What's going on with the "old" businesses?
The cost of a new customer ought to depend on what that customer is worth and what you actually get out of your marketing. So I don’t understand why companies happily pay a lot for customers through traditional media while a customer from the internet apparently has to cost next to nothing. Also read E-pusher about my experiences with online sales and marketing.
I’m out driving with my son Mads here in September 2010, and something really annoys me. I’ve received an email from Nicolaj, Amino’s managing director and also my co-investor in MinMave.
A fair price that’s still ridiculously cheap
Nicolaj was pleased because he’d found a customer willing to pay properly for leads. It was a book club, and every time someone joined, we received an amount.
I can’t remember whether it was 20, 30 or 50 kroner. The precise number isn’t the point either. It was an okay amount for bringing a new paying customer to the book club.
But whether we’re talking 20, 30, 50 or 70 kroner, I think that’s ridiculously cheap. And I’m shocked at how hard it apparently is to get more businesses to understand the opportunity.
My wife works in affiliate marketing. I see hotels paying 15 kroner for a new customer. The other day, she was happy to get 11 kroner for bringing a customer to a children’s clothing shop.
I understand why the shop wants to pay 11 kroner. And I understand why the book club wants to pay a few tens of kroner for a new paying member. They aren’t the idiots. They’re buying cheaply.
What I don’t understand is why more other businesses don’t spot it.
The cost of a new customer needs to be comparable
If a hotel runs a big campaign with newspaper adverts, it probably doesn’t acquire new guests for 25, 30 or 50 kroner each. My guess is that a new hotel customer through a campaign like that could easily cost 1,000 kroner.
I also mention around 1,500 kroner to acquire a new customer for a telecom company. So why will telecom companies only pay 200 to 300 kroner for a new customer online?
Those are the amounts and the market situation I’m discussing in 2010. They aren’t a current price list. My irritation is about the difference in valuation I see.
It seems some old businesspeople have no problem paying Børsen or Berlingske a high price for each customer the campaign ultimately brings. But if the customer comes from an online outlet, it has to cost almost nothing.
I’m 40 myself at this point, so when I call them old, it’s also about what’s going on in their dusty, stuck-in-the-past brains. I simply can’t make the logic add up.
A big campaign can hide a high customer acquisition cost
I know newspaper adverts aren’t normally charged per lead. Perhaps the company pays 100,000 kroner for a campaign and gets 100 new customers from it.
Then they’ve paid 1,000 kroner per customer. But if they can’t really measure the result, perhaps they never see that number.
I think that’s part of what goes wrong. The salesperson talks about branding and everything that will come later too. Then you avoid confronting quite so directly what the new customers actually cost.
When we’re talking about paying to acquire customers, I really get tired of that branding argument. I react pretty crudely to it in the video because I feel it’s used to explain away the difference.
If a company accepts 1,000 kroner per new customer from a newspaper, why should an online outlet only get fifty?
Why don’t they sweep up the online opportunities?
If you’re really willing to pay 1,000 kroner for a customer, why not go and sweep up the opportunities in online media? You could acquire an incredible number of new customers if prices are so far below what you otherwise accept.
Or is the explanation that paying 1,000 kroner doesn’t pay off at all? That the company has simply lulled itself with lots of talk about branding?
I suspect it might also be about standing at the golf club showing off Børsen: Look, that’s the advert I’ve placed.
Now, I don’t go to golf clubs, but if someone shows me an expensive advert as proof of how clever they are, that isn’t the thought I have. I’m more likely to think they’re stuck in the past in how they view marketing.
Can anyone give me a sensible explanation?
The medium mustn’t blind us to the result
Is there some kind of hypnosis around TV, print and radio that makes marketing people accept prices they’d never accept online?
Perhaps you’re willing to pay 500, 1,000 or even more for a lead through traditional media. At the same time, you can buy a lead from an online outlet for 20, 30 or 40 kroner. I think that’s ridiculously low.
We can make a living from it, and that’s fine. But I hope prices rise. In my experience, this skewed situation has existed for almost ten years.
Why does a lead suddenly become so much more valuable because it arrives through a piece of felled tree that’s been folded a few times and has Børsen written on it?
I don’t get it. And of course, we online media have a responsibility too when we’re willing to sell our leads for fifty kroner.
I hope it evens out. That newspapers come down to, say, 200 kroner and we rise to 200 kroner. Then we can make money too. As you can probably hear, I’m rather more pessimistic about newspapers.
Heading to Denmark
Now we’re travelling to Denmark. See you in September at Forum for the entrepreneur fair. I get the dates a little muddled as I finish the video, so I won’t turn my guess from memory into a precise calendar detail here.
There’s a discount code in an earlier post that gives 100 per cent off at this point. That’s pretty bloody good.
I don’t understand a thing. They happily pay 1,000 kroner for a new customer through TV2, Berlingske and Børsen, but if the lead comes from the internet, suddenly it’s worth almost nothing?????
Jeg elsker dit direkte sprogbrug..! Det er super befriende at hører nogen turde kalde en spade for en spade 🙂 Jeg kan forstå hvis det sikkert støder mange, I FUCKING LOVE IT!!