Do you know the value of your customers?

*Please note that this formula will only work IF the Client Average Sale you make is more than $70.

If you are mathematically inclined (if not, stick with it and you will see how simple this is), here's a formula to work out the potential value of each of your client's. It is simple and is based on the old Return on Investment formula... you start with:

The Client's Average Sale (CAS - that's the average value across all sales in say a month) multiplied by the Gross Profit (GP - that's sales minus the cost of inventory, or cost to you).

Then multiply that figure by the Selling or Closing Rate (SCR - that's the number of closed deals you have in a month, divided by the total number of leads who contact you or come through your doors, multiplied by 100 will give you a percentage amount).

This gives you a Potential Value (PV) of each client who comes into your business.

(CAS X GP) x SCR% = PV

Now, take that Potential Value (PV) and divide it into the cost of your Monthly Advertising Schedule (MAS) - this will give you the Number Of Prospects that you need to pay for the schedule (NOP).

PV/MAS = NOP

Then to discover the break-even point expressed as Gross Sales (GS), multiply the NOP figure by the Selling or Closing Rate (SCR) which will give you the number of sales needed to pay for the advertising investment that you have made, expressed as a number that is a gross sale, not the leads who come in through the door - but actual sales that you can make.

NOP x SR = GS

So, let's see that with some real numbers instead of letters...

Clients Average Sale value is = $210     Gross Profit per sale = $150     Selling/Closing Rate for the month = 50% 

(210x150) x 50% = $15750 = Potential Value.

Potential Value = $16800     Monthly Advertising Schedule = $2,000

$15750 / $2000 = 7.8 = (lets round this up to 8) Number of Prospects you need to attract with your advertising to pay for the schedule.

Number of Prospects = 7.8     Selling Rate = 50%

8.4 x 50% = 3.9 (let's round that up to 4) sales needed to pay for your $2,000 advertising investment.

So your advertising need only attract 4 extra sales of the 8 new prospects coming in to your business that month to pay for your advertising investment anything above that number of sales and it is profit for your business and you.

The low number of sales needed to break even shows you how little risk there is in advertising your business.

If you want to know more, call our office and talk to one of our sales team (08) 9581 2666.

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