The Sharks of SharkTank absolutely LOVE businesses with an online sales component. That said, they are smart people and they are well aware of the perils and challenges of online sales and eCommerce. The first hurdle the aspiring entrepreneurs (let’s call them “the pitchers” for remainder of this article) must overcome is to present and sell their product to the Sharks, a test of their salesmanship. Assuming the pitchers can attract enough interest to catch the likes of Mr. Wonderful long enough to keep him from saying “you’re dead to me”, then the pitch and discussion moves on to grueling sales and marketing questions.
Q1: How Much are you Paying to Acquire a New Customer?
First, I must admit, this is my bailiwick here and my ears perk up each time I hear them ask this question. INEVITABLY, every (and I mean EVERY, without fail) time a pitcher presents a product that depends on internet sales and marketing, this question is asked. If they can’t answer this question, then “STOP THE MADNESS”, any interest from the Sharks will certainly dissipate.
Interestingly, the pitchers that are most prepared to answer the question, “how much?”, are also prepared to answer “how are you acquiring new customers?” The pitchers answer the “how much” and “how” questions routinely with; “we paid [x] amount of dollars for search engine optimization.”
One thing I have learned from the search engine optimization (SEO) conversation on SharkTank is that when ordinary people, “pitchers” and Sharks refer to SEO, the conversation usually contains both organic SEO and PPC elements.
Q2: How Much is a New Customer Worth?
This is a tricky question (trust me), and the people giving their pitch on SharkTank better be prepared for this question. The answer to this question is NOT; “how much money does your average customer spend?” or “what is your average sale?”, rather it is a complex question and indirectly asks;
What is the value of a new customer?
The value of that customer is measured not only in immediate sales but LIFETIME VALUE OF THAT CUSTOMER. Initial purchases, repeat or recurring transactions, future purchases and customer loyalty are all factors in determining the value of that new customer. In the age of social media, customer loyalty should not be underestimated (example, a brand selling products online acquires a new celebrity customer via Search Engine Optimization, the celebrity customer is given an incentive to share their experience on social media and now the ‘word of mouth and trusted referral’ of that celebrity is worth a lot of value).
When Does Investing in Internet Sales & Marketing Make Sense?
Without genuine answers to Q1 and Q2 above, it makes no sense to make wholesale capital investments in online sales and marketing, PERIOD. That should not deter anybody from “dipping their toe”, testing the water, gathering intelligence and making informed decisions based upon that intelligence.
This same model and these same questions can be applied to service based businesses as well. Examples of a service based business would be law offices, construction companies, health care facilities and accountants. A precursor to any conversation that one of these business types has before planning and executing an internet marketing campaign are Q1 and Q2 above.
The Takeaway – Learn from the Sharks
In due course of conversation I have with other business owners, I always ask the question; “Do you watch SharkTank?” Surprisingly, probably 9 out of 10 entrepreneurs and business owners that I ask this question actually do watch SharkTank, many of them regularly. I have also learned that entrepreneurs and business owners do not watch the show for entertainment value, rather they watch it for the learning experience.
The purpose of this article is not to isolate the “cost of new customer acquisition vs. value of new customer” to simply internet marketing, I STRONGLY feel this very same question can be applied for all marketing channels (i.e. direct mail, email marketing, social media, TV, radio, print, etc.) If you are a business owner, ask yourself the following questions and write the answer down on a piece of paper (or type into a notepad like me) and you might be surprised when you further consider these questions;
- What strategies am I using to acquire new customers?
- What is the cost of acquiring a new customer (either in terms of capital/money or time)?
- Is my current marketing; a) targeted for new customer acquisition? b) targeted towards customer retention? or c) mixture of both?
For me personally, and for our business 3V, we have historically spent a HUGE amount of resources (mostly time) on organic search engine optimization (SEO), mostly because I considered SEO to be cost effective. It took me 3+ LONG years to finally do the math and I quickly realized in terms of time spent on SEO that I/we needed a more balanced approach that include not only SEO but PPC.
New entrepreneurs and existing business owners alike, when considering your internet marketing options, specifically SEO vs PPC, please do take into consideration the following;
PPC Strategy – PPC is both a short term and long term play. A PPC strategy is a great strategy for acquiring new opportunities to reach potential new customers. PPC is also easy to measure results, gathering intelligence and adjusting campaigns to evolving market conditions and consumer behavior is
SEO Strategy – SEO is a longer term play. An SEO strategy requires much more planning and execution. Results can be immediate (1-2 weeks) however sustainable results will take much longer to achieve. Adjusting to SEO campaigns, reporting, reacting to evolving marketing conditions and consumer behavior and effecting change will take MUCH longer with SEO than PPC.