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Read Time: 2.5 Minutes

Before You Market

Most businesses & entrepreneurs start with the idea that their product/service is amazing.

All they need to do is market and sell it.

But, this causes you to skip the most important parts of making a successful business.

Product market fit + profitability.

Let's talk a little bit today about the business basics that have to be in place for good marketing to happen.

Product Market Fit (PMF)

The concept of product-market fit is fairly simple.

It means you've proven that your product is worthwhile by selling it, having happy customers, and having them refer others to you.

Before all three of these occur, you do not have product-market fit.

(hint, most marketing is a gamble when done before PMF)

Profitability

There are a few things you need to understand financially before you start ramping up sales & marketing efforts.

Number 1 is your profitability.

How much money do you actually make when you sell something?

Let's say you sell a $2000/month package (R).

You've got $300 in fixed costs (FC) because of your tech stack & equipment needs.

Then you need to spend 10 hours working and pay yourself a $100/hr wage (W).

That's $1300 in monthly expenses to deliver the service to the client.

$700 gross profit (GP).

But now, you need to account for the other variable expenses related to acquiring that customer (CAC).

Sales team wages?
Commissions?
Sponsor fees?
Referral fees?
Ad spend?
And so on.

Let's say you spend $500 to acquire a $2000/month client.

Now you're left with a $200 net profit (NP).

In summary, here's a simple calculation to determine your net profit:

Revenue - Fixed Costs - Wages = Gross Profit

Gross Profit - Customer Acquisition Costs = Net Profit

How to use this to market

These numbers are invaluable when learning to market your products/services.

Your net profit will vary depending on how much you spend to acquire your customers.

If you can reduce your CAC, you immediately increase the amount of money you make even if you charge the same amount to your customer.

This also educates you on your pricing power.

If you're experiencing that your CAC is so high that you're not making a profit, you'll need to up your prices to meet.

Ie. if your CAC causes your NP to be -$300, then upping prices by $500 will increase your NP to $200. The great part is that your CAC often doesn't change.

The goal of great marketing is to bring revenue into the business at a low CAC and a high NP.

If you don't know your CAC or your NP, you're already driving blind.

Take the time to prove & understand your business model before you spend too much time marketing.

If you prepare properly, your marketing campaigns will be successful from launch day.

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