1. FAILING TO UNDERSTAND YOUR UNIT ECONOMICS
Consider this equation: the price at which you sell your product (MSRP), minus your cost of goods sold (COGS). What we’re solving for here is how much your product costs you and how much you can charge for it. You need to factor in any other costs per unit sold, including: credit card fees, Shopify fees, shipping, etc. Once you have all that, you’ll know how much margin you have per product. Your product margin can then help you set a number for your target cost per acquisition (CPA).
A lot of your new customers are going to purchase from you again… so get this: you may actually be able to acquire your first-time customers at a LOSS. The classic example of this concept is Starbucks. At one point, they were willing to spend $500 to acquire a new customer because they understood their unit economics, and knew that the lifetime value (LTV) of that same customer was worth much more than $500.
2. NOT KNOWING WHO YOUR AUDIENCE IS
We really can’t emphasize this enough: dedicate extensive time to planning and researching your target market PRIOR to launch. Many people make the mistake of just believing that their idea is awesome simply because say, their mom or grandma said so (Not all your drawings are fridge-worthy). Maybe grandma really has her ear to the street, but it’s best that you get feedback from actual, potential customers. “Trust but verify,” as Ronald Reagan once said.
3. ASSUMING YOUR PERSONAL EXPERIENCE IS YOUR CUSTOMER’S EXPERIENC
In fact, there are an average of 1.37 billion daily active users on Facebook, and an average of 2.07 billion monthly active users. That’s an enormous number! If you neglect to realize that Facebook is your best marketing play, you’re limiting your opportunity to scale.
4. GOING TO THE POST OFFICE TO SHIP YOUR PRODUCT YOURSELF
This is where you might say, “But I can’t afford to hire people!” Ah. If it comes down to it, take on some debt! Everyone hears the success stories of an entrepreneur who leveraged their home and maxed out four credit cards before the business turned the corner and they made millions. Obviously, be prudent about. Seek wise counsel and really consider if this biscuit is one worth risking for.
5. HAVING FIXED MARKETING BUDGETS INSTEAD OF PERFORMANCE BASED MARKETING BUDGETS
Imagine you’re an ad executive in 1950. You buy 100K worth of TV ads, and then you go through the process of creating those ads and sending them off to the TV station. Then you have to wait until you can count up your sales at retail, measure those against how you did previously, and figure out if those ads had any effect. That’s a month long process! In that case, it would make sense to have a fixed marketing budget, because you can’t be agile.
In 2018, you buy ads on Facebook which took you a few days to create. You might have even made it on your iPhone! You see the clicks to your website, you track the purchases, and you see that people are spending and that your ads are printing money at 4:1. All the math is done for you. So what are you going to do? Spend more? Or limit yourself to your fixed budget?
The idea of a fixed ad budget is a relic of a time when everything about the purchase process was slow, but that is not the world we live in anymore. Every profitable dollar you don’t spend is profit you’re not making.
So, Avoid these easy-to-make mistakes, and you’re well on your way to achieving your dreams as a bright-eyed entrepreneur.