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- [00:01]
Ralph Burns
I spent over a decade in the trenches of marketing attribution, tracking over $5 billion in ad spend and over $10 billion in revenue. And here's the truth. Most marketers are overwhelmed second guessing every decision, drowning in data because no one taught them to use attribution the right way. That's why I built the Five Forces, a proven system to give you clarity, confidence and direction to use attribution data with a system. Right now, Perpetual Traffic listeners can get $800 off the Five Forces course and system over at five forces.com just use the code PT. You don't need more tools, you need a system. Go to five forces.com and get the system. Use code PT to save $800 today. Hello and welcome to the Perpetual Traffic Podcast. This is your host, Ralph burns, founder and CEO of Tier 11. So glad you joined us here today. Today is a show that I did. It's actually a recording before they're actually going to release it. So you're actually hearing it here on Perpetual Traffic first before these guys release it on their amazing podcast known as Cash Flow Kings. If you have not checked that podcast out, definitely check it out. It's actually hosted by these two guys that run our favorite review platform especially for Shopify stores and that is Shopper Approved. It's the best platform that we know of to get ratings post purchase, post purchase surveys. Definitely check it out over@shopperapproved.com and definitely check out these guys podcast over at Cashflow Kings. Today we're gonna be talking about the subject, the thing that comes up on every single discovery call, every client call I've been on for the last year, it's how much am I willing and able to pay to acquire a customer? Yes, we have touched upon this many times because it's the most important metric. In fact, I was on a discovery call today with a digital products company in the self improvement niche and they were like, the only thing I care about is ncac. I was like, that is so great to hear. We were on with a PI Lawyer earlier today and they said all we really care about is signed cases or cost per acquisition, which is basically NCAC in the PI lawyer space or personal injury law space. So doesn't matter what your business is, whether it's a Shopify store and you use Shopper Approved as your post purchase survey or you're a digital products company and you need to know how much you're actually paying to acquire a customer because it doesn't really matter how much you're paying for that phone call or for that lead, none of that matters. What matters is being able to measure your cost to acquire a new customer. And what's the naov? And we're going to be doing a series on NAOV and NLTV as well as ltv. All these performance metrics, we call them marketing performance indicators. Over at tier11.com MPI there's a huge spreadsheet you can download. You can actually figure out what your MPIs are. The point is this is that these are the metrics that really matter to produce growth that scales. And if you haven't guessed, that's actually front and center on our website over at tier 11. So that's why we're doing this show here today from the guys over at Cash Flow Kings. So definitely check them out. We'll leave links over in the show notes over@perpetualtraffic.com but without further ado, here is yours truly with the guys from the Cash Flow Kings podcast to talk about how to determine the cost to acquire a new customer. And if you've listened to shows about this before, we reveal at least five new ways in which to really dial this in. You have to hear what D.J. and his partner actually add to what is already, in my opinion, the most important metric that you should care about as a marketer. So take it away boys, you're listening to Perpetual Traffic. Are you looking for new audiences for your business? Well, Snapchat is full of engaged users you just might be missing. And if it feels like your current audiences on all those other social platforms are tapped out, it might be time to diversify over to Snapchat. Here's why. 75% plus of 13 to 34 year olds in over 25 countries use Snapchat. 40% of Snapchatters aren't even on TikTok daily. And it's not just gen zers. In fact, nearly one in four Snapchatters are over the age of 35. And 85% of Snapchatters discovered new products and brands through social ads. And that's 17% higher than non users on the platform. That's this is an untapped platform. I don't know many people who are advertising on it right now. It's still a blue ocean for you because with Snapchat you have the potential to reach a hugely untapped audience and drive incremental growth for your business. So if your paid ad strategy could use a boost, it might be time to put Snap on your roadmap. Go to snapchat.com perpetualtraffic to learn more, Snapchat is now giving away thousands in free ad credits to new customers. Go to snapchat.com perpetualtraffic to find out if you're eligible.
- [05:47]
D.J.
Hey everyone.
- [05:48]
Scott
Welcome to the Cash Flow Kings podcast where we help e commerce CEOs and executives to save more money, make more money and scale like crazy online. Today we're talking with Ralph Burns about how to grow your business by understanding your NCAC or your new customer acquisition costs. Welcome Ralph, to the show.
- [06:08]
Ralph Burns
Thanks for having me boys. Really appreciate you inviting me on today.
- [06:12]
D.J.
Yeah, we're excited to dig into NCAC and why that's so important. But before we do that, we have to do a proper official introduction to Ralph Burns. Ralph Burns is the founder and CEO of Tier11, a digital marketing agency that utilizes a proprietary system called the Conversion Engine to help purpose driven businesses achieve their vision through new customer acquisition and enhancing lifetime value routes. 100 plus person, 100% virtual agency manages a portfolio of clients in over 75 industries with an annual ad spend of over 105 million. His podcast perpetual traffic has been downloaded over 12 million times and has helped hundreds of thousands of people grow their businesses through online traffic and conversion strategies. Ralph splits his time between Brooklyn and Cape Cod, Massachusetts with his wife and two college age sons. And apparently you're all going to Italy real soon, so we're excited when you get back.
- [07:10]
Ralph Burns
Yes, we are. Can't wait.
- [07:12]
D.J.
Yeah, I'm going with you. So Ralph, tell us about NCAC and why is NCAC the most important number for an e commerce business to know?
