Loading summary
Transcript37 lines
- [00:01]
Ralph Burns
Hey, folks, Ralph here with something that could seriously upgrade your Top of Funnel ad game. If you've been a PT listener for any period of time, you know that we talk about Top of Funnel all the time and how challenging it is for you to get quality Top of Funnel clients or leads or customers and then convert them typically at Bottom of Funnel. Well, TV advertising is one of those areas that we haven't discussed here on PT all that much. But our friends over at Ad Critter have figured this stuff out. They do connected TV ads so you can be everywhere without spending millions on super bowl ads. But they pair it with display retargeting. So you're hitting the audiences with a complete approach. You reach them, then you remind them and then you collect the revenue. It's a strategy designed to deliver and let me tell you, it really works. We're testing this at tier 11 and so far the results have been very impressive. Now with Ad Critter, creating custom audiences are so easy. You don't need to reformat files, you don't need to mess around with complex spreadsheets. You just upload any file in any format and you're ready to go. And the match rate is awesome. They make it easy to connect with the right people, the actual people that have interacted with your ads in the past and then allow them to naturally flow through your funnel so you can convert them at Bottom of funnel. Now, the folks at AdCritter, we twisted their arm to get us a great deal for you, the PT listener. They are offering a special deal for y'all, and that is you can get a $500 campaign credit, meaning $500 in free money to test out the platform or dollar for dollar matching on any TV campaign, up to five grand. Imagine the impact of that match spend five grand. The they'll add another five grand in display. That's a huge opportunity here. Now it's only offered to you, the PT listener. Head over to AdCritter.com PT and check it out. Our friends over at AppSumo started with one simple idea. The tools you need to grow your business shouldn't put you out of business. That's why they work directly with developers to get exclusive discounts of 80 to 90% off off software, saving entrepreneurs like you over half of a billion dollars. Since 2010, some of the biggest names in tech like Mailchimp, Zapier, Dropbox, all got their start on AppSumo with a rotating selection of hundreds of tools, the ones that you're using anyway and probably Paying too much for. You'll find all the software you need to make your life easier in 2025. Plus, with a 60 day money back guarantee, you can try any tool risk free. Oh my God, What a deal. AppSumo rarely offers discounts, but they are going to offer a deal here for you. The Perpetual Traffic Listener because prices are already so low, but we got the biggest discount we could possibly get from them anywhere. You get 13% off your first order with the code TRAFFIC13. These guys have been saving entrepreneurs like you and marketing people like you hundreds of millions of dollars since 2010. Don't miss out right now because they don't offer discounts like this. Head on over to AppSum. Enter the code TRAFFIC13 and get 13% off your first purchase@appsumo.com hello and welcome to the Perpetual Traffic Podcast. This is your host, Ralph Burns. I'm the founder and CEO of Tier 11 and today's episode is part two of our two part series on how to determine your NCAC. If you don't know what NCAC is, it is the cost to acquire a customer, the cost to acquire a new customer. And today we're going to get into the last half of it, where we tie it all together here and talk about some of the more important aspects of figuring out your ncac. Obviously we've talked about refunds, we've talked about cogs. Here we're going to be talking about other factors that play into how to determine your ncac. And if you do a Google search for this, you won't find a whole lot on it. You will find how to determine it after the fact. But how do you establish it is probably a better way of explaining this. How do you establish it so that you can ultimately scale and grow your business? And figuring out your NCAC is super, super important. And then obviously you need to know what that new cost to acquire a customer is and the acac, which is the cost to acquire all customers because they're not one and the same. Because you always have new and and returning visitors whenever you're running any sort of paid traffic campaign, whenever you're obviously doing an email campaign, when you're doing an SEO campaign. No matter what it is, there's always two different types of traffic and new customers are usually more expensive than ones who have either bought from you before or are familiar with your brand and have visited your website at some point in time. So we're going to get into all those details here. You're listening to Perpetual Traffic. So here we are with part two of how to determine your cost to acquire a new customer. So you just talked about a $1 million distribution facility. That is not a cost of goods sold. That is a fixed cost. It doesn't matter how much you're manufacturing or how little you're manufacturing or how much you're selling or how little you're selling. That's a fixed cost. That lease that. I assume they probably leased it. They probably didn't pay cash for it. So they're paying interest payments. They're paying their principal payments. That a fixed cost. That's the kind of stuff that can put you out of business very quickly if you're not watching it. And if you get caught up in cogs and I see a lot of businesses. It's the reason why we have this slide in here. Should you subtract overhead as a part of this, trying to determine what your NCAC is? And there's no one answer. And I've Talked to my CFO about this, who worked at KPMG for 10 years. He's owned and operated 16 different companies. He's worked with hundreds of different companies, and he even debates this. So let's talk about some of the things that overheads. All right, so you've got your ltv, you've got your refunds. Then you factor in your cost of goods sold, which is basically the cost associated with the delivery of your product. Then you have overhead. Overhead includes things like payroll. You've got a layer of management. You know, you have an admin, your utilities for the office, your accounting expenses, your lawyer expenses. Maybe software. We're just going through software expenses. Earlier today, myself and my CFO. I'm like, why the hell are we spending $100,000 in all of these individual software? They have nothing to do with increasing our profitability or increasing our productivity.
