SFR 22: …quick, hide! VC Funding Is Lurking Just Outside… – Stephen Larsen

SFR 22: …quick, hide! VC Funding Is Lurking Just Outside…

Nov 20th, 2016 anchorwave


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I love shows like Shark Tank but there’s no way I’d ever accept VC money…

Good morning everyone and welcome to Sales Funnel Radio.

Welcome to Sales Funnel Radio where you’ll learn marketing strategies to grow your online business using today’s best internet sales funnels. Now here’s your host Steve Larsen.

All right you guys I should probably … I feel like I say, “Good morning” in every single thing that I make just because it is morning. We had a crazy night last night. My little ones they screamed the whole night, it was super hard. I actually slept into 6 which I know is funny to say that, but I usually get up a lot earlier than that. I’m usually at the office a lot earlier than I am right now, but it’s still morning so good morning.

Last night we were watching a little bit about … I love Shark Tank. You guys have probably seen the show Shark Tank. I don’t know if my wife likes watching that show with me because we’ll be sitting watching something she’ll be like, “Oh that’s great. I think if I had the money, I think I would invest in these guys.”

I’m like, “No. No they’re missing X, Y, and Z.” The guys on Shark Tank will be like, “No you’re missing X, Y, and Z.” My will be like, “Why, why, why?” We have to pause it and I’ll explain to her like, “Well kinda.”

Anyway I wanted to really quickly share a little bit the only 2 metrics that really matter to a venture capitalist. Mark Cuban was in there obviously, and it was these 2 guys selling ties. It was called Tie Try or something like that. Tie Try guys  I’m very sorry but I’m about to slam you, but it’s okay because I have love.

After like 2 months these guys were in there asking for venture capital money. Right off the bat I’ll just tell you, unless you have made millions of dollars profit that is way too early to ever ask for venture capitalist money. Second you don’t really need venture capitalist money most of the time.

That’s my humble opinion…

InvestI never ever. I’ve been offered. I don’t take. Do not take investment money from anybody. There’s no reason to. You just bootstrap it and you learn more that way, and your business is better than the competitor after all anyway.

Anyways, there’s 2 metrics…

Mark Cuban was sitting there and he goes, “Guys okay you’ve been going for 2 months. You’re selling these ties. Right?” It was basically like ties with a Netflix model. You could ship ties back and forth whenever you wanted.

Mark Cuban was like, “What’s your average cost to acquire a customer?” They’re like, “We don’t know. We’ve never really paid for a customer.” Like, “How’d you get the ones you have now?” He was like, “Well we just kinda walk up and down campus that we’re on right now.”

Mark Cuban just dropped his head he’s like, “Ugh.” The reason why is because it’s untested. Then the other one is, so costs to acquire customer and the other one is average cart value. He’s like, “What’s your average cart value?” “Like 12 dollars. It’s the 12 dollars a month that we’re making right now per customer.” Or something like that.

One by one each of the sharks are like, “No. Something just isn’t right. No. Something just isn’t right.” They went down the road and they kinda all said the same thing. The last guy, I can’t remember his name. The guy who’s really into fashion he goes, “The only problem that I have with what you guys are doing is that I haven’t heard you once talk about the joy of wearing a tie. Why a tie’s beautiful.

You seem to have no passion about the product…

Why would I? I’m not going to be passionate about you doing this business and taking my money if you’re not passionate about your own thing.”

I thought that was really cool what he said. Everyone was like, “Yeah that was it. I couldn’t put my finger on it. That was it.” It got back to Mark Cuban again and he’s like, “Look the only problem is that,” he asked again, “How much was your cost to acquire a customer?” They just started saying, “I think it’s probably around 8 dollars or something.”

He goes, “You’re just making up numbers now. No. My answer is no and here’s why.” He just laid into them. I was like, “I would never invest in those guys. Only 2 months old?” I don’t even want to grow business and scale business, but unless you have data that you could point back to average cart value and cost to acquire a customer there’s nothing. It doesn’t matter how much money you’re getting per customer, unless you know how much it costs.

McDonald’s for example. McDonald’s spends a dollar and 81 cents just to get you to their drive-through. That’s their cost to acquire a customer, a dollar and 80 cents an average per person over advertising and all the stuff they do.

A dollar and 81 cents. Then their average cart value, I can’t remember exactly what it is. Let’s say it’s like … The average person spends 5 or 6 bucks. They’re making on average per visitor an average of 3 or 4 dollars. That doesn’t sound amazing, but because you have those metrics covered you can scale the business. You now know, “All right. When a customer comes up on average I will have spent a dollar to get them there, a dollar 81 to get them there and I will have brought in revenue of 5 or 6 dollars.”