- [07:22]
Ralph Burns
Yeah, I find it's amazing to me. I mean you guys deal with a lot of e commerce brands. When I get on discovery calls or after they sort of engage with some of our content, they'll come to us and we'll ask that question. So what is it that you can pay or you're willing and able to pay to acquire a customer? Like what's your ncac? And it varies from not really sure to let me get back to you to I think it's around here to I know exactly. The I know exactly is rare. These are businesses in many cases that are large, eight figure, some cases, nine figure businesses and they don't know. So I think it's everything in digital marketing right now. The reason why we exist as an organization is that is a metric that matters like everything else really doesn't matter all that much. The secondary metric I would say is media efficiency ratio, which is how much you're spending on Your media and. Or your marketing. That m could be marketing or media. And then what you're actually getting back in sales. And that's sort of as a percentage or sort of a ratio. So that would be the second one, but the most important one that drives all that, that drives your revenue. How much are you willing and able to pay to acquire a customer? And can you outspend the competition? And that varies based upon product. Like, you guys know, in the e commerce space, there's sort of your global NCAC and then there's the individual NCAC of the individual products that you sell. So I found it remarkable that people didn't know this, and we sort of pivoted a lot of our marketing and our company vision towards these types of metrics, which we call MPIS or Marketing Performance indicators. And an ncac, or cost to acquire a new customer is the biggest, most important one, in my opinion.
- [09:14]
D.J.
Yeah. And that makes sense. And Ryan Deiss and Dan Kennedy have both said. So we don't know who the original quoter is, if it's either one of them, but they both said, basically, he who can spend the most on acquiring a new customer wins. Because obviously you're able to grow your market share and grow your customer base faster and larger if you can afford to spend more money. The question is, how much can you afford to spend and still remain profitable? And that is what we want to get into today.
- [09:42]
Ralph Burns
Right. Or not profitable.
- [09:44]
D.J.
Or not profitable.
- [09:46]
Ralph Burns
You know, like, it could be either one. But in most cases, we try to factor in profit, which is kind of the steps that we have in the formula. But I think Dice totally stole that from Dan Kennedy, and Dan Kennedy probably stole it from somebody else, like Ryan. Nice. Now that he's retired, we can kind of trash him a little bit.
- [10:02]
D.J.
Right?
- [10:02]
Ralph Burns
Retired.
- [10:03]
D.J.
Right. What does that mean?
- [10:04]
Ralph Burns
What does he care? Right.
- [10:08]
D.J.
Right.
- [10:09]
Ralph Burns
It's just a big sales pitch, I think. But anyway. No, it's absolutely it. And that's how you beat out the competition. Not only beat out the competition, but that's how you grow as a business. Like, the other thing that I'm not sure if they said this, but I first learned it from Jay Abraham, is there's three ways to grow a business. Acquire more customers. Get them to buy more often. Get them to buy more stuff. When they buy, it's like the first one is the hardest, and that's to acquire a new customer. And that's what we do really well at tier 11, because we focus on that metric and not the other crap that all the other agencies are focused on like ROAS and all these things that can be manipulated. NCAC is a very specific number.
- [10:46]
D.J.
Yeah, exactly. Sorry. ROAS is almost impossible to measure anyway because the timeline is so long and there's so many different touch points and as we know, analytics aren't that accurate. So ROAS is a very fuzzy number. But you're right. I mean if you can get down to the CAC or NCAC and focus on that for growth, which we really want to get into. So let's dig into it. So Scott's got the next compelling question for you.
- [11:11]
Scott
Yeah. So one of the reasons why we wanted to talk to you about this is because recently you've done a series about how you help customers to figure out their ncac. So can you kind of explain high level and we will include links to those, to your series in the show, Notes for people. But can you talk high level about some of those steps that companies can use to determine their ncac?
- [11:38]
Ralph Burns
Yeah, I mean it's really, it's a five step formula. I think there's a lot of nuances to this and there's a lot of ways to interpret the data. So I have a CFO at tier 11 who has former KPMG, British Accent Financial, Know it all. I love him. But Oxford University. Oxford, you know, he's one of those guys and I'm like, he's like, well, you know, your cost of goods sold and your SGNA and your opex, like all these things can be, it's like it's all in a continuum. It really depends. Well, it depends is always a great answer. But you got to have some basis for this. So like this five step formula is not precise. Like if a CFO or One of my CFO's colleagues listen to this, they're like, oh, he doesn't know what he's talking about. But it's something that even if it's not exactly precise, it's close enough. Because like I said at the start of the show, it's amazing to me how many people don't know what this number is. And even if you're close, if you're a couple of bucks off here in the US that's good enough. So yeah, so it's a five step formula that we go through.
- [12:50]
D.J.
Well, it's funny you say that Ralph, because Scott and I were actually talking about your formula before the show and like, okay, so how accurate is this? Well, the reality is it's directional. Right. And if you can get directionally within that range as you talk about, and we'll let you explain that, then you're going to be a lot better off than somebody that's literally just winging it, what feels good or what seems right. But if you've got a range that you can operate within, and nine out of ten times you're going to have a good NCAC goal working within that range, which is better than not having it.
- [13:26]
Ralph Burns
Exactly. Yeah. Being imprecise instead of precise here is better than nothing at all, in my opinion. And for every client that comes into tier 11, we go through this process if they're unsure, and we even do sort of a mini audit using some of the stuff we'll talk about here today. But the point is, you have to have a number for it, especially if you're going to hire an agency like ours or do it yourself and you're doing it internally for your team. They need a number in which to target to so that they know whether to scale or chill or kill, which I guess we'll get into as well.
- [14:00]
D.J.
But almost be malpractice to fire up a campaign and not know what your target acquisition cost is, because if you're three times higher than what the brand can afford, then it's an ineffective campaign.