- [06:53]
Lauren E. Petrulo
I bet you there's a lot of tech solution overlap.
- [06:55]
Ralph Burns
My God, there is. Like, we just did a merger with another company. They have some of the same systems. I'm like, oh, my God. It was just killing them, pulling my hair out. Anyway, the point is, that kind of stuff, those are your overheads. If you didn't factor those in, those are still things you're paying for every single month. So do you factor it in? The classic way of determining ncac? You don't. However, you have to think about it. So here's a slide. I think that a lot of people get very confused about contribution margin versus gross profit. This is not a course in accounting or high finance by any stretch. But there's two different things. Contribution margin. People throw these terms around. Contribution margin subtracts the variable cost for producing a single product from revenue. So contribution margin for a product, let's say you have one SKU that costs you, you sell it for 100 bucks and your cost of goods sold is 30. Your contribution margin on that is 70%. However your gross margin of the business might be in aggregate. We just did an example of this live on our tier 11 live this past week is that there are individual products that were 70% margin contribution margin but the gross margin of the business was only 41%. So gross margin includes revenue and direct production costs, doesn't include, like I said, operating expenses such as sales, marketing, taxes and loan interest and all that sort of stuff, which is basically SG&A, which are your overheads. So you have to factor it in. And as we're going to get to in the next couple slides, we will keep that in mind. Even though in the classic sense when you're trying to figure out ncac, you don't necessarily use it in the letter of the law according to many financial resources that I've talked to as well as private equity groups when they're assessing our business fair. But you have to figure it out. It's a cost that you're spending money on and it's costing you money no matter what. Now this is the way that I do it. I love. We do this all the time when we're pricing. We factor in before we actually give a price. We factor in our desired profitability into our pricing. We don't see what's kind of left over. We put the profitability because we know that a healthy business is one that is creating profit, increasing cash, you know, no profit, no people. So you have to have profitability here. The question is on a first time purchase for ncac, are you going to go break even on that initial sale and are you going to look as a longer term in order to grow and scale the business like you said in the beginning of the show, it's like he or she who is willing and able to spend more to acquire a customer wins, especially in competitive markets. So subtracting desired profitability is a good step. However, you shouldn't get too greedy here. So let's get into this one and this is the question that we get a lot is when we're trying to determine ncac, what should my net profit goal be? Well, we're going to be using in this particular case, this is an E commerce business, your desired Profit depends on a lot of different things. First off, your business model, your industry, your cash flow situation and many more. How much money you're sitting on. Do you have $1 million in cash that you can put into that you can sustain the business while you make money back off your first purchase? If that's the case, your profit may or may not be one that is in line with what we're going to be talking about here in this example here. So it depends on a lot of different situations and it spits a lot of like you actually view your business and your comfort level in a lot of ways. It's very emotional. It's an emotional decision. And what we found is that in E Commerce a good profit margin to shoot for is in between 10 and 30% of LTV. 30% I think is on the high end. I mean if you look at like some of the biggest companies in the world, so for example Apple, their net profit is 21%. Tesla is 17%. A lot of these big companies, their profit margin is not like 20, 30, 40, 50%. When Microsoft first came on the market with Microsoft Windows, I believe the net profit was in order of about 50%. Like net. As time went on it came down to the 20s. So you want to figure out what this, bake this into the cake because you do want profit, but you don't want so much profit that it's going to hamper your ability to acquire new customers and beat out the competition. So here's what you'd look like, here's what you'd look for in our example. So if 10% of 900 is obviously $90 profit, 20% is 180, 30% is 270 per customer. And so for our purposes here we're going to choose sort of the middle ground, a nice 20% profit on that 900 LTV. So we're going to bake that into the cake here as we determine our NCAC. Thoughts, comments, confessions, concerns?
