A few months ago I was talking to a friend of mine who owns several physical self storage locations. He was asking me about lead generation and ideas around online marketing. My line of questioning was trying to determine the value of a lead:
- How much is a lead worth to you?
- What’s the lifetime value of a customer?
- What are your gross margins?
- What are your net margins?
- What are your business goals?
It was when I asked the gross margins question that he threw me for a loop — he doesn’t pay attention to the gross margin but rather keeps track of how many customers each location needs to break even and views any customers above that amount as pure profit. So, for him, the value of a lead assuming the location had the magic number of customers was extremely high relative to the revenue generated from the incremental customer.
For his business there are dual goals: make money off the long term appreciation of real estate as well as profit from the short term cash flow of the different locations. I don’t have any experience with non-technology startups but this struck me as an interesting way to think about his type of business.
What else? What are your thoughts on this way of thinking about a combination real estate and cash flow approach?