- [14:16]
Ralph Burns
Absolutely. I mean, this is. I think of myself as a fiduciary. It's like I'm not a financial planner or anything like that, but people are entrusting me with spending their money, me and my team. And we need to know that we are doing the right things for the business. And there was an intermediate time in digital marketing where we were all guided by return on ad spend and there was a time when you could trust that number inside a platform. This is maybe three, four, five, six years ago. It's since really become very hazy because like ROAS is not new customers inside most of these platforms, it is customers which you might be selling to the existing base, which who might have already bought anyway. So you have to have a way to be able to separate this out. There's metrics inside of the platforms now that show that we have a proprietary data solution that really shows it. But the point is, if you're close, you're much closer than your competition is because they probably don't know unless they have a team of analysts that are looking at this stuff. Um, so yeah, it's vitally important.
- [15:32]
D.J.
Yeah. As we know, and you know, Meta and Google are particularly guilty of this, giving most or all of the attribution to their own platforms. Right. So it's real Easy to say, oh, we don't need to do anything but meta because apparently all the traffic comes from meta. Not true, it's just how they book or cook the numbers. But anyway, we won't get into that. So tell us, what are those five steps?
- [15:59]
Ralph Burns
Step one is really is you have to determine what your customer is worth. Step one is determine your LTV or your cltv, your customer lifetime value. There's a couple of different ways to figure this out. A lot of people do this differently. This is the way that we do it. So we figure out through our NCAC calculator which people can get over@tiereleven.com NCAC but we'll talk about that later. The point is like to calculate this out. You do have certain tools at your disposal that'll allow you to do this. So first off, if you've got a data analyst, you can just ask them if you've got that. That's easy. No work needing to be done as a marketing professional. However, the second step is of the first step is calculated on your own. And so what you really need to know is you need to know how many customers bought your products in a certain period of time and how much total revenue you generated, which is a basic math formula. So it's total revenue, a set period of time versus unique customers and that gives you your ltv. Now I'm saying unique customers meaning not. You're not going to measure necessarily. Well, you're going to measure individual customers that buy in that set period of time. The set period of time is the hardest part. And that's where you need to look at inside your Shopify store because I know this is largely an E commerce show. Here is look back in your LTV inside Shopify and find out where after somebody buys the first time, where does the revenue start to flatten out? And that'll depend on what type of product that you have. Like we have a customer that the average client of theirs, they buy 1.2 times and that's it. So literally you can use LTV, that's like the first month. So however we have others that have continuity programs and they typically will stay on maybe six months, seven months, it's another large supplement company. So we would do a look back period of maybe nine months and figure out okay, their first purchase was $100, their LTV goes up to $150 and 200, 250 and at about month six it flattens out to about 250, 240. So at that point you would Say, okay, my look back period should be very different for both of those two businesses. The first one would be one month, the second one would be maybe six to nine months. So your look back period to determine total revenue divided by unique customers is very different for both of those. A third example is we have a baseball glove company and they have all of their sales that happen usually in the spring and then they don't buy again until the following spring. And there's a little bit of a surge in and around like Black Friday, Cyber Monday. So that one might be. You do. Your look back period is maybe 12 to 15 months or maybe even longer because you might have repeat buyers. So it really does depend on your sales cycle. So this is an easy thing to say. Yeah, just calculate what your LTV is, but it really does matter based upon the type of business that you have. Does that make sense?
- [19:19]
D.J.
Yeah, absolutely. And you have found as a general rule of thumb that that's accurate enough to get that LTV or CLTV as your baseline to then go to step two. But you have to figure out the timeline.
- [19:33]
Ralph Burns
You have to figure out the timeline. And like I said, there's a couple of different tools that you can use for this. You can use the backend of Shopify if you have a Shopify store. Super easy to do. Another tool that we use is called by the Numbers, one of the best tools that we've seen. And plus there's a free trial for it. So you can try it for 30 days and not have to pay for it. However, I would recommend using it over the long haul because it's such a great, great app, especially for Shopify and E Commerce stores, which will help you determine this. So you know, or like I said, get your analyst, get your financial person to be able to do this. We have a bookkeeper, so we would know like I would ask it from him specifically, like what is a customer worth for us? We know exactly what a customer is worth for us. So we do eat our own dog food. So we know what we can pay based upon our profit margins and everything else. So. So that's really sort of the first step. If you can't do either one of those, you can estimate it. I wouldn't necessarily recommend this, but this might be for maybe a smaller business that's out there. Maybe you don't have the history, maybe you're new, maybe you're a new business, maybe you're just a startup. You don't have this past history of LTV based upon what your average order Value is you can kind of estimate it. And from what we've found, is that a good benchmark to start with? Let's say if your company's AOV is $250 or your average order value is 250, then a good benchmark to start would be anywhere between 500 to 2000. So let's just take a round number in the middle there of 1000. So if you don't know, at least give it an estimate of what that LTV actually is for your particular customers. So that is step one. Step two is, and I find a lot of people don't do this. Step is then you need to subtract your refunds and your cancellations. So every software, every E commerce business has one or the other there. And I think it's a number that you do have to take out of that LTV in order to give you sort of your true LTV or sort of your what we refer to as like net ltv. So if you have a refund rate, let's say in the order of 10%, the client I think I used in the videos that you guys referenced, I think had a refund rate of like 5%, which was really, really good. So let's just use 10%. So if your LTV, for example, is $1,000, let's just use that as our fictitious example here. Then subtract 10% from that. So your true, your net LTV is in fact 900 bucks. So that in essence is step two, step three. This is where the finance guys get involved here because then you want to subtract out from you figured out your customer lifetime value, you figured out your refund rates. You've now got your sort of your net LTV number. Then subtract how much it costs to actually manufacture and deliver your goods. This is, is your cogs, your cost of goods sold. So like I said, this figure like LTV can vary widely, of course. I mean for digital products you've got literally zero cogs or very little, you know, the cost of hosting, whereas with E Commerce you have physical products. In a lot of cases it could be anywhere from 10% to. I've seen upwards of 50, 60%. The average in and around like for most Shopify stores is in and around like the 20 to 30% in that range. I've seen better, I've seen worse. You know, we had a client that their cost of goods sold was 5%. So and they were literally in the market all by themselves and they manufactured their own products they designed their own products, so it was great. And they were premium priced. You know, they're not quite that way now because pricing has become a lot more competitive in their space. But the point is you've got a number there and that is the second metric that you need to subtract from that LTV number. So if we're using $1,000 as your LTV, we're taking out 10% refund rate, you've got 900 bucks. And then you factor in, let's say for example, cost of goods sold is 40%. So therefore COGS is 360 and you've got $540 left over. So that is gross profit is 540. So CLTV minus returns and refunds, minus out your cost of goods sold and then what you have left is your gross profit.
