Work out what a customer is worth before you spend a dollar

Why it decides everything

Almost every marketing argument dissolves once you know this number. Is $60 per enquiry expensive? If a customer is worth $180, yes. If they are worth $4,000, it is the cheapest thing in your business.

How to work it out roughly

Take your revenue over the last twelve months and divide by the number of customers who produced it. That gives average revenue per customer. Multiply by your gross margin to get the contribution. Then, if customers come back, multiply by how many times they typically do.

It does not have to be precise. Knowing whether a customer is worth roughly $200 or roughly $2,000 changes every subsequent decision.

Then work backwards

• If a customer is worth $2,000 at 40% margin, that is $800 of contribution
• If one in four enquiries becomes a customer, each enquiry is worth about $200
• Paying $60 for an enquiry is therefore a good trade, and paying $150 might still be

What it also tells you

It tells you when to stop. If enquiries cost more than they are worth in a channel and optimisation has not closed the gap after a fair test, that channel is not for you — and any agency that will not say so is being paid to avoid the conversation.