I was doing some basic research into the beauty, and more specifically the skin care, market and was struck by the fact that it seems like every company in the space has a myriad of products living under the same brand.

Seemingly every company in the space seemed to be breaking one of the supposed fundamental, ‘immutable’ laws of marketing as laid out by Ries and Trout’s seminal 22 Immutable Laws of Marketing.

In their book they tout the ‘law of focus’ and ‘the law of line extension’.

In short, the law of focus and the law of line extension say that while there is irresistible pressure to extend the equity of a brand through “line extensions”, that proper branding focuses the brand on one word or word phrase and works to own that (key)word phrase in the prospects mind.

In the face of this logical argument, I’m struck by the myriad of products that each of the successful skin care and beauty lines has produced. L’Oreal, Clarins, Este Lauder, Clarins…basically, all of them. Even the old standby, single product, Vaseline couldn’t resist taking it’s petroleum jelly and extending it into a line of lotions and skin care.

So if it’s such an ill-fated, short term strategy, why is every brand under the sun doing it and getting away with it?

The only reason I can imagine is that it is such a highly fragmented market of bogus claims, smoke, mirrors, and vanity, that it becomes very difficult to get a foothold in the prospects mind, much less beauty counter shelf space. If a store is going to dedicate shelf space to a brand they almost *demand* that the company create more skus so that the consumer will drive the average ticket price up.

I know there are probably more forces at work here that I don’t quite understand, so if you have any insight, sound off! I’ll give you a dofollow link and you too can join the legions of entrepreneurs in the beauty market with more skus than employees!

My post here called ‘lifetime value of a customer‘, (aka lifetime customer value or LVC) is the second part of my ‘duh’ series on Internet marketing.

If you haven’t already done so, please read part I, titled, ‘customer acquisition costs‘.

While the method for calculating the ‘lifetime’ customer value is a bit crude, and frankly, the lifetime value can’t be known until either the customer or your business expire, what you can do is get an average value to date of all your customers.

There are probably 101 ways to tweek this calculation, but for simplicity sake, just count up the number of customers you have who’s purchased from you.

If you don’t have this number handy, try perusing your orders table and do a query looking for unique customer IDs and ask it to return a count.

Once you have this number in hand, simply take your gross total sales over the same period (in the numerator), and place your unique customer i.d.’s (who’ve actually purchased from you) in the denominator.

total sales / number of actual customers

I’m not trying to insult anyone’s intelligence here, but by way of example, if you have 100,000USD in sales over a 2 year period and 100 customers, your lifetime customer value is 1000USD — at least to this point.

Since ‘lifetime’ is a relative unknown while the relationship is still alive, some analysts like to look at annual, or two year numbers. You can tweak this 100 ways to sunshine, but I’ll leave that up to you and your individual creativities.

Why is Lifetime Value of a Customer Valuable Information?

The LVC can be paired with the customer acquisition costs to get you some pretty interesting information pretty quickly.

Once you have these two numbers, see if you can subdivide your market by demographics, lead source, salesman, etc.

What you will (usually) find is that one lead source or market is providing you MOST of your ‘bang for the buck’ (so to speak).

Then, you should take some time to further segment your market and look for the areas that are costing you the most and you can focus your energies on those that give you the best return.

Lifetime Value of Customer versus Customer Acquisition Costs

In situations where your LVC is less than your CAC you either need to be able to *realistically* justify continuing to pour money into a broken machine.

There are specific cases where fierce customer loyalty and high switching costs will justify paying more to acquire a customer than can reasonably extracted in a year or two’s time. There are also cases where self liquidating offers are set up to bring customers in the door. However, successfully utilizing such a strategy means that a ‘back end’ sales funnel has been thought out and thoroughly planned for — ahead of time.

In the next part of my series I’ll touch on the sales funnel. Remember, although a lot of the material covered here will feel remedial to many of you, it never hurts to review the fundamentals from time to time to make sure we haven’t misplaced the forest for the trees.

Until next time,
r8r

Ok, yes, this post may be a bit ‘beneath’ several of you, but in the words of Christina Agilera we’re ‘Getting Back to Basics’ today.

I’m continually amazed that there are people who are running (sometimes profitable) web properties who can’t tell me what their customer acquisition costs (CAC) are.

As the name implies, this is what it costs for you to acquire a new customer. While any real meaningful analysis would need to include the lifetime (or annual) value of a customer (LVC), we’re saving that for our next post.

So, Why Should I Know my Customer Acquisition Costs?

Once you know what your current CAC is, you can use that to evaluate the validity of new customer acquisition methodologies, campaigns within your existing strategy, or more specific/granular tactics and their effect on this number.

Obviously, when taken with your LVC, it will allow you to determine when a specific strategy or tactic is a bad fit for your market or your current offering within that market.

So, how would one go about calculating their own customer acquisition costs?

This is pretty simple, but it’s (costs of acquiring customers over a given period/customers acquired)

The only ‘art’ in all of this is determining what the total costs were for acquiring customers. Well, like many things this will depend.

Direct advertising costs are obvious, as are the salaries of those that work in a marketing or advertising capacity for your company. In addition marketing materials made to support existing customers (and encourage future business) should be included as well.

Some, more conservative, marketers also included the ‘loaded costs’ or ‘fully loaded’ costs of the marketing personnel. This includes the office space, pcs, phones, admin, medical, parking space, etc. of the salaried marketing execs working with you. Depending on your state and your benefits this usually runs between 1.4 – 1.9X their salaries. You can play with this to see how conservative or aggressive you want to be.

Tune in next week when we discuss, your Lifetime Customer Value!

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