- [24:21]
D.J.
Sometimes there's confusion in what should be included in the cogs category. Can you kind of give the listeners an idea of what you put in the cogs category?
- [24:30]
Ralph Burns
Yeah, it's funny, we just debated this yesterday internally because we were looking at our P and L and for us, cost of goods sold in a service based business is people in most cases. But it's really where you draw the line between cogs and operating expenses or SG&A selling, general administrative, whatever terminology that you want to use. It's anything that's related to your manufacturing or your cost to deliver that good to the market. So it could be labor, the cost of labor to manufacture the goods. It could be materials, cost of materials purchased to manufacture the goods. It could be the utility costs associated with the product creation such as power, water, those sorts of things. Cost of shipping is also a cost of goods sold. In my opinion. This is a number that a lot of folks will get very granular with and say that's not really a cost of goods sold. But think of it this way. Cost of goods sold increases as your revenue increases. If it doesn't, if it's a stagnant cost, if it's stable, but then maybe increases at a later date, chances are that's an operating expense. So we do have a section of like sort of the caveat to the five steps is should you include operating expenses, which we'll get to in just a second here, but I think for just purity purposes, like Google cost of goods sold, your industry, or go on Gemini or ChatGPT and it'll give you a list of like what's commonly referred to as cost of goods sold because it does vary widely by industry.
- [26:13]
D.J.
Great, great Tip and great point, thanks.
- [26:17]
Ralph Burns
So yeah, so we're using sort of the 40% here, which is a little bit on the high side I would say, but I think it's good for our purposes here. So if you have cost of goods sold, which is about 360 bucks for delivery of a product that you're retailing for $1,000, minus that 10% for returns, like I said, you've got $540 left. So that's your gross profit. Then the question becomes there's other expenses outside of cogs, and these are the SG and A ones that I just referred to. Your overhead is things like payroll, utilities, software, accounting, legal expenses, like maybe a management layer within the organization. These are costs you're paying for on a regular basis. However, should you factor them in into your ncac? My CFO would say no. I would say yes, because I want to know what that is as a baseline so I can have sort of a range of where I'm insanely profitable and where I'm just breaking even because those are costs I'm paying for every month no matter what. So in my opinion, and this is a definitely, I'd love to get your guys thoughts on this. I factor that in and I always, when we're doing this for clients, we say okay, so what do you know about your operating expenses layer? What does that look like? How can we factor that into? We do this in the NCAT calculator just so you know where the range is. Hey, you know when I was first at a consultant actually doing the stuff that we're doing right now in Tier 11, one of the first tools that I learned how to use was from a company called Unbounce. And they are now a sponsor of perpetual traffic. And the reason is, is that their landing pages and how quickly you can create those landing pages without having to consult your designer, your developer. With Drag and Drop builders now built in AI copywriting, it's even better than when it was 10 years ago when I first started using it on my own to create my very first landing pages. These guys are absolutely amazing. They've got conversion optimized templates giving you everything you need to launch pages on your own without developers. In fact, Unbounce is the leading landing page platform for building, testing and optimizing high converting pages. Powered by data from over 2 billion conversions. That is 2 billion conversions with a B. That means they know what converts. So if you want to convert more customers one platform and launch pages fast, Unbounce is offering PT listeners a special offer. They are giving you the PT listeners 10% off off when you enter coupon code PT10OFF over at unbounce.com forward/pt. So head on over to unbounds.com forward/pt. Enter code PT10OFF and cash in today. Convert more customers of one platform launch pages fast. You shouldn't have to wait for your designers and your developers to build and test your landing pages. Get started with Unbounce today. So if you guys are factoring or trying to figure out cost to acquire a customer, these are still expenses that you have to pay for every single month they're coming out of your pocket as business owners. So you want to know this, so what are your thoughts on it? Should you include operating expenses in this calculation or not?
- [29:46]
Scott
I think you should, because if you don't have a true picture of what you're really spending at the end of the day, you're going to end up spending more because you think you have more, but really you don't because that money is being allocated to other things. And if you don't include it, you're just, you're looking at a fake number.
- [30:03]
D.J.
Yeah, because you've got that baseline to keep the doors open, the lights on. Right. And that's going to be your fixed ops, your building, your people, your computers, your insurance, your payroll, et cetera. And those don't usually change much with volume of sales, whereas with cogs they change directly based on volume of sales. And you've got to know both so you can create that total number. So you know what your fixed ops are against your variables to get your true cost of bringing a product to market.
