Business Edition: Cheap Leads Are The Expensive Option

Most operators ask the wrong question about advertising.

"How much should I spend on ads?"

There's no answer to that. It depends entirely on something you probably haven't calculated.

The right question is this: "How much can I afford to spend to acquire a customer, profitably?"

That has an actual answer, and here's how you find it.

Step One: What Is A Customer Worth?

Not their first purchase. Their lifetime.

Say someone pays you $100 a week and stays, on average, 25 weeks.

That's $2,500 in lifetime revenue.

Step Two: Take Out Your Delivery Costs.

What does it actually cost you to service them? Say $500.

That leaves $2,000 of contribution profit per customer.

That's your real number. Not the $2,500.

Step Three: Decide What You'll Invest To Win One.

What portion of that $2,000 are you willing to spend acquiring the customer in the first place?

Say 25%.

You can afford $500 to acquire a customer.

That's a decision, not a calculation - and it depends on your cash position and how fast you want to grow. But now you're choosing a number instead of guessing one.

Step Four: Work Backwards Through Your Funnel.

A raw lead becomes a qualified lead. A qualified lead books a call. A booked call shows up. A show becomes a customer.

Multiply those conversion rates and you get your overall funnel conversion. Say it's 15%.

If 15% of raw leads become customers, you need about seven leads to win one.

$500 divided by seven is around $70.

That's what you can afford to pay for a raw lead.

Now you know what to spend. And more importantly, you know when to stop.

Which brings me to the part most operators get completely backwards...

Cost per lead is a vanity metric.

Here are two campaigns, both spending $2,500.

Campaign A: Leads cost $25 each, so you get 100 of them. Feels like a win. But the leads are poor quality and only 2% convert.

Two customers. Your actual acquisition cost is $1,250 each.

Campaign B: Leads cost $100 each, so you only get 25. Looks four times worse on paper. But these are genuinely qualified people and 20% convert.

Five customers. Acquisition cost: $500 each.

Same spend. Campaign B produced more than double the customers at 40% of the cost.

And Campaign A - the one with the cheap leads - is the one that would get celebrated in most businesses, because cost per lead is the number sitting on the dashboard.

Leads don't buy. Customers buy. So measure cost per customer, and treat cost per lead as what it is - an input, not a result.

One last thing, on testing.

Before you scale anything, run it until you've generated around 30 raw leads over 14 days. That's enough volume to see whether the leads are real, and enough time to see whether they convert. Below that you're reading noise and making decisions on it.

Because the goal is never cheap leads...

It's profitable customers.​

If you know someone who would benefit from reading this, please forward it to them. It may change the trajectory of their life for the better, and the catalyst could be you.