- [11:56]
Lauren E. Petrulo
20% is great. I know that there's a range in that 10 to 30%. So using 20% as a base makes sense. There are different profit margin benchmarks based on your industry full disclosure. So running with having that as a baseline I think is a really good place to start. But I would recommend that depending on your industry evaluating, if there's also an opportunity to see where you fit. Because we've had clients that are operating at these margins that are significantly above their industry and then we've had others that are operating below the small thing. I would add in is just double check. Like if you're in the Service based industry, 30% is like the holy grail kind of situation. So you want to just make sure you fall within where your industry is because that drastically looks different if you're selling things like in the cannabis space versus if you're selling low price CPG products like an Amazon basic stapler.
- [12:49]
Ralph Burns
For sure. For sure. Yeah. I mean in this like we used, I think this was actually drawn from Shopify for this example here. I was like, you know, what is the average? I think it's about between 10 and 20%. And Shopify, this is where we actually got these numbers in E Commerce specifically for all their stores. It's anywhere between 10 and 30%. So it's about average for E Commerce. It might be different for you. Digital products, I would.
- [13:12]
Lauren E. Petrulo
Oh, for sure. Digital products. You're probably looking at a 50% that should be your minimum target if you're doing that. And if you're an individual coaching consultant or single person service provider, you really want to be aiming for like 70%. Like so again like I know this is so based on E Commerce. I'm mindful of we've had different industries that we have worked with where they've entered that industry specifically because it's an 80%.
- [13:38]
Ralph Burns
Yeah.
- [13:39]
Lauren E. Petrulo
Profit space. But make sure like this 20% I'm super okay with. Makes a lot of sense. Super clean and easy. Triple check your industry because there are some industries that have like 5%.
- [13:51]
Ralph Burns
Yeah. Or less or higher.
- [13:53]
Lauren E. Petrulo
Like oh gosh. Or less. Oh my God. Find a different industry. I mean, find a different industry.
- [13:58]
Ralph Burns
Supermarket. You know, the supermarket industry is about 3%. Like that's crazy.
- [14:03]
Lauren E. Petrulo
With a lot of grocery brands. Oh, maybe that's brick and mortar supermarkets, but we've ordered a lot of online grocery brands.
- [14:11]
Ralph Burns
Once again, like that's E Commerce. So in the case of a physical store like Shaw's supermarket here in Massachusetts, they're constantly teetering on the edge of bankruptcy. And I think one of their best years was a 3% net profit because they are constantly dealing with inventory that's perishable, which is crazy to me. It's like why you would go into that business, I don't know. I would probably have like daily panic attacks. But the point is, is that 10 to 30% in the E commerce space, just like what you said, I think is we're going to use 20% as our sort of target here. But we also know that that has a little flexibility. So when you're looking at an ncac, we're going to give you a number here. It's also going to be a range because you sort of know where your break even point, like where your, where your profit, your ideal profit point is. But also know as a business owner maybe you can go a little bit higher on your NCAC. Maybe you get to 17% profit which is still pretty good in this space especially if you're in a highly competitive niche. So there is a little bit of variability here but we're going to go with 20% just to make things easy. All right, so step five here in the five step process to determine your NCAC is last but not least, determine your ncac. How about that? Here's a game changer. Tracking your customers before they even hit your website. Most tracking tools fail because they rely on browser based data. But privacy blockers stop that data before it even reaches you. Think of it like meeting your customers in the parking lot instead of waiting for them inside the store. That's what the edge in tier 11 data suite does. It captures data at the point of contact, not after it's too late. For one client. This approach uncovered over $500,000 in hidden revenue. Yes, that is half a million dollars in hidden revenue in under three months. And cut unattributed traffic from 40% to less than 5%. You want to see how it works? Head on over to Tiereleven.com apply and discover exactly how Tier 11 data suite can finally uncover all that traffic you've been missing so you can scale and grow your business in the coming year. Head on over to tier11.com forward/apply. So target NCAC 540 like all right, we're using 180 profit per customer. Okay, we have our 540 after we take out refunds, after we take out cost of goods sold. We're not using SGA here, we're not using overhead as of yet, but we are going to factor it in in just a second here. So Your target NCAC with 180 profit margin is 360 which seems rather high to me. Lauren E. Petrillo however, if your overhead, let's say in this million dollar business, this is just another example. Okay. With a million dollar business Your overhead is $250,000 which is about 25% of your total sales or $250 per customer thereabouts. Actually my math is a little bit off there because it's really, it's 900 per customer so it's about 250, 32 thereabouts. The point is, is that that 25% I know, for example, like our sales and marketing department alone, which is part of SG&A, is running us in and around 17 to 18% of our monthly revenue. So I know this 25% isn't far off for overhead. And that's just one department of our business. And we look at cogs. People are basically our cogs. As you look at it, I'm sure your accountant probably does the same way because we're in a service business slightly different 100%.