- [30:35]
Ralph Burns
No, I agree. I mean, I factor it in. I mean, because it's a real number and it's something that's going out every single month no matter what. Or it might be a one time expense, or it might be a variable expense, but it's still, it's a check that has to be written. Theoretically. It's usually auto deducted, at least in this point. So that's step three, whether or not we'll sort of come back to operating expenses in just a bit. But step four is one that not a lot of folks really look at because they sort of figure they'll make this in the end. But I always like to subtract out your desired profitability. So what do I mean by that? Well, this is really sort of your net profit goal. You say, okay, if I've got my, I'm going to factor in my opex, I'm keeping it in the back of my mind. I've already figured out what my cost of goods sold is. You know, if we're looking at our example here for, you know, the thousand dollar ltv, you've got a gross profitability that is pretty high. I mean it's got. Should you be paying $540 to acquire a customer if your gross profitability is 540? No. In my opinion, absolutely not. We know you're not having any profit. You're probably losing money because you're still spending money on opex and you have no profitability factored in. So what we try to do is we factor in some kind of realistic number and the question then becomes for businesses, what should my net profit goal be? What is it now and what do I want it to be? So those are almost two different numbers in a lot of ways. Figuring out this part of the equation and step four is really, it depends on a lot of different factors like your business model. I mean your industry, your individual cash flow situation. There's a lot of different things. Your tolerance for risk, which is another sort of part to this. How much money you have in the bank. Do you have venture backing or are you bootstrapping? These are all big questions here. So you know, how much profit you actually want and what you actually have right now might be two different numbers. But in E commerce we try and boil this down by giving average. So a good profit margin to shoot for. I think on average. I forget the exact figure when I looked this up on Shopify, but is anywhere between 10 to 30% is a good profit margin off of LTV. So if you are, let's take a number that's sort of in between that. For example, like let's say it's 10% of our. Remember we're using the example of $1,000 LTV. We're taking out 10% for returns. 10% of 900, for example, would be $90 profit. 30% would be $270 profit. So the higher your desired profitability, the less your ability to be able to scale. So I would, on this side I would probably go to the lower end. And I think the example that I use in the video series is anywhere between like 10 and 20%. It's about 15% is average, if I recall correctly, for Shopify customers. So factor that in and then subtract that number out of your gross profit. Okay, so we're sort of doing the numbers backwards here. We've got a $540 gross profit, okay? Minus $180, let's say, which is 20% desired profit margin. Your NCAC at the top range would be $360. Now that's a lot. But you're also not factoring in your operating expenses. So what we usually do is we'll look at, okay, out of your entire revenue. I think the example that I use in the video series is the $10 million company. About 25% of their total revenue was overhead. So if the overhead is let's say 25% of like a million dollar company, in this particular case here, total sales are then are about $250 per customer is your overhead. So if you've got 360, then you take out 250. Your NCAC is right around 100 bucks. So it's $100 to acquire a customer. So you've got OPEX factored in, you've got profit margin taken out and then you actually have your gross profit on top of all that and the number comes out to be about $110. So with a 20% profit margin goal, and this is a really good starting point, I can think of examples where, okay, $110 is. As we look at this example, this is probably 50% of the average order value for the first purchase. So if you recall in the example it was about $250. So that might be too much for somebody to take. The point is at 110, that would be the top end of the range where the other video that you guys mentioned was sort of the scale chill, kill. That would be sort of in the kill zone for me. I would not scale that. I would try to get that number low, lower by varying my creative, varying my marketing strategy, my messaging, my hook, all of that. So you end up having sort of a range. Everyone wants $0 to pay to acquire a customer, but that's not really realistic. So it's somewhere between 0 and 110. And so we know as a business we can probably spend in and around like $50 to acquire a customer for this particular business is great. That's in a very good zone. That would probably be in the scale zone. Maybe something that's 80 or 90 is all right. Let's sort of figure out like where we're at here. Our NCAC is getting a little bit too high. Let's try and do some optimizations. Let's bring in sort of a new creative strategy, let's launch some new campaigns, maybe spiff up the offer and then you sort of reset and try and get that NCAC lower. But if it's higher than that, then you're in sort of that zone where you know you're creeping into profitability, you know that you're coming really close to sort of your top edge of the range. And that would be sort of that kill zone that some of the videos talk about. So we typically will look at things that way. I find that a lot of businesses have one number. They're like, well, what's your NCI when they do do this right? They're like, I have one number. Well, you really should have sort of a range of numbers because you really need to know, like, hey, if your tolerable NCAC is 50, but we're coming in at 30, don't you want to like double and triple your ad spend? Because we know 110 is at the top end of your range. So once again, that's risk tolerance for the individual business, how much cash you have in the bank. There's so many different factors. But the bottom line is if you have that range, and this is really simple math, guys, like this is not rocket science by any stretch. You don't need an MBA in finance to figure this out. But if you have that number and you have an idea of where you can scale, sort of take a step back and chill or just kill the campaigns, whatever it is, in digital marketing, you'll have a much better idea of where you're going to be heading and you'll be that much closer to success. From my standpoint, yeah, I really love.
- [38:30]
Scott
That you bake in the profit margin into the as a cost. It's almost like you're putting it in as an expense and you don't. And so you pull it out that way. You always have your profit built in at the end of the day and then if you do hit the high end of your ncac, you know that you're going to go into that profit margin because it's got to come out of somewhere. So I love that. I mean I think most businesses, including myself, I'm guilty of it. You just look at what's your break even. You don't actually build in profit before the break even. I love that. I've never thought about that before, but I think it's brilliant.
