Leonard Lodish
Here’s one recipe for a successful entrepreneurial venture that is easy to describe, but not so easy to implement in practice. If you can demonstrate repeatable, scalable ways of acquiring customers so that the incremental profit over the life of the acquired customers is much more (say at least 3 times ) the cost of acquiring the customers, and you can show that your venture has competitive insulation so that a competitor cannot come in and attack your margins and steal your customers, then you will have Venture capitalists throwing money at you. You will need to isolate the various ways you acquire customers and relate those to the incremental profitability of the customers acquired over time by those methods.
What is Incremental Profitability?
The incremental profitability of a customer is the contribution of that customer to your fixed costs- i.e. sales over time minus the variable costs of fulfilling that customer over time -typically including variable costs of goods sold, fulfillment costs, and any shipping costs.
This data on the costs of customer acquisition and the incremental profit overtime of the customers acquired is very valuable information for an entrepreneur. According to my VC friends, only about 10% of the companies they look at use this information. If you want to be in the top decile, start collecting it and using it to manage your venture.
