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Explore the essence of business from an entrepreneur's perspective
01
Early the morning before yesterday, I rushed to Wuxi to attend the summary meeting of the Wuxi Division of the 10th China E-commerce Cattle Merchant Competition.
The 30 companies in Wuxi, they used global marketing and AI empowerment to complete the performance of 590 million yuan in 2 months, with an average of nearly 20 million yuan each.
Yesterday, I came to the club in Hangzhou to talk about "How to innovate and grow · in the era of video broadcasting", and invited our student, Mr. He of Zhejiang Tongxiang Juke Home Furnishing to share his experience with you.
Although their team is not large, they have gone from the domestic platform to the global market for layout, and sold their foot bath sofas to overseas markets through category innovation and marketing breakthroughs.
They can do it, why can't we do it?
Of course, it cannot be denied that many industries and enterprises today are facing product homogenization, overcapacity, and shrinking markets.
Including when I communicate with many entrepreneurs on the spot, they will also think that their products lack uniqueness, as if what they have, other companies also have.
But is that really the case?
02
In fact, I've always believed that every business has something unique about it.
Just like I often ask students, why did you choose Danren Niu Shang, what do you think impressed you about us?
Many students' answers are related to four words: "actual combat, system", is it because we promote?
No, only when the students really feel the results and value brought by these four words, will they truly agree with it and say it as a matter of course.
As I said before, the two hardest things in the world are to put money in other people's pockets and put them in your own pocket, and the second thing is to put the thoughts in your own head into other people's heads.
The education and training industry happens to have encountered two things, especially corporate training, there are very few companies that have been doing this for a long time, why can Shanren Niu Shang persist in this industry for 18 years?
Because I don't think about how to put the money in other people's pockets into my pocket, if I can help the customer make money, he will share a little with me, then the customer must be happy, so the course must be real and effective, just like the students in the Wuxi division at the beginning of the article, so that they can get real results.
Secondly, I don't have the luxury of putting the thoughts in my head into the heads of others, and I don't talk about the metaphysical concept of retreat, but the most realistic marketing system of the enterprise.
Enterprises can't sell products and services, and everything they talk about is fake, especially for marketing training.
Therefore, the unique value of each enterprise depends on the real needs of users, and from their perspective, find what they want in their life, career, and work, and what kind of progress they want to make.
And then see what we can do to create some unique value that is indispensable for them and help them solve their problems.
Of course, this must require us to go to the user, to understand them, to study the needs of the market, to constantly optimize and innovate products, to shape our own advantages, which is the first step and awareness of marketing.
In the era of video broadcasting, this requires us to embrace the concept of global marketing, reach the widest range of target users with the help of video content and platforms, and continuously explore and improve products and marketing systems in practice.
03
Of course, during the two-day event, I also noticed some problems with enterprises.
When I ask them about their marketing, ask them "What is the unit cost of acquiring users and leads?" What is the user's lifecycle? What is the churn rate and what percentage of the contribution is made? Many students couldn't answer.
I think that when we implement global marketing step by step, we should also pay attention to some data indicators, review and test according to the data, and adjust our marketing behavior.
For example, UE (Unit Economic Model) and LTV (User Lifetime Value).
UE is the abbreviation of Unit Economics, which is called Unit Economic Model in Chinese.
For example, if we are an education company, then my smallest operation unit is a course, for example, if I am a subscription enterprise, then my smallest operation unit is a service package in the subscription.
Therefore, there are two ways to calculate unit economy.
When we sell a product, we can determine the unit economy by calculating the marginal contribution.
The formula is: Unit Marginal Contribution = Revenue per Unit – Variable Cost per Unit.
Variable cost means that as the product is sold, the cost increases proportionally, for example, every time we sell an industrial product, there will be various costs of raw materials, manufacturing, commissions, etc., the more you sell, the greater the variable cost.
If the unit revenue minus variable costs is positive, it means that with enough scale accumulation as the volume of transactions increases, the company can calculate when it will be able to offset the fixed costs and break even.
That's the break-even point, which I often call the life and death line for a business, and if you know that, you're going to try to make that day as early as possible.
Of course, what if we weren't selling a one-time physical transaction, but an ongoing subscription service?
At this time, the calculation formula will change slightly, because for enterprises, the most important product is to satisfy users.
We need to know exactly how long users will stay because of your service.
At this time, the formula is: unit economy = LTV÷CAC.
It doesn't matter if you don't understand this formula, let's disassemble them one by one.
LTV is the lifetime value of users, which is the total value generated by users from the use of the product to the loss of the product.
It has its own formula: LTV=ARPA× gross margin ÷ churn rate.
ARPA is often used, that is, the average revenue generated by each user, if it is 1,000 yuan, the gross profit margin is 80%, and the customer churn rate is 10%, then LTV=1,000×80%÷10%=8,000 yuan.
So what is CAC?
It is the cost we need to pay for each user acquisition, which we also call "customer acquisition cost".
For example, if you want to generate sales leads and advertise online, this is your marketing cost; With leads, you have to have someone follow up on the conversion, which brings you the cost of sales and related support.
So, we add up the total marketing and sales spend over a certain period of time and divide it by the total number of new users to get the CAC.
The formula is CAC = total cost ÷ total number of users acquired.
We get the unit economy by applying the first formula (unit economy = LTV÷ CAC).
Unlike the unit economy of physical products, which is positive, if the unit economy of services is 1:1, it is equivalent to entering the death zone.
Generally speaking, the larger this ratio, the more proof you create unique value for users, and the greater your business value.
04
These two indicators can reflect the financial indicators of the smallest economic unit of the enterprise, although the calculation is a little brain-wrenching, but the mathematics will not deceive.
The overall business of each enterprise is accumulated by the smallest operating unit, and through the unit economic model, we can clearly see the operation of the enterprise and judge the possibility and time node of profitability.
If the calculated data keeps declining, it means that the efficiency of the enterprise is decreasing, and it may seem that the revenue is increasing, but the profit and user contribution are declining, and we need to find out what the problem is.
If it is because of the rising cost of procurement, then we must find ways to work hard in the supply chain and production links; If the cost of customer acquisition is too high, then it is necessary to optimize the marketing channel, invest money in online sales channels with higher returns, and increase as many natural leads as possible, especially free leads; If the churn rate is too high, then it is necessary to attach great importance to retention and repurchase indicators, and care about user feedback and evaluation.
Through the analysis of these detailed indicators, we know which ones should be improved the most, and which ones are important but not urgent and can be relied on.
Although it looks like settling accounts, how much business can we do with an enterprise or operator who can't even calculate the accounts? How much follow-up value can it generate?
In the era of video broadcasting, enterprises need to have the awareness and thinking to build a global marketing system, and have a forward-looking strategic vision to enter the game.
At the same time, it is also necessary to pay attention to these micro indicators in practice, continue to explore and optimize, and through systematic thinking and action, in order to achieve sustainable growth and success in the ever-changing market environment.
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Editor-in-Charge | Luo Yingfan
The pictures are all from the Internet
This article does not constitute any investment advice, the stock market is risky, investment should be cautious
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