- [39:11]
Ralph Burns
I think a lot of businesses, once again, if you really know your business, you know that maybe you're even conservative on your customer ltv, they'll go break even. Like we have multiple businesses that are break even or even a loss on that first sale, like a Big loss. But they have enough firepower, they have enough gold to be able to sustain them. Meet payroll, do all the sort of things, meet all their operating expenses. So it depends on what your risk and your aggressiveness profile is. I think of one, supplement customer service super. Like he'll pay double his AOV to acquire a customer because he knows that these customers stay forever or he'll be able to cross sell them. And it's a nine figure business. So he knows his numbers really, really well. So that is higher on the growth and the aggressiveness and even risk tolerance scale. Whereas somebody that's new might not be that aggressive. And that's why baking in the profit margin is a part of the cost. Mike Mikhailovich's book Profit first is a great one, which I certainly learned a fair amount about. It's great for business owners. Bake in the profit. Pay yourself first before, have that as a target. Don't pay all your expenses in whatever left you keep for yourself. No, no. Figure that out ahead of time. You're not in business to go out of business or to have a job that pays you next to nothing. You went into business to grow the business and hopefully live a profitable existence. So yeah, I think it's an important part.
- [40:49]
D.J.
Those are great points. Yeah, it really is. And going back to what you originally said in the first part of video one, this is the most important number to know. And then of course you go through your five steps to get there. Let's twist this a little bit, Ralph. So what happens when you've got a client in a competitive space and their in CAC isn't enough to really grow the business? What about add ons, upsells, cross sells affiliate products, improving close rates, changing up the ad campaign to bring in maybe lower price leads or more bottom funnel leads that are going to convert it at a higher rate or changing the pricing of the product so you've got more margin built in so you can afford to spend more to acquire the customer. Where does that go into your whole mix when you're consulting clients?
- [41:44]
Ralph Burns
I think all of those that you mentioned are part of it. It's going to depend on the individual business. But I will say this is that if you can increase your average order value and you can increase how many times people buy from you and how much they actually buy from you when they buy. Those are the real keys. And I think not enough businesses, and you guys see this, I'm sure all the time, is that they sell one product and then that's it. Think about how Amazon does it. It's like other people who bought this also bought that. Would you like to bundle it with these two other products that go along with your Roomba vacuum cleaner? Spinny things which I just ordered and then Amazon upsold me on a bunch of other Roomba stuff. We're a very Roomba household here. But anyway, the point is like look at how Amazon does it. There is a reason why they do all those cross sells upsells. I think one of the most underutilized thing in e commerce is hey, sell a complementary product to what is also in the shopping cart and you can do that through an order bump. Obviously Shopify platform has a pretty good way of doing this. I think there's apps out there that actually do it probably better than the native platform. But the pro point is is that if you can increase that average order value when they're hot, like they're ready to buy, it's like hey, you know, McDonald's does it better than anybody. You know, I mean it's cliche but think about what they do. What complimentary product can you offer at checkout that it's not a like hey, like I just bought this Big Mac. Would you like a filet of fish 2? No, you bought the Big Mac. What goes with the Big Mac is the fries. And it should be that first sort of cross sell should be about 25, maybe 30% the price of the original product. I guess it depends on if you're doing like the Dollar Day at McDonald's. I haven't been to McDonald's in forever. But the point is fries is about a third of the cost of the sandwich itself. McDonald's does that for a reason. And then they say hey, would you like to supersize that? So there's like, there's sort of upsells to it as well. But those are kind of cross sells. So think about that. What complimentary products can you offer at checkout? I was going to say at takeout. I'm thinking about lunch at checkout that complement that previous purchase. You know somebody's buying a pair of pants, we have a client, it's like hey, would you like socks that go along with those pants? You're not selling a pair of pants. Again, you can sell them, hey, you just bought one pants but maybe you get three for this price, six for that price. That's an upsell afterwards. That's a whole separate topic. But I see so infrequently just the, do you want fries with that on the checkout page and I'm getting hungry right now even though I haven't had a Big Mac and I can't believe how long. So true.
- [44:46]
D.J.
So that original product. Let's go back to your pants. The pants are 60 bucks, right? So there's your price anchor. I just spent $60 and now you're going to offer me socks which are $10. $10 compared to the original price or the anchor price of $60 is nothing? Well, yeah, those socks look great with those pants. I'll take two. Because you've anchored them to that higher price. So back to your example. Offer something at 20, 25% or thereabouts of the original price because that's the anchor point. So everything else is cheap in comparison. Another thought would be if you really want to eliminate the cogs of that secondary product, offer a digital product so that has no cost but a high perceived value. It could be a training video, it could be a setup, a how to. Man, I don't know why that light keeps coming on. I'll be right back. The light doesn't normally come on. Really bugging me today, but. So if you offer a digital product, training how to, whatever, an ebook to go with that product at no cogs now your AOV goes up, your margin goes up and now you can afford to spend more money on acquisition.
- [45:53]
Ralph Burns
Yeah, I mean McDonald's is so good at it. Like they. And there's articles written everywhere on this. Like they increased their average order value by 15 to 14 40% just by suggestion alone. And everyone kind of jokes about it, but there's a reason why people joke about it. Because it's so widespread and people respond to it and it makes sense. But you have to be very careful about what that additional product is. It can't be a bait and switch. You bought this. Now get this other thing like the Big Mac versus the Filet o fish. I've already committed to the Big Mac. You know what I mean? What is that other thing? And there's so many different examples of it, but just that unto itself and especially to your suggestion there, digital product, zero cogs like that all drops to the bottom line. Two day shipping or one day shipping. That could be another sort of better, faster sort of solution for you on the checkout page, that is. Or shipping and handling. I always sort of joke about handling. Handling is kind of pure profit. Shipping is shipping. You know what I mean? But yeah, there's a lot of different methodologies in which to do it. But I mean increasing that average order value and Then obviously following up with other cross sells in your email sequence and your correspondent with those customers. If you have reorders like you guys deal with a lot of companies that do reorders, it's amazing to me how few these folks do spend maybe 1 to 2% of their total ad spend on retargeting people who have already bought bought at the 30 to 60 day mark just to remind them, hey, you know, time for a refill. It's like stuff like that. There's really easy, low friction, low cost ways in which to increase AOV and also increase LTV in the long run.
