a little bit about why that’s valuable putting them into the database and so you’re going to make same kind of sales and you can do the math from here yourself. So if you make, if 20 people buy 20 dollars worth of stuff, you just made your 400 dollars back and your cost per customer is basically a dollar.
Mark V. Yeah.
Mark S. So, now you can see, do I want to spend a dollar to buy a customer, or do I want to spend 83 dollars to buy a customer or do I want to spend 166 dollars to buy a customer, and then you take all that, and you put it back into your initial value spreadsheet and you figure out if it is worth it.
Mark V. Yeah, time factors into all of this, not always but often times the less time that you have to spend to get a customer the more it costs.
Mark S. See, that’s a good point we left the time out of our calculation for the trade show or the market. Coz it is going to take you a total of a day to get ready and a day to do it. So that’s 16 hours of 20 dollars an hour, that’s significant what is that? 320 bucks?
Mark V. That sounds about right.
Mark S. So now your cost to the show is actually 720 bucks. So that’s a good catch, you’ve got to figure out your labor and not just the cost of the booth… the table and getting setup and the cost of preparing for it and the cost of tearing it down and what happens afterwards.
Mark V. And there is plenty of initial investment costs that you can say overtime that you’ll have to buy a tent and how much is that going to cost me, how many events am I going to do with this, there is a lot of little things to consider and look at with it. But in the end now when we started doing that math it might have turned out that you broke even on that event, so do you go?
Mark S. That depends on your evaluation and on what you think is going to happen because you went to that shop.
Mark V. Yeah, and that’s where we talk about that referral value, the R value or the long term value of these potential customers.
Mark S. Right.
Mark V. And this is where you just have to use some intuition in the beginning, eventually you’re going to have a bunch of numbers and you’re going to know, in three years time you’re going to say every-time I go to an event it leads to this, because I track these customers in my CRM (which we talked about in the previous episode) and all these things you’re going to know over time but in the beginning you’re kind of have to use intuition and guess and again don’t get too caught up, you get so caught up in trying to figure things out and knowing details and guessing and fear comes into play and all of these things come in that we just decide not to do anything. Because it is easier than being worrying about it.
Mark S. It is easier just to stare at the phone and hope that it rings, what I mean by using your intuition on this event is to say “Okay, I am going to go to a local farmer’s market and based on the previous time I went, I broke even. However, I met a 100 people and I know I had at-least five really good conversations”.
Mark S. Right.
Mark V. So, one gentleman is on the school board and he talked about possibly doing shirts next year and they need another company to bid and you met a fire fighter and he thought that your shirts were so cool and he said we do all these charity events all the time and we do these things and we’re always tearing up T-shirts so you start thinking about the people you met, so your referral value and your long term customer value is probably high on that event and you might say “you know what? every-time I go -I break even, however I get a lot of really good leads and I meet contacts that I would say that I’ll do this every weekend” you know that they do it say maybe once a month “I’m going to do this for six months. Because every-time I go the R value is really high, I really feel that I am going to get long term business out of this and it is worth being at zero” because you paid yourself, you didn’t make any money, you didn’t put money in the bank.
Mark S. Let’s point something out, you’re going to be guessing the entire career of your business if you don’t have a way to record the customers that came to that show and track whether or not they actually buy anything from you or they refer anything from you, so please listen to that episode of CAS podcast on Wasting Money on Marketing because you got to keep track of these people, you have to know that this set of customer came from these kinds of shows. And the other estimation is let’s say you go to a show and only actual farmers show up and they live.. (no offence farmers) you’re 500 acres from your neighbors and you might not know that many people, you might not have a lot of opportunities to give referrals or to buy a bunch of T-shirts so you could go to that every month or every quarter every year and maybe only get initial sales there and maybe that’s breakeven but the R value is almost zero. So don’t go
Mark V. Yeah don’t go.
Mark S. Because remember that there is still that kind of economic cost of what else could I be doing if I wasn’t doing this show.
Mark V. So we’ve discussed in the past like doing cheer or dance events if you’ve got rhinestone equipment and you do those events and I think that is another example that is just perfect for this.
Mark S. Yeah.
Mark V. It might cost you a good amount to go there, you might have to spend a lot on the booth, Travel cost might be high, it might not all be local, you might live in Florida and the event is in Georgia, it is multiple days worth of travel. However if you know that you’re going to be able to service and build into your community and you say, “I am going to meet tons of people, moms, kids coaches and event coordinators, I am going to get people to sign up for my E-mail list”.