- [17:54]
Lauren E. Petrulo
You look at my books and like labor is my cogs.
- [17:56]
Ralph Burns
Labor is your cogs, not your management layer, which is always sort of something that I always debate with our CFO about. But because they're managing the labor, but they're a management layer, so they should be in overhead for us.
- [18:09]
Lauren E. Petrulo
It depends on are they contributing to performance. So our entire performance marketing team costs cogs. Those are the delivery of the service 100%. And then our admin, like my assistant project manager, people that don't have a touch on delivery but are supporting, they count. So in manager positions, if the manager is also responsible for some accounts and then is like the overseer, if they are on like principal accounts, for example, they 100% account. For those that are just managers, like in an HR capacity, I don't count them. But if you have people on your team that are managers and not actively touching accounts, then yeah, I would put them in a separate category. But for us, that's how we figured out. We use Evolve Finance and there were a lot of calls and they're great. No affiliate commission whatsoever. Recommend them thoroughly. However, it was a serious discussion we had to go through as well.
- [18:58]
Ralph Burns
It's a serious discussion. Yeah. I mean, I know you get into customer accounts as well. I get into customer accounts as well. So technically, could I be a part of cogs? Yeah, I suppose. But the majority of my time is doing CEO stuff, which I don't really even know what that is. All I know is that I'm back to back on calls every single day.
- [19:16]
Lauren E. Petrulo
Touch accounts. I don't count my salary into it because I'm not personally responsible for any of it. And my delivery is in that managerial position where I'm like overseeing and supporting the strategist side of it all. So for me, I don't have an account to my name.
- [19:31]
Ralph Burns
Yeah, me neither. All right, so determine your NCAC once again. So we just did target NCAC, which is 360, but I'm going to put in logical NCAC here because I'm going to factor in that 254 overhead. And the reason I do that is that I think first off, it's a logical number. It's a number that's actually you're paying out and it's reasonable because when I look at how much you can pay to acquire a customer, this is far more in line. When you have a net LTV of in and around 900, this is probably something that you're going to have some wiggle room on. Like if I could get it to 110, I would scale the shit out of this kind of thing. Like, that's a great ncac. My friend Scott, who's been on the program many times, introduced me to the concept of NCAC zones, which I really like. We're going to have to have him on the podcast. He kind of thought of this. I think he was smoking some sort of sativa or something like that. But anyway, he came up with the idea of zones of ncac.
- [20:38]
Lauren E. Petrulo
It makes sense.
- [20:39]
Ralph Burns
Totally makes sense. So it's like you shouldn't have one number. Like, oh, if you're 110. If you're 111, you suck agency. No, I know that 110. In this particular case, we're printing money because we're taken into factor full force SGNA. We're already making profit. I know it's 20%. I'm acquiring a customer for 110 bucks and they're paying me 900 over the course of 12 months. Life is good. The logical NCAT here. So this is like a logical best case scenario. Could you go all the way up to 360? That's kind of your range.
- [21:16]
Lauren E. Petrulo
With a zone you factor in like Black Friday time period. If you're acquiring new customers at Black Friday knowing that you're getting rid of all your margins so that they can become repeat buyers off season. I'm so in favor of this range because you have seasonality. Like if your cost to acquire a baseball glove customer in August when season's over, that's significantly different. And I. Oh my gosh. So I'm glad for this City bus. Divya. Whatever.
- [21:45]
Ralph Burns
Some sort of marijuana. Yeah, I don't know. He said it came to him in a dream. I was like, I know how you came up with that. But anyway, it's a great idea. So anyway, so this NCAC range here is really, really wide. My guess is if I were to redo these slides, I would probably take that 110 and double it to 220 and that would be my range. So this is where a lot of subjectivity comes into play here because we're factoring in full force costs and I think we have a final analysis here. 110 is absolutely fabulous. Scale it to the moon like figure out like buy as much as you possibly can. Back up the truck as they always say. I always find it's never the Brinks truck. It's usually the dump truck for some reason when customers say that to us. But anyway the point is is back up the truck at that range 360. You're bordering on, you don't want to stay there for your NCAC. If your ANCAC is 360 you need to do some optimization but you know what the top end of that range is. So I would almost do like a green, yellow, red. And we're going to have to have Scott on here to sort of talk about that which, which sort of stole that idea from him just recently. If we do the summary here, let's add it all up. The final math. Okay first off LTV is $1000 in our fictitious company. It's a million dollar company in the E commerce space. Refunds minus 10%. Take out 100, you got 900 left. Then you take out your COGS. 40%. As Lauren and I talked about that's a bit high. So this example is not necessarily accurate in all businesses. However it's a million dollar business with a $1,000 LTV. It's a little bit on the higher side. Makes the math a little bit easier here take out your desired profit. We decided that 20% would probably be about right which is about 180. So therefore your NCAC is 360. But like I said I would look at this as a range more than anything and I would say between 110 and 200 for me in this particular. Wait, like 110 is scale. 200 is optimized but we're still in a good scale range. But if you're going 250 and above on your NCAC you really do need to optimize it to get it down into a lower range. So I think this is really basic math. Like this is where it comes back to on the summary here. A lot of this is subjective. A lot of it is a bit of a feel because the 20% profit margin can be calculated up and down, down to 10, maybe up to 30. How much do you factor in SGA. You know SG&A is going to be there no matter what. There's a lot of different ways to look at this. So the point is this is that this is really instructive more than anything else. Do this for your business. I implore you to figure this out because I guarantee you just doing the exercise will be enlightening for you and your team if you haven't done it already. Maybe we should create a lead magnet download for this. Lauren E. Petrulo maybe that would be a good idea.
