Send academia down pit

Every generation should be allowed one great thinker. Even in these tough times I think we can afford to have one free thinker – but recognising the state of the economy perhaps a Pythagoras or a De Vinci more than a Milton? But no one else should be allowed to be an academic until first they have got their hands dirty in the real world.

Academics need funding – so jump on bandwagons representing ‘the flavour of the month’ – as that makes their perceived offering ‘commercial’ enough for an idiot sponsor. Yesterday, I was sent an article on ‘valuing your customer in Social Media land’.  In essence – and there was a complicated formula attached  to prove it – one should keep throwing money at web advertising whilst the cost of doing that was less per new customer than the expected lifetime profit from the customer.

On the face of it, common sense. But what about the overheads? This calculation implies if you make £3 profit on a pizza and your typical customer bought ten times before going somewhere else, £3 x 10 = £30 is you maximum budget to advertise and attract the customer in the first place. The £3 is the selling price (without tax) less ingredients and delivery cost. The calculation ignores the supplier’s cost of the Freephone number, the fact that for every 50 or so pizzas an hour sold, an extra chef is needed – and that someone has to pay for the premises where the pizza’s made, and someone else is paid to take the takings to the bank – to name a few.

Now, if you do take a look at the overheads of a business – any business – after a while you begin to think in terms of the fact that although they are stated to be ‘fixed costs’, at some stage they all become variable. After all, there isn’t only one ‘bricks and mortar’ Pizza Hut in the world, there are literally thousands.  But if one goes to the true profit line (‘the bottom line’) and divides this by sales units and then multiples by the number of times the average customer returns, most businesses have an acquisition budget for new customers that requires a microscope to discern.

So academia, trying working down the pit – or making pizzas – and then try and produce a formula to value your customer for advertising spend. Unless of course, Google is sponsoring you!

1 comment for “Send academia down pit

  1. 2 July, 2012 at 15:21

    So true what you said. Academic formulas and textbooks are far from what happens in real life. However, i strongly believe that the formulas you mentioned : Lifetime value and Cost aquisition costs (CAC) of businesses – like many other formulas – were adopted after 5-10 people launched a successful startup and after a while, they wrote a book and wanted to promote this doctrine attributing their success to such formulas and practices (see Minimum Viable Product). I have read one of these books and silicon valley has created a bunch of them.

Please leave a comment - we all like them