Mark S. Absolutely.
Mark V. “Because I have a website where I sell all these cool custom shirts and I have a feeling that I can get people to come back and buy them” then in the end, you might not have even necessarily earned money on that event; might have even lose money. However you know that, that R value is so huge because I am going to see 500 people and they are all going to go on my website and I am going to give them a sign up for my E-mail list, I’ll send them out when I have a new design and a shirt, the cost of that customer now it takes a little longer to do that math because you have to say I did this event then I am going to send these E-mails come out with these T-shirts Etc.. I am going to know really the number on that event in 4-5 months, great value. If it is an international event, let’s say that it’s that same event but they are coming from all over the world.
Mark S. The R value may be a little bit lower because those people from those countries might be less likely to buy from you and more likely to buy local.
Mark V. Yeah is somebody from Germany is going to order a custom T-shirt from you when your website and business are based in Tennessee.
Mark S. They might, they might but the potential is lower.
Mark V. The potential is lower compared to if it is a south east conference where everybody is within a day or so shipping time from you and they might order that stuff online or even order their custom stuff through you.
Mark S. So guys this is what it is to run a business, if you wake up every day and all you do is print T-shirts or run your embroidery machine or make rhinestone transfers, you’re probably not going to grow your business, these are the activities that you need to try or do in order to grow and make real profits at the end of the month and you have to keep track of it in between. This is actually the business of doing business in custom apparel, it is a very important part, it is not something that you can ignore and be easily successful.
Mark V. I think that a lot of these podcasts really just in general, all of them are just about a mind-set it is about a business mindset that you get into or you start trying to do math the right way, you might not do it the right way, you might not factor in everything or you might not have a fancy excel spreadsheet, whatever it could be. But you get into this mind-set of just going through our podcast, you’re going to keep track of your customers, you’re going to consider how you market to them, you’re going to start doing math and numbers on what each one is worth and how much is the cost to the events and do different types of marketing, what did I make from that event, just get the theory behind it all and that mindset is what makes the difference.
Mark S. You’ll understand it, once you have all of this, especially if you’ve listened to all 18 of these episodes atleast the ones that you think apply to you on basic business then you’re just about at that point where you can actually know what it means if I add one little thing to every order, if I reduce my costs to get a customer by just a little bit, if I get one more customer a week, all of these things that a sales or marketing person focus on that a small business should be focusing on then man you’re so far ahead of the game and you’ll have a such higher probability of success then you did beforehand, that it makes me happy that we’re doing these.
Mark V. Yeah.
Mark S. In the customer apparel business, let’s face it, a lot of people get into it because they are growing a hobby or they like doing the thing, and we’ve talked about that in another podcast, but they are not necessarily good at doing business and if you are like that you might be able to pay the mortgage and maybe that’s all that you want, but if you really want to be successful in business then this stuff will help.
Mark V. Know your numbers.
Mark S. Know your numbers, your accountant will love you if you know your numbers.
Mark V. yeah, I think that hopefully we’ve put some good thoughts into this and hope to seed out there on knowing what it costs to get that customer, knowing the theory of buying customer and what it means to invest money to get new customers and how to know if it is worth it or not.
Mark S. Yeah, that’s really the big question because I know a lot of people out there, they do a 500 dollar ad and they don’t know if it is going to work or not, they do an event and because they don’t keep a track of people that were at it, they don’t know if it is profitable or not, so they don’t see it’s reason to spend, so they don’t.
Mark V. So know the numbers and track the history of it, what happened to it, where they came from as best as you can.
Mark S. Actually just listen to all of our podcasts.
Mark V. Yeah, if this is your first one then you should go back.
Mark S. Episode 17.
Mark V. Yeah, there is a lot of great information if this is the first one you are listening to then go back and learn a whole bunch of more stuff because you are a part of an elite group of people that are taking the time to really grow their business and do great at it.
Mark S. I agree and we are happy to have you guys as customers and as listeners to the podcast. So that has been our legal voting age episode, episode 18 of the Custom Apparels Startups Podcasts, Know Your Numbers, the theory behind buying customers and this is Mark Stephenson.
Mark V. And I am Marc Vila, thanks for listening.
Mark S. Thanks everybody!