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You’re in the business of acquiring new customers. The fact that you use carpet cleaning or restoration to generate revenue is secondary to your committed focus of acquiring and keeping an active customer base. Most businesses do a poor job of building their customer base and instead focus their energy and marketing dollars on advertising vehicles that have a high cost-to-acquisition ratio. |
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The drawbacks of Yellow Pages advertising |
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Take for example the Yellow Pages – your ad is placed side by side with your competition for your customer to see. It’s the one print media that actually makes it easy for your target customer to compare your service to that of your competitors without even turning the page. Yellow page ads can cost hundreds of dollars per month based on book circulation and ad size. Now add in the additional cost of advertising in multiple books within the same area and the return on your investment becomes smaller and smaller. Advertising in multiple phone books in the same customers’ homes is clearly not a cost effective way to acquire new customers. |
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| Another major drawback to yellow page ads is that you can’t change your ad for a year. The books come out and only then do you see what your competition has cooked up. If they offer a stronger guarantee, lower prices or new packaging ideas, you can’t respond in a timely fashion. And if their ad looks like yours, offering the same services and promises, your efforts are diluted with price as the only differentiating factor. Let’s say you have a half page ad that costs $800 per month. You are investing $9600 per year to generate new business. Now take the number of new customers and divide the total yearly cost by the total number of new customers. You could have a conversion rate for acquiring these new customers between $100 and $800 for each new customer. Now take your charge for an average cleaning job, subtract the variable cost and you’ll find that you need this same customer to use your services 3 or 4 times just to recoup your yellow pages investment. Of course, that’s also assuming that no other marketing or sales cost was incurred. Assuming you can keep this customer, it could take 4 or more years to pay yourself back for your yellow pages spending.
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Understanding
true acquisition costs |
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Other advertising medias such as cable and radio can have a loaded cost that is not taken into account. This occurs when the target customer hears the company brand name on a radio spot, then looks them up in the Yellow Pages at a later date. You must include both the yellow pages and radio advertising costs when calculating the true acquisition cost of a new customer. |
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| Cable and radio ads are sold as cost divided by thousands of listeners, instead basing cost on performance. With promises of tens of thousands of listeners you are made to believe that you will get a lot of business, right? The problem is the timing and the lack of lasting substance. Unless you’re going to pour in huge money and buy up lots of airtime, these methods don’t typically work well for our industry without other supporting marketing. How many times do you sit in front of your TV with a pen and paper in hand waiting for a commercial to appear for toothpaste because you want whiter teeth? You have to see the same toothpaste commercial several times to even remember what the name of the product. Then you go to the local store where you find a shelf full of different teeth whitening products to choose from - just like the homeowner searching the Yellow Pages for carpet cleaning |
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| Let’s take a look at the ROI (Return on Investment) for Jon-Don’s Newsletter Program. For our purposes, we’ll create a fictional company called SmartMarket Cleaners. SmartMarket has a customer base of 500 households who have done business with them in the past 2 years and they want to put a first class stamp on their newsletter because they’ve heard it’s more effective. Each month SmartMarket makes an investment of $362 for the 500 newsletters. SmartMarket’s average cleaning job is 500 square feet and they charge 25¢ per square foot for cleaning, which means the typical bill they hand a client is at least $125. To keep everything simple, we’ll pretend that SmartMarket doesn’t offer Scotchgard or any other add-on services. With a monthly newsletter cost of $362 to purchase, print and mail the newsletter and a gross job billing from cleaning jobs of only $125, SmartMarket only needs 5 customers to either use their services or refer them to a friend to make a tidy profit off the program. That means they need a response rate of only 1% — of course, the typical response rate of the Jon-Don’s Newsletter Program is much higher, normally coming in between 2.5% and 5%. For SmartMarket that means an extra $15,000 to $30,000 coming into the company after the newsletter has been paid for. Even more exciting, with a typical profit rate of 60% after all the operating costs for their truck, chemicals and technicians have been covered Jon- Don’s Newsletter Program brings in over $10,000 a year in pure profit at a 5% response rate! That’s money right in SmartMarket’s pocket! |
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