Your customer list equals money in the bank
July 8, 2021
In this episode, we talk about the real value of a customer list.
Money in the bank. Saudi what you think? Money? Money in the bank. Your customer list is money in the bank. And today I am going to talk about the math behind how your customer list is money in the bank. We are going to value a customer list. And we're going to use a very simple way you can get as complicated as you want to. In fact, I have an entire blog article that lists out different ways of valuing your customer list. But on this podcast episode, we're not going to go into all those different ways.
We're just going to give you the easiest way without all these different, complicated ways to think about it. Because simple is better. Simple helps us think in simpler terms. And of course, what I'm going to go in today is a little bit of theory. I'm usually an advocate over practice over theory. However, the theory is sometimes good to help shape our thinking and our decision-making. So what I mean by this is theory. His theory. There will always be things that can go wrong that will test your theory. So if you know this and if you keep practical situations in mind, what I mean is things that might not have tested the theory. Just know that there are flaws in whatever theory you have and I feel like I'm rambling, so I'm gonna get back on top topic and the topic is money in the bank. Your customer list is money in the bank. And this is how you value your customer list.
Just to give you a little bit of background. If you've heard my story, you know that I was a commodities trader, so I have a finance background, have a background in marketplaces and also I'm pretty good at poker. And if you're not familiar, poker is a game of math. So I'm pretty good at math. Now when we're looking at the value of a customer list, it's just straight-up simple math and this is how it works. Okay. And we're gonna use really simple numbers to get this thought across. Well, get the stock communicated well. Okay, let's say that you have a customer list of 100 people. What is the value of this customer list here? The variables that you need to know, you need to know the size of your list. So this is your end, the number of people that are on your list. You need to know how much that list will convert. So what is the conversion rate of that list for your product?
This is where the math gets a little fuzzy. This is where you have to use a little bit of creativity because you might not have access to the data. So this is the way that you do it. The way that you approach this situation where it's a little fuzzy is you find benchmarks. So you find other conversion rates for similar products and services and similar channels and from this, you can get a pretty good feeling of what the conversion rate for your list might be. And this is at least the very beginning until you do start collecting some data on your own and you can figure out what that list value is on your own, Then the 3rd value, 3rd variable that we're looking at is what is the lifetime value. But to just keep it very simple, we're just looking at what is the price of the product that you will sell.
So we're looking at the number of people that are on your list. What is the conversion rate or the probability that people will convert and then what is the price of the product? So let's say that your conversion rate is really low. Let's say that your conversion rate is 1%. And let's say that the price of your product is $100. Well if you have 100 people on your list your conversion rate is 1%. Then you know you will make one sale out of that 100 people on your list and that one sale equals $100. So if you think about it in terms of probability, each email that is on your list has a 1% probability to convert And what that means is each person on your email list has a value of $1. So if you take that 1% probability of conversion and multiply it by the price of the product. So 1% times $100. Then you get the value of $1 for every single person on your email list. So now you know your email list is worth $1. I mean I'm sorry $100 because if you were to get 100 people on your list and you are nurturing them to convert into your product And 1% convert that's a $100 sale. So you know that that list will make you $100. It will net you $100. So the value Is $100. And of course, we're not adding any cost or anything like that.
We're just keeping it very simple just so we can get a very basic idea and then if you want you can take that framework and then you start adding more complexity to it if you want to try to get a better valuation answer. But the main point that I'm hoping I'm getting across is your customer list has value. The way that you want to be looking at it is every single person that's on your list has a probability to convert and that probability to convert has a value. And if you know what the price of your product is, well, of course, you're going to know that. But if you can figure out what the conversion rate is, then you will have a number, a dollar value for every single email on your customer list. So a customer list is money in the bank shortly. What do you think? This is Robin Copernicus. Boom bam. I'm out.
Continue your journey with me on my other channels:
We're just going to give you the easiest way without all these different, complicated ways to think about it. Because simple is better. Simple helps us think in simpler terms. And of course, what I'm going to go in today is a little bit of theory. I'm usually an advocate over practice over theory. However, the theory is sometimes good to help shape our thinking and our decision-making. So what I mean by this is theory. His theory. There will always be things that can go wrong that will test your theory. So if you know this and if you keep practical situations in mind, what I mean is things that might not have tested the theory. Just know that there are flaws in whatever theory you have and I feel like I'm rambling, so I'm gonna get back on top topic and the topic is money in the bank. Your customer list is money in the bank. And this is how you value your customer list.
Just to give you a little bit of background. If you've heard my story, you know that I was a commodities trader, so I have a finance background, have a background in marketplaces and also I'm pretty good at poker. And if you're not familiar, poker is a game of math. So I'm pretty good at math. Now when we're looking at the value of a customer list, it's just straight-up simple math and this is how it works. Okay. And we're gonna use really simple numbers to get this thought across. Well, get the stock communicated well. Okay, let's say that you have a customer list of 100 people. What is the value of this customer list here? The variables that you need to know, you need to know the size of your list. So this is your end, the number of people that are on your list. You need to know how much that list will convert. So what is the conversion rate of that list for your product?
This is where the math gets a little fuzzy. This is where you have to use a little bit of creativity because you might not have access to the data. So this is the way that you do it. The way that you approach this situation where it's a little fuzzy is you find benchmarks. So you find other conversion rates for similar products and services and similar channels and from this, you can get a pretty good feeling of what the conversion rate for your list might be. And this is at least the very beginning until you do start collecting some data on your own and you can figure out what that list value is on your own, Then the 3rd value, 3rd variable that we're looking at is what is the lifetime value. But to just keep it very simple, we're just looking at what is the price of the product that you will sell.
So we're looking at the number of people that are on your list. What is the conversion rate or the probability that people will convert and then what is the price of the product? So let's say that your conversion rate is really low. Let's say that your conversion rate is 1%. And let's say that the price of your product is $100. Well if you have 100 people on your list your conversion rate is 1%. Then you know you will make one sale out of that 100 people on your list and that one sale equals $100. So if you think about it in terms of probability, each email that is on your list has a 1% probability to convert And what that means is each person on your email list has a value of $1. So if you take that 1% probability of conversion and multiply it by the price of the product. So 1% times $100. Then you get the value of $1 for every single person on your email list. So now you know your email list is worth $1. I mean I'm sorry $100 because if you were to get 100 people on your list and you are nurturing them to convert into your product And 1% convert that's a $100 sale. So you know that that list will make you $100. It will net you $100. So the value Is $100. And of course, we're not adding any cost or anything like that.
We're just keeping it very simple just so we can get a very basic idea and then if you want you can take that framework and then you start adding more complexity to it if you want to try to get a better valuation answer. But the main point that I'm hoping I'm getting across is your customer list has value. The way that you want to be looking at it is every single person that's on your list has a probability to convert and that probability to convert has a value. And if you know what the price of your product is, well, of course, you're going to know that. But if you can figure out what the conversion rate is, then you will have a number, a dollar value for every single email on your customer list. So a customer list is money in the bank shortly. What do you think? This is Robin Copernicus. Boom bam. I'm out.
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