- [24:46]
Lauren E. Petrulo
I think that's a great idea.
- [24:47]
Ralph Burns
Ralph I think that is a good idea.
- [24:49]
Lauren E. Petrulo
I'm going to put this as if someone wants it. The first person who talks about it and puts it on Spotify, Ralph I think should get a call and get it personally. They should get the first sneak preview to what the download looks like.
- [25:00]
Ralph Burns
I think they should. Absolutely. I think that's a great idea. So we'll offer that as a download. All right, so we do have this as a downloadable PDF. However, we didn't think of doing this prior, so it might not be live by the time this episode goes live, but you can get it over@perpetualtraffic.com NCAC that is the letter N C A C and download your NCAC checklist. The entire presentation that I did here. Now, if it's not live, you should email tjir11.com and get your free copy. That's tjir11.com and he'll send you the PDF version of it as well. And you'd like to do a special offer for someone sort of outside of that realm.
- [25:45]
Lauren E. Petrulo
Lauren I mean, I am being very transparent. I have no problem bribing people to check out on Spotify because when I learned that one in four podcast listeners are using Spotify, we're only one in five are using Apple podcasts, I was floored. And so now I'm personally mad that we don't have a bigger Spotify following. So I'm like, okay, Spotify listeners, show me who you are. Let me love you even more. The first person that comments about this episode and getting to the NCAC page and letting us know what you think of the lead magnet itself or whether you got it from TJ directly. If you comment. Ralph I am committing. I will at least show up for 30 minutes, but I'm going to convince you to also come on and we'll do a 30 minute call. You and me and whoever's the first person to comment on the Spotify episode.
- [26:36]
Ralph Burns
Done.
- [26:37]
Lauren E. Petrulo
Done. Okay, 30 minutes with both of us and we'll go through it personally.
- [26:42]
Ralph Burns
Wow, that is quite an offer Lucia, like, she sucks me into these sorts of things.
- [26:48]
Lauren E. Petrulo
That's what I'm going for.
- [26:49]
Ralph Burns
I'm very vulnerable. It's late on a Friday. It's been a long week. No, seriously. So for anyone who comment, the first person to comment on Spotify on this.
- [26:58]
Lauren E. Petrulo
Episode, talking about the NCAC lead magnet and like whether you got it or whatever that kind of component is, you have to come on the thing and we'll do it. And then I would say like first, first we'll automatically get it and then we can randomly choose another person to get a second half hour and then we can go through their NCAC number specifically with them and then help make sure that they understand it personally.
- [27:19]
Ralph Burns
Good. All right, done. All right, so the first person to comment on Spotify, just to summarize here, gets the checklist, obviously, but they also get a free 30 minute consultation with Lauren and myself to help you determine your NCAC or talk about whatever you want to talk about. So really appreciate you all listening here today. And I think this is one of the more important episodes that we've done, one of the foundational episodes that we're going to keep referring back to, I think the entire year here, because this is, in my opinion, it's the most important number and it's this and media efficiency ratio and a couple of the other MPIs. But this is one that I think a lot of people really struggle with and there is a lot of variability to it. All right, so wherever you listen to podcasts, make sure that you do leave review and a rating and a comment of course, especially on today's episode. And all of the resources that we mentioned are over@perpetualtraffic.com so on behalf of my amazing co host, Lauren E. Petrulo.
- [28:16]
Lauren E. Petrulo
Who will also be talking to you on one of two calls because the first person guarantee gets it and another.
- [28:21]
Ralph Burns
Person will also get it till next show. See ya. You've been listening to Perpetual Traffic. It.