- [47:45]
D.J.
Yeah, great examples. And we know you're a Cialdini fan, so going back to what you said earlier, 8 out of 10 people that bought this product also bought this product or this is our most popular add on. Right. Social proof. And just using that ethical persuasion as Dr. Cialdini would reference it, to nudge people to not feel like they're missing out. Because 8 out of 10 people also bought this. I don't want to feel like an idiot and not buy that because that must be the thing to do.
- [48:16]
Ralph Burns
Yep. We have a client in the personal hygiene, male personal hygiene space. It's like they're buying a razor and then looking at their checkout right now. Other customers liked shower gel, face wash, face lotion, travel blades. They get them actually. Four potential solutions there and that's on the checkout page. And that is. Yeah, that's a Shopify store. So it's like there's like to the extreme like I'm just talking about just adding one thing but maybe there is a point where you offer too much and there's confusion. But other customers also like the same thing that you're buying right now. Social proof. That's Cialdini in action right there.
- [48:54]
D.J.
And one other parting thought before we go to our last question is offer a bundle. That's a great way to get your AOV up. And it's really difficult for the consumer to put a price on every individual item. You get a bundle for $69 or the individual product for $49. But there could be an additional 30% margin in that bundle that nobody else is offering. So you can't compare it to the competition because they're just selling the core product versus the bundle. And that's also a great way to bring down your cac.
- [49:27]
Ralph Burns
That's a great point. We just brought on a new customer this week in the beauty space and they sell on Amazon like most of the people that listen to this show, I'm sure. And it's like, how do you deal with the eventuality of Amazon? Amazon is what Amazon is. You can't undercut the pricing. Like there's all that sort of stuff that goes along with map pricing and everything else. You can look all that stuff up. But what they do is they do exactly what you do. What you're suggesting here is that they do not offer their bundle on Amazon. They offer the single the same product on their website as advertised as they do on Amazon, same price. So, okay, you're price comparable. They're not going to get in any hot water with Amazon. However, that same product with two other lotions and creams that go along with the cleansing solution is literally priced like $20 more. And you can only get that on their site and not on Amazon.
- [50:25]
D.J.
It's a unique sku, so Amazon won't see it.
- [50:28]
Ralph Burns
Yep, it's the product. Yes, but it's a different SKU entirely. So it's a way because you know, people are clicking on the ad, going to Google, Googling, you going over to Amazon. Oh, I can get it with prime, you know, in two days. Like how do you get people to go back and buy on your site? You do it with products like that or with offers like that. And that's, that was a genius solution. We didn't even tell them that they did it on their own. They're like, really? We do do that. I'm like, yeah, that's one of the things I noticed. It's like you guys are way ahead of the curve. They didn't even realize they were doing it. And I said that's one of the strategies that we advise folks on because you know they're going to be price shopping against Amazon, which is a great acquisition channel, of course, but you want them to come to you. Ultimately, you want to own that customer. So.
- [51:15]
D.J.
And then going back to your Amazon example, if you were to offer a free as a value add digital product with the purchase on your website versus Amazon, well, I could pay 9.95 on Amazon or 9.95 on this company website, but I get this free digital product worth, you know, 12.95 ebook, whatever the case may be. Video, you know the drill. Well, I'm going to buy that is a better value. It's the same price. But I'm getting this with this digital asset that I'm not getting with Amazon.
- [51:46]
Ralph Burns
It's like you guys know what you're talking about or something. It's crazy.
- [51:49]
Scott
Yeah, but I think we Play. We pretend we kind of went down a rabbit hole with all that. But I think that the end result is you've got to think about every product you sell strategically, in advance. You've got to be thinking about how can I bundle it, how can I add value to this, that makes me different than everyone else. And that's going to go back to those three things you said originally. Make more sales, increase the frequency of purchase, increase the average order value.
- [52:20]
D.J.
Right. I got one more idea before we leave. So Amazon has a 30 day warranty for the product. You could offer a 90 day on your website for the same product.
- [52:29]
Ralph Burns
That's good.
- [52:30]
Scott
Last question. Ralph, we really appreciate your time, man. This has been an awesome conversation. We like to end off our podcast with what we call the million dollar question. And so the question to you is, what's the fastest way that an E commerce brand can grow its customer acquisition costs right now? Can grow it or to improve it?
