Why marketing just gets harder

Generally in life the more we spend on something the cheaper it gets. A 5-pack of delicious, sugary Pop Tarts is cheaper than a single pack. Just about everything a business buys is cheaper as volume increases. This is called an economy of scale.

So let’s turn to marketing. Most marketing plans show the Cost of Acquiring a Customer (CAC) as being constant or in very optimistic cases, going down, as the budget increases.

Sadly marketing is just about the only cost that doesn’t get better as the budget goes up. This is because we start by buying the best opportunities then gradually work our way down the list as the budget goes up.

There are some benefits in buying certain media in bulk (print costs for inserts go down in bulk and TV inventory gets a bit cheaper) but that in no way comes even close to compensating for exhausting the volume available in the best options.

In the first month of Diet Chef my marketing budget was £200 ($260). In my top month it was £1,100,000 ($1,500,000). My CAC went from £12 ($16) to £210 ($280). This is typical.

Our best PPC term was “delivered diets” but unfortunately the volume was tiny. We could bulk this out with less good terms but our total effective PPC spend bottomed out at about £40,000 ($53,000) per month. We then had to move into less effective but very high volume marketing channels such as DRTV.

Now, you might be waiting for the marketing pitch at this point. “Hey, if you use Machine Labs, this problem goes away.” Unfortunately it doesn’t. To paraphrase Scottie from Star Trek “Ye cannae change the laws of marketing.”

So you’ve got to accept that your CAC will increase as your budget goes up. The good news is that other business costs will likely go down so your margin should increase. Also, you should have much more profitable repeat business allowing your business to afford the higher CAC.

Finally, to get to the sales pitch, if you use Machine Labs to get a good estimate of your future customer Lifetime Values then you might well discover that you can afford a higher CAC.

So, like getting older, you have to understand it will happen but there are compensations.

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