Archives for category: Entrepreneurship

I know, I know…huh?

“Joe, I am not going to give away my house to start all over again trying to make a mansion.”

I don’t expect you to literally give away your house.

But if it was guaranteed to make you 100 million dollars you would do it, wouldn’t you? That is what we are talking about here, a concept known as…

The Lifetime Value of the Customer.

This concept is so critical to the future success of businesses everywhere, yet even some Fortune 500 companiesare missing the boat big time. That is what I hate about lists like the 500…they mean absolutely nothing in the big scheme of things. Any one of those companies, under the right circumstances…

Can fold up like a tent, and get packed away in a suitcase.

But this post is not a rip on the big 500 companies in the world…because some of them do “get it.” They understand the lifetime value of the customers they serve. So why put your business at risk? You probably don’t have the resources that the big guys do to stay in business even when times are tough, do you?

So, here is the concept in a nutshell…

Every customer of your business runs through a certain buying cycle…or lifetime. This is the cycle where a customer considers your offerings, responds to your follow up marketing attempts, and purchases or invests in all of the possible offerings you have that fits their needs. When this cycle finishes, the customer no longer needs what you have to offer, and does not purchase from you again. In some cases, this cycle does not end until the customer’s life actually ends (real estate for example, if the agent does his/her job).

During this lifetime…there is a certain number of dollars purchased. Figure out what this dollar amount is, on the average, and you have the key in your hand to business success.

Let’s create an example.

Two general automotive repair shops, in the same city, have the following similar stats:

1000 customers in their database, averaging $300.00 per each transaction.

The top 20% of each automotive shops customers average 3 visits a year. That is 200 customers visiting three times each, or 600 visits from the best customers.

So, at an average transaction of $300.00 each visit, that is $180,000 annually from the top 20% of the automotive business.

The average length of time each customer in the top 20% stays is 10 years. Then, the customer either moves from the area, gets another car and switches to the dealership etc… The lifetime of the customer ends at 10 years.

So…each customer in the top 20% spends an average of $900.00 in three visits per year. At the end of the lifetime of the customer…these customers spend $9,000 each.

And that is important.

Knowing that information, that a customer in the top 20% of your business spends $9,000 with you by the end of 10 years…

You have to do whatever it takes to acquire and keep customers initially to ensure you get your $9,000! What are you doing in your business to acquire customers? Is it the same “ho-hum” stuff that everyone else in your industry does, or do you have the “stuff” in you to separate your business from the pack?

Let’s return to our example, and make a comparison.

Automotive Repair Shop A takes this information and does what everyone else does with it…keeps doing what they are doing. They are out of business in 10 years or less, period.

Let me repeat that, they aren’t just growing slowly, they are out of business in 10 years or less. In this hyper-competitive business world, where more than 80% of small businesses FAIL in less than two years…it is an absolute.

And the really scary thing is…90% of the business owners who read this post will do nothing with this information, absolutely nothing.

But what about Automotive Repair Shop B?

Automotive Repair Shop B sends out a regular mailing to keep in touch with its customers. They do an important bit of math though, that separates them from the rest of the pack…

They figure how much they want to invest in every customer of their top 20% to get their $9,000.

This is critical. So what does Shop B actually do that keeps them separated once they have figured out what they want to invest?

To acquire customers, shop B sends out a new customer mailer that offers 4 FREE oil changes.
Total cost (remember, this is cost, not retail) = $60.00 per customer.

To double the effectiveness of that mailing, if the customer refers one more customer to take advantage of the same 4 FREE oil change offer…the original customer gets an additional FREE oil change…for a total of 5 FREE oil changes. Total cost now = $75.00 to acquire two customers plus another $60.00 for the second customer’s four oil changes.

Total cost for two, $9,000 customers = $135.00

So…how many times do you want to trade $135.00 for $18,000 over 10 years?

“But Joe, you moron…now I have to keep a customer for 10 years to gain that serious advantage!”

To which I respond:

“Uhhh, yeah. You didn’t get into business to lose customers, did you? You do know that is much less expensive to keep customers, than it is to acquire them, right?”

Which brings me to the last part of this lesson.

Keeping customers for life. We started out in Automotive Shop B’s example only investing $135.00 for TWO customers, that will average $18,000 over 10 years.

What on earth makes you want to stop there?

Do you want to ensure you get that $18,000 over 10 years to keep two customers? Keep in mind these are the top 20% of your customers, so they are the good ones to begin with.

You have to do better than $135.00 in this day and age. Sorry for the good news.

So, here is the kicker…what if, over the entire 10 years you invested a total of $1350.00 in exchange for $18,000?

Automotive Shop B gets this important piece of the puzzle…

For $19.95 a year, each customer can get FREE OIL CHANGES FOR THE LIFE OF THEIR CAR!

What a deal, huh? Every 3,000 miles or three months they can get another complimentary oil change! No ordinary oil change either, one complete with vacuuming out the car, washing windows, topping off fluids etc…because Automotive Shop B understands that each opportunity for an oil change is an opportunity for an inspection, which results in additional revenue.

What a deal. So your questions and challenge for the day is…

What is your oil change? What is the lifetime value of your customers?

What house are you going to give away to build your mansion?