- [52:53]
Ralph Burns
To improve it. I would say the thing that I see the most is better creative that's in alignment, like advertising creative that's in alignment with the brand and with the social platform. So if you sort of think about it, there's three different places that digitally people can see you. It's your website, your socials, which is unpaid, and then your paid advertising. What I usually see is like either pretty good branding on the website and then just really good branding and just more organic lo fi type of content that's real and that connects with people. And then their ads are these stale boiled chicken. Not that there's anything wrong with boiled chicken, you know, image ads that just are flat and don't speak to the personality of the brand. And we see this all the time. I can think of five examples off the top of my head of clients that we've talked to just in the last week or so that are considering our services is because they don't have that sort of brand consistency from the website. What they stand for, their socials, which is a little bit more playful, a little bit more relaxed and then they tighten up on the ads because they think that they need to sound and look like more corporate. Bring that product and that uniqueness to your advertising, don't just leave it on your socials. And the tip of the day really is find your best performing, most engaging social post, whether it's Instagram, YouTube, Facebook, wherever. Because chances are if you're an E commerce brand, you probably have a social presence to a certain degree. Figure out unless it's like, hey, some funny meme that has nothing to do with your product. Those get a lot of engagement, but you don't want to use those ones that are related to your product. Use that as an ad. We took a company from a couple hundred thousand in sales in the supplement niche to 30 million with one video that was lost. Inside their socials was an 11 minute video. And it was kind of a playful, funny video that showed the uniqueness of the product. Had the spokesperson showing his personality, which is kind of fun and funny, and it was all off the cuff. And it was 11 things that you should do. And it just so happened, all those 11 things happened to be in the product to get this specific solution. So we brought that social ad and put it in the newsfeed and then all of a sudden it's like, boom. Stuff just exploded. Because people are looking for unique things. They're not looking for corporate crap. They're looking for real stories from real people that do business in the right way and talk about your brand in that way. And a lot of people do it on their socials, but they don't do it in their ads. So it's an easy way of doing it. Whether it's you hire an agency to give you the insights on that or whether you do it with your internal team. It's a really easy fix. Yeah.
- [56:05]
Scott
Wow, that's funny because we just had Dr. Cialdini on our podcast, the one right before you, and he talked about the importance of bringing the people behind the company out in front and bringing that personal touch to the messaging.
- [56:22]
Ralph Burns
It is. People are craving that. They're craving that unique thing that you have that no one else has. It might be a secret ingredient. It might be whether it's Cialdini or whether it's Eugene Schwartz who said it's like your unique mechanism, your one thing that you have, this product that Evan's talking about with the 11 ingredients, their thing back then when they first started was ashwagandha. Nobody had ashwagandha. Now everybody has ashwagandha. The point was we highlighted that. People are like, what the hell's that? No, everybody knows what it is. The point is, is that plus the other 10 ingredients really distinguished them from everybody else that was in that space. Plus the personality, like it showed like he was the founder and the spokesperson. It was just winning on so many levels. And I couldn't agree more with Cialdini. I mean, obviously, he's the best. There's no one better.
- [57:16]
D.J.
Yeah, Godfather influence. No, those are great. Those are great examples. Do you Remember the viral video? The guy that was riding the skateboard singing, lip singing to a Fleetwood Max song, drinking a bottle of Ocean Spray cranberry juice. Remember that one? Like 12 million downloads? Well, to your point, yeah. Unbelievable. I mean it was just the most random thing. And then Ocean Spray hires him and does a commercial out of that viral video. Because it was just so natural, so un scripted. It was just cool. Dude cruising down the street, drinking this bottle of Ocean Spray.
- [57:52]
Ralph Burns
The video's kind of in and out. It's not even perfect. Yeah, yeah.
- [57:56]
D.J.
Oh yeah, far from. But it killed it. And there you go. There's your authenticity. There's bringing the personality to the brand.
- [58:03]
Ralph Burns
And that's smart by Ocean Spray because not a lot of brands would do that because they're like, no, no, no, we can't do that. We have to be Ocean Spray. Like we have to have a highly produced commercial. You notice now, like so many commercials that you see on TV are like in that 9 by 16 frame mimicking social. So I think slowly but surely brands are getting it. But still the little guy in the Shopify store can crush the competition by bringing that uniqueness to their individual brand.
- [58:31]
D.J.
Yeah. Will it blend videos? Right?
- [58:34]
Ralph Burns
I mean, those are great.
- [58:36]
D.J.
Killed it.
- [58:37]
Ralph Burns
Fabulous.
- [58:38]
D.J.
Absolutely killed it. Well, Ralph, it's been amazing having you on the show. Obviously you bring such a wealth of information and we really appreciate it and of course our listeners do as well. Tell us how people can learn more about your process and your calculator. Where is that available to figure out their NCAC and what resources do you have available?
- [59:00]
Ralph Burns
Yeah, I would say I can send you guys a link to the video series that we're doing on all of this on ncac. And a lot of the stuff we've talked about here in today's show are videos that are in the works, that are just in production. So to your question about AOV and how to enhance all of that, like those are videos that are coming out. But anyway, links over to that are tier 11, I think it's tier11.com YouTube but we'll leave a specific link to that if you want the NCAC calculator and the sort of the model that I used on today's show, that's over@tier11.com NCAC and that calculator is gold. So we give that away just for your name and your email. But the free stuff is on YouTube and we'll continue to produce it.
- [59:44]
D.J.
Fantastic. Thanks for sharing your wealth of information today, Ralph. Have an amazing day and we'll see you on the next episode of Cash Flow Kings podcast.
- [59:54]
Ralph Burns
So I hope you enjoyed this week's show. Make sure that you check out the Cash Flow Kings podcast over on itunes or wherever you listen to podcasts and of course leave a rating or a review for us wherever you listen to podcasts. We certainly do appreciate that and we will read it on air. Helps us get our message here which is the right way to do marketing as opposed to all those other guys, you see them inside itunes. They're not doing it the right way. We're doing it the right way here. Make sure you leave us a rating or review so we can get this out to more people like yourself and help people do additional marketing the right way. So on behalf of my amazing co host Lauren E. Petrulo who could not make it this week but will next week till next show, see you. You've been listening to Perpetual Traffic.