Who’s Paying for the Admin? If You don’t Check this, Chances Are… You Are

In this issue, I'm going to show you how to view your customers in a way that will cover all your costs – not just sales and marketing.

It's a common problem: solopreneurs and small business owners want to know how much each customer is costing them or how much they are worth to the business.

A business is only profitable if it generates more revenue than it costs to operate.

Your revenue comes from your customers.

Your costs come from somewhere else. I bet we all have a very, very long list!

Some solopreneurs and small business owners

• calculate the cost of a customer, then

  
  

• how many customers they need,

  
  

• get to the required quota,

  
  

• and still end up in the red at the year-end!

Why is that?

Big Company Rules are not Small Company Rules

When I say "big company" and "small company", I am referring to the number of employees, not income.

Let me be clear: there are many solopreneurs and small businesses that have a net earnings value higher than bigger companies at the end of the year.

They just play by a different set of rules.

• Big companies have many more departments and require more specific KPIs for more in-depth analysis. The company's overall performance is irrelevant when assessing the new hire's sales performance.

  
  

• Solopreneurs might get help or hire a consultancy company, but they are usually more interested in the big picture kind of KPIs. They typically focus on values that provide a comprehensive overview of the company's overall performance. They only go into more depth if there are any problems.

  
  

Some KPIs that work well for big companies, dont' work as well for solopreneurs and small business owners.

One of the usual KPIs to calculate costumer costs is CAC (Customer Acquisition Cost). It's clear from many articles that you just need to add up your sales costs and marketing costs to obtain The Costs.

If so, who's paying for the admin?

Do you have another revenue stream that's paying for that?

Are you doing that for free?

If you're seeing mismatched results between your customer costs and the end-of-year balance, it's likely because you're using wrong KPIs for your situation.

It's good.

That's an easy fix.

Chris, our resident course creator, is crunching the numbers right now.

Let's get our customers' costs down!

Step # 1: Calculate the Total Yearly Company Cost

We need to know the total amount of money going out.

Chris is not pleased to see this number – it is usually a big number (uuuh, this is a bias!).

Luck favours the bold, so let's find this value.

It's in your yearly balance. Ask your accountant for the yearly balance if you don't know where to find it.

Chris quickly found the last yearly balance from her accounting firm. This is the value you're looking for.

If you have made significant changes since last year, this number may not be representative of your current situation. You might want to use the last six months' costs, even if they are not in the same calendar year.

Step # 2: Calculate the Number of Customers you had in the Previous Year.

Now, we need to take a different approach.

Have you been offering the same deal for several years?

Have you only just started?

The same approach that works for older companies may not be effective for new ones.

I'll give you a rule of thumb for each.

Chris has only been in business for a year, so she is basing her calculations on the number of new customers she acquired during that time.

She knows that if she had been creating and selling courses for a while, she could simply take the total number of customers from the previous year and be satisfied with it.

A company that has been stable for many years can count on one customer purchase per year for every customer that starts purchasing at the end of the year and continues into the new one.

Step # 3: Get the Cost of 1 Customer

This is it!

We are almost there!

Chris now has two numbers:

1. the yearly balance and

   
   

2. the yearly amount of clients.

She just has to do a little division – where's a calculator when you need one? If you don't have a calculator, use the Google search bar.

To find the cost per customer, simply divide the total costs of the year by the total number of customers per year.

[Cost per Customer] = [Total costs of the year] / [total amount of customers per year]

If you want to change the time frame, just make sure the two values refer to the same timeframe.

You've got your customer cost!

Well done!

Calculating Customer Cost

How do you feel?

Any Issues?

It's easy to think things will be simple when you read about them or someone else does them. We are aware that there may be some initial issues that need to be resolved.

You may have had issues working out how to use the filter.

Don't worry, I'll show you how to fix it.

Ask for help in the comments or come to one of our events.

Leave a comment and you'll see how many others have had the same problem.

You are definitely not the only one!

If you need more time, come to our events. Our workshops are the perfect place to get help from a professional in finding this value.