What’s money math got to do with Facebook?
A lot if you want to make money from your efforts.
If you do not know your numbers and you start running ads, you’re just guessing at what will work. If you are spending $50 to sell an item that sells for $40 you’re going to run out of money, unless the first sale leads to another sale, quickly.
No one thinks they will do anything that foolish … but bad money math happens more often than you think.
Here are the questions you need to ask yourself to get started:
What are you selling and is it a one-time item or do people buy regularly from you?
How often do people buy from you?
What is your average order value?
How long do they continue buying from you on average?
What is your margin on your products and services?
If you’re using a multi-Step sales process how long from when you get a lead to when someone gives you money?
Let’s go into each of these in a bit more depth.
What are you selling and is it a one-time item or do you get repeat buyers?
If you are selling something like a home security system you’ve got one sale to make.
But if you’re selling supplements that people buy and consume every month, one sale leads to another. And as people have success with your products, many times they’re open to buying different products. In this case, one small sale can lead to many more.
How often do people buy from you?
When your average customers buy from you every 30 days you know that your first sales will lead to more in a percentage of cases. This means you can break even or lose money on month one and make it up the next month.
This is a case where knowing how often this happens is critical.
If the supplement company knows their numbers and the math works, this can happen.
However, if the average person doesn’t buy again for 60 days this could cause the company to run out of money as they’re losing money in month one and waiting for 2 more months to get another sale.
It’s more challenging if people buy your products one or two times a year or less often than that. In these cases, you must make money on the first sale or at least break even.
What is your average order value?
Knowing this is critical in determining how much you can spend to acquire a customer.
If the average buyer spends $50 then you have half as much to spend as someone who has an average sale of $100.
To fix this what can you do to sell more?
Can you start with the same offer and offer an upsell to people who buy?
If you do this what percent take the upsell?
Can you offer a second upsell? Again, what percent take this one?
As you increase your average sale, you’ll see the money you can invest in marketing increasing and your profits growing too.
What is your margin on your items?
Most of us have a cost of goods sold, even if we’re selling a service.
What is yours?
Some industries, like the grocery industry, have a high cost of goods. In the range of 80%, restaurants have a 30% cost of goods, information products have a low cost of goods, many times in the 10% or less range.
There are profitable businesses in every one of these industries.
Knowing what your cost of goods sold is let’s you do the math and see if the numbers are working for you.
After all, in the grocery industry, a $100 sale only generates a $20 profit, but in the information marketing industry, a $100 sale generates over $90 in profit. One gives you more to spend on marketing.
How long does someone continue to buy from you?
This will give you the lifetime value of a customer.
Many times, we think that the value of a customer is only the sale we make right now.
Not so.
A few years ago, one of my DQ managers did the math to discover the lifetime value of a customer at a DQ. The number came out to be over $4,000.
Much more than one would expect, and it happens because once we get a customer, they continue to visit our stores for years until they move away or die.
What about your business? What is the lifetime value of a customer for you?
Now how long can you wait to make your money back? If your average customer stays with you for years, how much of that can you afford to invest upfront?
I prefer to invest no more than a month or two’s profit from a customer into acquiring someone.
In a multi-step process, how long does it take someone to go from a lead to a sale and then a second sale?
How long does it take for that lead to become a sale?
In some industries, it happens in minutes. In others, it is hours or maybe days, weeks, or months. Sometimes its years.
Knowing this number influences how much you can invest in leads and when you can expect to get your money back.
The sooner you move to a sale, the more you can invest.
My goal is always to generate enough sales from leads in the first 30 days to pay for my ads. This way I don’t have to invest any money in my ads.
You can learn more about this in my FREE masterclass. You can sign up at www.gosocialexperts.com/masterclass to learn more.
As you can see there are many parts to the equation when it comes to Facebook Money Math.
The more accurate you are, the more money you’ll make.
Be too conservative in your numbers and you won’t grow as you could.
Be too aggressive in your numbers and you’ll run out of money while growing.
When we work with clients we take the time to calculate this so we get the best possible results for our client’s business.
Bad money math can undermine success. And we want our clients to be successful – when they succeed, we succeed!
To learn more about Facebook Money Math check out THIS PODCAST EPISODE!
Have a great day,
Brian Hahn
P.S. For an in-depth look at a complete Facebook marketing system sign up for my FREE Masterclass on Facebook marketing: Go Social Experts Facebook Marketing Masterclass. This Free course is a 5-day video series with a video each day, going into depth about each step needed to create a profitable Facebook marketing machine.