“The business that can spend the most to acquire a customer wins.” – Dan Kennedy
This is a quote from Dan Kennedy. I’ve heard it many times in his books, his trainings and from others who quoted him.
Most recently I read it again in Russell Brunson’s book Dotcom Secrets (which I was just leafing through the other day yet again—damn you, Brunson!).
I’ve had the advantage of thinking about this quote for a while but as I read it again, I remember thinking back to the first time I heard or read it and being confused by it. After all, it seems to go against conventional wisdom, right?
Conventional business wisdom will tell you that it’s the job of every entrepreneur and business owner to maximize profits by acquiring clients as cheaply as possible and selling the most to them. That makes more sense, right?
Problem is, following that conventional wisdom is actually dangerous and expensive, which Dan Kennedy solves with his quote… a quote that can be confusing upon your first read.
Let’s start by asking: what would happen if the conventional wisdom were actually correct—that business owners should spend as little as possible on acquiring new customers?
Well, a business that has little or no cost to acquire customers will probably find itself faced with competition… and not just any competition but A LOT of very aggressive competition. After all, it costs little to nothing to find customers; what could be an easier market to sell to? But when that happens—when your competitors can all vie for the same customer for next to nothing—you enter an “anything goes” Thunderdome! Competitors who are trying to win customers in this highly competitive environment will squeeze their margins to provide the lowest price; or they’ll expand services to give everything to clients for nothing at all; many competitors go for the mass market version of the customer that they can get for a low cost; and, customer loyalty flies out the window because customers can go anywhere to get amazing service for next to nothing.
So, why does Dan Kennedy suggest that you actually spend “the most” to acquire customers, and how does this help you win?
Businesses that spend the most will change their customers and their services. They spend more and in doing so they cut through the mass market of customers to the narrower strip of preferred target market of customers; their marketing nurtures a relationship that builds value; when it comes time to sell, they sell can sell for higher prices (and higher profit), and (more importantly) they sell ongoing over the lifetime of the client. And because they are willing to spend more, there is considerably fewer competitors vying for this customer which means less price competition and more customer loyalty.
Implicit within Dan Kennedy’s quote are five concepts that are critical to understanding what he means:
- It’s not just about paying more; it’s about being willing to pay for the right customer
- It’s not just about paying more; it’s about paying more relative to your competitor
- It’s not just about paying more; it’s about paying more while still being profitable
- It’s not just about paying more; it’s about building a long-term relationship with a customer and building a greater lifetime value for your customers
- It’s not just about paying more; it’s about investing heavily in meeting the customer for the first time and then continuing to invest heavily in nurturing the relationship with the customer to ascend them through a long-term lifetime sales funnel
Smart business owners narrow their niche and then build a moat around it to keep competitors away by finding a niche that they can profitably pay for their customers and then develop a long-term relationship with a sales funnel filled with things that the customer wants to buy.
Perhaps the business spends so much that it doesn’t make anything on the first couple of sales… but over the lifetime of the relationship with the customer, that loyalty pays off big-time for the business.
Before you run off to look for a cheaper way to find new customers, consider Dan Kennedy’s counter-intuitive advice to find ways to spend more for your customers (and, of course, find ways to make more money from them too).