This Is Marketing: You Cant Be Seen Until You Learn to See

An aside on funnel math
I’m not sure why funnel math flummoxes so many people, but if you take it
step by step, you’ll see it.
The most important thing to figure out is the lifetime value of a
customer. Here’s a simple example: What’s a new loyal customer worth to a
supermarket?
If all we do is calculate the profit on a single trip to the store, it’s only a
dollar or two. Supermarkets have very low margins.
But what if that person becomes a regular shopper? What if he visits
twice a week, buying a hundred dollars’ worth of groceries each time, and
does so for the five years he lives in the neighborhood (not unusual in many
suburbs)? That’s fifty thousand dollars or more in sales. Even at a 2 percent
profit margin, it means that there’s a thousand dollars in profit from each
new customer over time.
And . . .
What if your supermarket is special, and once someone becomes a
shopper, there’s a chance that they’ll tell friends and neighbors and one of
them will also become a regular shopper? That makes each new customer
even more valuable, because they become your engine of growth.
This means that a supermarket should be eager to sponsor an event for
new residents in town, because the funnel is so efficient.
And it means a supermarket ought to quickly give an apology and refund
to a customer who’s upset about a four-dollar melon not being ripe. It’s
hardly worth a thousand dollars in lost sales to have an argument.
With technology and services, we can go further. If we look at a service
like Slack, an early customer might have had a lifetime value of fifty
thousand dollars or more. If we count not only what they’d be paying over
time, but also the impact on what their coworkers might end up paying, plus
the value of growth in shutting out competitors, plus the value of the equity
in the company once it was seen as the winner, it’s easy to justify that sort

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of analysis. The first thousand customers, if they’re the right people, are
practically priceless.
Okay, so if that’s the lifetime value, what does the funnel look like, the
cost part of the equation?
The simplest way to think about this is with stamps.
If a stamped letter costs fifty cents out the door, how many letters do you
need to send to get one customer?
In the old days of direct mail, that’s all we needed to know.
If you need to send a thousand stamped letters to get one order, that
means each order costs you five hundred dollars. (Because they cost fifty
cents each, right?)
If your lifetime value of a customer is seven hundred dollars, buy as
many stamps as you can possibly afford! On the other hand, if the lifetime
value of a customer is four hundred dollars, you have no business buying
stamps. You need a better letter or a better business.
That simple analysis is why you’ve heard of L.L. Bean, Lands’ End, and
Victoria’s Secret. They bought a lot of stamps.
The internet makes this faster, more powerful, and more nuanced.
On the internet, you don’t buy stamps from the post office. Instead, you
buy clicks from Google or Facebook.
Those clicks go to a website.
That website click goes to another part of the website.
Or to an email.
Or to a trial download.
And then that leads to the next thing, and on and on until you’ve turned
that interest into a paying customer.
Every click between the first and the last makes your funnel more
expensive, but if you get rid of too many clicks then no one will trust you
enough to buy from you.
If your product or service makes things better, the customer will stick
with you and you’ll generate that lifetime value we spoke of.
If you can’t see the funnel, don’t buy the ads.
If you can measure the funnel and it costs too much for you to afford ads,
don’t buy the ads. Fix the funnel first.

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