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  • Su Guillory

The Big Money Machine: From Traffic to Cash

Updated: Aug 10, 2022

In the past, I have described a business as a big money machine with levers, buttons, LEDs, switches, doodads, and gewgaws. Every time you touch something, the amount of money coming down the chute changes.  In this post, I am going to describe some of those buttons and levers, what they mean, and how to use them.  

30 Days of gratitude- Day 8

Ultimately your business is there to make money, so within reason, we try to optimize the machine for its money creation ability.  The money machine has the ability to do other things as well: create jobs, offer stability, anchor a community, feed the owner’s ego, but for the purposes of this post, we are going to talk about the great big cash machine that is your business, understanding its parts, and optimizing for cash.

Moving Down the Assembly Line

On the front end of this machine is your ability to acquire customers and all the channels you use to create demand and get people in the door.  Marketing, SEO, Customer Acquisition (and its cost) all come into play here.  

Next comes activation.  This is where someone who has come in the door has expressed some sort of intent to do more than browse.  This could be signing up for deals,  a newsletter, or a mailing list, getting alerts about events, etc.  The customer is not quite a customer yet, but is more than a looker.

Conversion!  Ah yes, the sweet feeling when a customer turns into cash.  Congratulations: you have gotten her in the door and she has opened her wallet.  For a lot of us, this is where we pop open the champagne bottles.  But wait! This is not the end, this is the beginning of the customer relationship, and if you do it right, you can maximize the value you offer to your customers and how many more times they open their wallets for you.

Referral is when a customer (or prospect) refers another customer to you.  Customers who are happy tell others about your brand, whether that’s in person (word of mouth) or online (social media, viral marketing). What this means to your business is that you get to acquire a customer without paying the associated customer acquisition cost.  This is good, because fewer costs = more profit.

Retention is when a customer comes back again and again to buy your product or service, and this is one of the big reasons why “conversion” is not the end of the road.  Consider this hypothetical situation:

– It costs you $10 to acquire a customer – Each customer spends on average $100

Congratulations: you are in business because you can run a 90% margin on each customer!

Now consider this one: – It costs you $10 to acquire a customer – Each customer spends on average $100 – Each customer comes back 5x/year

Whoa!  Now you are running a 490% margin on each customer.  Which business would you rather be in?  This is why retention is so important, and this is why Customer Lifetime Value is extremely important to keep an eye on.  It’s much better to acquire a customer once and have them come back over and over than it is to have customers that buy from you only once and never come back.

This is why big businesses like airlines, hotel chains, and restaurants spend so much money on retention programs like frequent flyer miles, loyalty points, perks, and hotel status, markers.  It’s much more profitable to keep a customer coming back, and if you have to give up a little to encourage that loyalty, then so be it.

So there is an overview of the big money machine.  Acquisition, Activation, Conversion, Referral, Retention — which all lead to revenue.

Photo:    aussiegall  via  Compfight

#acquisition #loyalty #referral

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