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What is the formula for revenue?
Trust me. It's simple.
Revenue = visitors * conversion rate * lifetime value or average order value
Scaling your acquisition channel is as simple as understanding that formula.
The challenge is that you need to be methodical when scaling and most people are not. They see marketing as more art than science. You can't build a successful business without predictable steps. Growth is finding something that works and turning it into a loop that feeds itself.
For instance, if I asked you how to analyze the effectiveness of a creative in your Facebook ads account, you might point to some vanity metrics like engagement. That's not a methodology, that's wishful thinking. Anyone can generate engagement on an ad.
You might also mention purchases, which is still wrong. Because there are many steps between the first impression and the conversion goal.
Having a clear methodical way to analyze all the observable touchpoints between the first impression and the final purchase is what matters because they are your levers.
In another newsletter, I will tell you how to measure creative performance.
Back to our formula for revenue, how can you apply it?
Where do visitors come from? Ad channels. So to get visitors you need to spend a lot of deliberate energy to get predictable traffic at a predictable cost.
What affects your conversion rate? Your website. There are many variables on your website including copy. I am going to assume you know how to write copy that is good enough so what you need to invest in is event tracking. What are all the events a user goes through before they make the purchase event? You need to track them and measure the drop-offs.
What affects your LTV or AOV? Your product. If you're in Saas, then you most likely have a recurring revenue business model. What are you doing to upsell the customer within the first 60 days to expand their ARPU by up to 30% from $10 per month to $13 per month? What are you doing to prevent churn?
The more revenue you can extract per customer, the higher you can afford to spend on customer acquisition which means you can get big faster. And the more efficient you are at acquiring customers, the cheaper it's for you. It's one of the best feedback loops you can build into your system and it requires deliberate analysis.
Nailing your revenue equation takes a lot of work, but it's the key to unlocking more cash flow.
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This newsletter was written by: yemi_uc