If you’re thinking about doing some Google AdWords or Facebook advertising, there are three general things to know before going into it:
- Don’t do it yourself – hire a professional
- Know your Customer Lifetime Value
- Know what your Allowable Acquisition Cost would be
1. Hire a professional
Advertising is hard. It’s technical. And it’s very easy to screw up.
Work with a competent professional to make sure your investment is being spent effectively.
Believe me when I say this, unless you’re “boosting” a Facebook post, you should be using someone who only does pay-per-click management for a living.
Think of it as an investment.
You wouldn’t go to the cheapest financial advisor when you have a big pile of money to invest. You also wouldn’t go to your nephew who manages his own money part-time.
Don’t leave your money in the hands of an amateur or you’ll lose it.
2. Know your Customer Lifetime Value
Customer Lifetime Value is the average profit you get from each individual paying member (“member” being interchangeable with “company” if you do the private office thing).
It should factor in the entire lifecycle of your relationship with them.
You can do this by looking at your accounting software and dividing the total all-time revenue by the total number of members (past and current). It’s not a perfect metric but it will give you a rough idea.
Why is this important? Well, it helps you know how much you can spend to profitably to attract new members. You know what your members are worth to you financially.
Which brings us to the next point.
3. Know your Allowable Acquisition Cost (AAC)
The Allowable Acquisition Cost is the amount you’re willing to spend to get one new member to sign up.
In order to know how much you are willing to spend, you need to know how much your clients are worth.
There’s no exact science to this, but let’s say your average Customer Lifetime Value is $10,000 in revenue. And you operate at a 25% profit margin.
Technically, you could spend up to $2,500 to break even on the member, but of course, you want it to be much less to hedge your risk.
It really depends on your unique situation, but I would aim for the equivalent of one month’s membership fee, or 10-20% of total expected profit. Again, it depends so much on context, so these numbers aren’t gospel.
Many commercial brokers take a 10% commission on an annual office space lease term, so that’s a good benchmark as well if you’re doing shared offices.
Advertising is a deep and technical field, but it works extremely well when you do it right.
How to differentiate yourself in your ads and landing page is another story for another day, but if you learn these three rules you’ll be in a much better place.