Joseph Ratliff
Marketing Consultant

I bet your just aching to know what the one, big bang, knock it out of the park secret is to uncorking profits in your business is.

Everything else comes in second to this…

Nope, it isn’t marketing your business, although that is the close second.

It’s not an enormous cash windfall either…I have seen enough business owners fiddle one of those away faster than you can make a peanut butter and jelly sandwich.

Wanna know what it is?

Get out of your own way.

Yep, that’s it. Before you fire up that email program to say “Joe, that is so stupid”…allow me to explain. The explanation might hurt the ego a little. Don’t worry, I have been here too though.

It starts with a question…

“Mr. Business Owner, how many times have you felt that you ‘just had’ to involve yourself in a meeting, discipline an employee, or dabble in some operational part of your business etc…?”

I understand why you feel this way. You don’t want whatever your over-analyzing to go wrong (notice I said over-analyzing). You are striving for perfection.

While it is ok to have high standards for your business and the product or service your business offers to the community…you are probably doing more harm than good to the end result. What if you actually trusted the person to perform the task, conduct the meeting, etc…?

What would happen if you got out of the way and “let things happen” in your business?

I am not suggesting you play golf all day, every day here. What I am suggesting is you start to do two things in your business starting today:

1) Create systems that people (even freelancers) can work in your business. For example, an auto shop owner might have a step by step customer interaction process that she trains her staff on…so that each customer is handled pretty close to the same way. Then, the owner does not have to monitor that part of her business unless that person does something wrong (which actually happens a lot less than you think).

2) They are humans, trust them. The point here is to have confidence in your hiring abilities (or the person you trained/outsourced to hire for you, which should be the case). Then, trust the people you hire to do the job you have shown them to do. Don’t hover, or micromanage a project to death. You lose your valuable time that you can better invest in $300 an hour tasks.

Besides, why did you hire someone if you are going to monitor them 24-7 anyhow?

Quit it. Relax.

Now the advanced lesson for business owners that actually hire a General Manager/CEO/President to “run things for them.” Get out of the way…you have built your business to the point where it’s time to “let go” and watch it grow. Or, keep pulling your hair out trying to run things around the “shop.”

Get out of your own way. You know who you are.

Does the response rate from your direct marketing effort online seem lackluster at best?

Do you get all the website traffic in the world, but your Paypal account remains dry as a bone?

Well…

Do your online clients know any more than they did when they first visited your site?

If not…

YOU LOSE. Every time. Period.

And more importantly, so does your client. Your site did not I.E.C.

What is I.E.C.?

Good question.

Inform them.
Educate them.
Compel them to take the next step.

Notice the letter “C” does not say compel them to buy what your offering.

There are a very few instances where actually buying what your offering is the next step. For the sake of education in this post though, we are going to assume this is not the scenario.

So what is the next step?

A good idea is to offer content of some sort. Quality content, not a sales pitch to what your offering. If your content is good enough, then…and only then…will a potential client consider what your offering for sale.

This quality content should be perceived by your potential client almost as valuable as the item your selling.

Let me repeat that…because this is where 90% of online marketer’s fail…

This quality content should be perceived by your potential client almost as valuable as the item your selling.

Most website’s I visit offer a “special report” or “e-course” of some sort in exchange for your name and email address. Here is a litmus test for that special report or e-course that you can use to determine if it is quality or garbage that needs to be taken out before you drive one more visitor to your page…

It is called the “So what, OK, WOW test.”

So What? (-1 point) Just about worthless to you and your client. You probably are doing more selling and less informing and educating before you compel. That, or the content is too basic for your target audience (you do have a target audience, right?).

Ok? (0 points) You almost have something here. You may have caught your reader’s interest…but lose them in the following hype about product or whatever your trying to sell. Think “How can I change my website visitor’s life without them having to pay for it?.”

WOW! (1 point) Bingo. You have content that stimulates thinking, gives ideas and spurs creativity in your potential client. They should be thinking…

“Man, if they give me this much information/product/samples for FREE…I am aching to buy what they have to offer!”

You see the point values above. Email your freebie to an objective person. Have them review the whole thing, reading it aloud.

If they do not score your freebie with at least 7 Wow’s, or 7 points in total, after reading it…then you need to re-work the piece. If you can score at least 7 points…then your piece is demonstrating enough value to entice someone to read it and react to it.

IMPORTANT: This is where most people who are selling on the web just don’t get it. We do not give away information to “agitate” a problem anymore. Give the goods, and the clients will do business with you to see what you “really” have to offer. I promise.

“But Joe, you said ‘Compel them to take the next step’ was one of the steps.”

Your absolutely right. Your content will get them to the end of your piece, where you become a professional resource to them, right?

So make a resource page as your last page. Tell your potential client what the next logical step is to gain further from the piece you just gave them. But most importantly…

Tell them why it is the next logical step. Another spot where marketers leave prospects in the dust. What a shame.

And that next step could be a small sale, to your sales letter for your main front end product etc

(You do have a back end product to sell after they have invested in you, right?)

Then, even if they don’t buy, offer more and more valuable content that they were not expecting when they first signed on to your list. The better your surprise…the better your secondary response as long as you compel them to take the next step.

So the challenge for you today is…re – evaluate your current “lead in” offer for your own website…and add as much value as you can.

Joseph Ratliff
Marketing Consultant