You need to look at your sales funnels…

McDonaldsThat’s the only reason I’m bringing this up. I have a funnel secret. My cost to acquire a customer with my adds, I just checked last night actually, it was actually close to McDonald’s. I think it was like a dollar and 60 cents or something like that.

My average cart value was actually like, I’m thinking through the metrics. I should have pulled them up. Dang it. I was making money. That was the point is that every single time someone comes through and they subscribe my average dollar per lead profit is like a dollar and 50 cents. It’s not very big. I want to make it bigger obviously.

That’s the fun part…

Once you know those metrics, once a funnel is up. Everyone stresses about building the funnel and putting the funnel out there, which you should. That’s good, you need to stress about that stuff. Put lots of strategy behind it, be extremely thoughtful about it but if you don’t know those 2 metrics, it’s not done once you start sending traffic.

Then you got to go track everything and go, “Okay. All right my conversion between my second and third page is 15%. Then between my third and fourth page it drops to like 2%. What’s wrong with this page? Somethings wrong with it.” That’s a pretty steep drop.

I had a quiz actually. There was a guy I was building for once. We had a 70% conversion rate on his very front end. It was a quiz that I built. 70%, that is huge. I have never had that anywhere else. That’s incredible. I have had like 70% email open rates before to a cold list, but that’s cool that’s another story. 70% conversion rates on the front.

For all you guys who don’t ever do funnel stuff I’m sorry this is crazy technical. The whole point is that after that 70% dropped, meaning the very next page it went to like 20% purchase on the very next product, and then went to like 5%.

That’s a huge decline…

Then I can look at those pages and go, “Hey something is wrong.” For me that’s the fun part of a funnel after you build it because you look and go, “Okay. What should I do here? What’s the big? Why isn’t this working?” You can go through and, “Maybe it has something to do with the sales video? Let’s look at the copy. Let’s look at is something distracting the customer? Is there something there that’s not allowing a customer to think or am I being, there’s not enough clarity. Maybe I’m being confusing.”

That’s the fun part of building for me and anytime you have a funnel within it…

This includes offline…

I was over, it was my wife’s birthday on Monday. She really wants to go to a bounce-house. I was like, “All right cool. I’m a little kid at heart forever.” I went over and I was making the reservations, and the dude walks up and he’s like, “Look dude, wait how many people?” I was like, “Probably like 10.” He goes, “What are the ages?”

I was like, “Well anywhere from like 2 to my age 28.” He’s like, “All right look here’s the thing man. You could do this so much cheaper. You don’t need to pay us all this money. You could just come in, if the party rooms open just sit in there.” He was completely shooting himself in the face. I was like, “Sweet. All right. I got the hookups. You just really hurt your average cart value when you think about it.”

Anyways, offline and online these are true principles. Anyways, there’s a lot of different stories but the whole point is, unless you know those 2 metrics those are the only 2 metrics that matter. All the other metrics that are out there, earnings per click, cost per sale, cost per registrant.

I’m just looking at different glossaries that are out there. Those are cool and I look at a lot of them, I look at conversion rates, I look at especially cost per sale, things like that to make sure that the actual product has margin on it, that we’re making money.

Besides that none of the others really matter that much…

You got to know exactly how much you’re spending to get a customer and how much each customer’s spending once they get into the door. I told you guys that laser pen story. If not go back and listen to it if you want of me almost getting kicked out of high school because I was selling too many random knickknacks to people in school.

My cost to acquire a customer was 2 dollars and 50 cents. That’s what it cost for me to go actually get a customer. Then my average cart value though was like 12 dollars. I had like a 10 dollar margin.

Anyways, those are the 2 core metrics of business. If your average cart value is higher than your cost to acquire you’re in business, you’re making money and you’re scaling. In the McDonald’s example it does not need to be a huge amount of money. It can’t be more than like 4 or 5 dollars, most people don’t spend maybe like 6, maybe 7 dollars for some kind of fast food meal or whatever.

Look at the crazy global tyrant they are. It’s fun to create the spread. You need to make the spread wider and wider, and that’s fun for the game of it is to get that spread as tall as possible.

Anyways guys I’m rambling now. That’s all I want to say. Those are the 2 metrics. Go out look at your funnels, look at your sales processes. Keep that in mind if you’re just starting to build a funnel. Those aren’t exactly things you need to stress about when you’re building the funnel.

You do as far as price points and things like that, but focus on building the funnel. Once the funnel’s done I just wanted you to know, don’t think that you’re done because you’re not. Anyways guys I will talk to you later. Thank you so much for tuning in. Bye bye.

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