Two Numbers That Bankrupt Locally Owned Businesses Every Day

A lot of small businesses fail because their owners never figure out the importance of knowing their cost per customer and their value per customer.

Let's look at a hypothetical business owner who decides to promote her retail business via direct mail. She sends out 10,000 postcards at a cost of $3,000, and gets a response rate of .5%, bringing 50 new customers into her shop.In this case the cost per customer is $60 ($3,000 / 50 customers = $60). She's very happy with the response, and writes a marketing plan that includes a new 10,000 mail drop every month. She figures with 50 new customers a month, after a year her little shop will be bursting at the seams.

But...Because she doesn't have a POS system in place, she has no way of tracking what each customer spends. If she did, she would know that most of her customers come in once a month and spend $20.00. She has a good product and is able to run a 20% profit margin, giving her a customer value of $48 per year. (twenty per cent of $20 is $4, times 12 months is $48).

And on it goes, month after month; our business woman spending $60 to earn $48. As things get tighter and the bills pile up, may be one month she even decides to triple her postcard drop, in a desperate attempt to bust out of her downward spiral- but instead of helping, that just sends her to bankruptcy even quicker.

This same scenario is occurring in countless businesses all across the country. Right now. And its unnecessary. Know your cost per customer. Know your value for customer. Make sure the value is higher than the cost. A POS system can tell you both figures at the press of a button.