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The Dollar Value Of A Customer

by Gregg F

October 10th, 2009

This can be the most profitable thing you’ll ever do for your business and that is to understand how to exploit the actual value of your customer. It’s been called the Marginal Net Worth and the Lifetime Value.

What is the current worth of one of your customers or prospects? It’s the total profit of an average customer over the lifetime that he does business with you. That includes all subsequent sales minus advertising/marketing and your fulfillment expenses.

Let’s say the average customer brings you $75 profit per sale. He re-purchase 3 more times in a year. The average order amount is $300. On each $300 reorder, you make $150 gross profit. The average life lasts 2 years. This means that every new customer is worth $975.

You reach the $975 by adding the $75 initial profit to the 3 other purchases each year of $300. Since only $150 is profit, $150 times 3 equals $450. If he does that for 2 straight years, that’s $900 plus the original $75.

If this is our average customer and he’s worth $975 in profit and it only costs you $30 through your advertising/marketing expenses to get him, every time you spend $30 you receive $975 back.

You would be foolish not to increase your advertising/marketing and promotional budget to produce as many of these $30-cost customers so you would spend $30 over and over and over again to get $975 back.

Theoretically, you could spend up to $975 to get that customer because you know he will come back and spend $975 and you will break-even. Of course, we don’t usually do this. Remember, this is an average customer. Some will buy more and some will buy less.

Now you know you can spend up to $975. Think about this: What if you spent 100% of your first $75 profit just to get that first sale? You know that on average, you’ll still end up with $900 profit over the next 2 years.

If you offered to give that $75 service for free and it doubles your customers, it would double your profits over the next 2 years.

I don’t know the real answer, but it seems that maybe only one in 100 business owners ever think about this. You want to spend everything you can justify to bring in a customer as long as that customer costs you less than the profit you earn from him. If you can’t afford to spend more than the entire profit from the first sale, remember you’ll be making money just in a few months from each of these new customers. Start out spending whatever your cash flow can justify. After a quarter or so, after the re-order profits come in, you can then step up your ad budget.

Another advantage is that most competitors have no idea what their customer is worth. If your competitors’ marketing budgets are a percentage of their sales, during a recession they might cut their ad budget. If you continue advertising and marketing at your current level, you’ll get their customers. But you can only do that if you know the value of your customer.

If you haven’t calculated your customer’s worth, here’s how you do it:

1. Compute the value of your average sale and your profit for that sale.

2. Compute how much additional profit a customer is worth to you by determining how many times he comes back and buys. You should be conservative.

3. Figure out precisely what a customer costs by dividing your marketing budget by the number of customers it produces. If you spend $1,000 on marketing and you get 1,000 customers, they’re costing you $1 a piece. Prospects are the same. Maybe out of that $1,000 you get 10,000 prospects for $.10.

4. Compute how many sales you get for so many prospects; the percentage of prospects that actually become customers. This will be your “Closing Ratio.” If you get 10,000 prospects and you have 1,000 customers, that’s a 10% Closing Ratio.

5. The Marginal Net Worth of a customer is computed by subtracting the cost to produce that customer from the profit you expect to earn from him over his lifetime.

Ultimately, you should spend less and less money over time to obtain customers – in other words, your Acquisition Cost should drop over time. But you should realize that you can use all the profit from the first sale to a new customer to generate that customer because in the long term you know how much profit you can expect from him..

Everybody wants as many new customers as they can get, but very few business owners know how much a customer is worth. Therefore they don’t know how much they can spend to get one. You’ll be way ahead of your competitors if you’ll take the time to calculate the value of each customer. Then you’ll know how much you can spend to get a new one. None of your competitors will know this.

Categories Customers
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Market Information on the Internet

by Gregg F

August 18th, 2009

Q. What’s an E-zine?

A. It’s a magazine that you publish over the internet through a combination of e-mail and website.

Q. Why Publish an eZine?
A. On the Internet, it is very possible to make money without selling any product. One way of doing so is through starting your own eZine, also known as an electronic newsletter.

In a nutshell, you send out your eZine issues on a periodical basis to your subscribers. The good part is that you have a flexible choice in automating the process of sending out your eZine issues for you or manually sending them on a periodical basis.

As an eZine publisher, not only can you easily achieve the benefits a conventional newsletter publisher enjoys without having to chop down several trees in the process, you can easily and conveniently spread your marketing influence and expertise to your base of subscribers from the shoes of an ordinary individual.

In other words, you do not have to invest in expensive printing equipment, brick and mortar business, and hiring staff just to run your own newsletter publication, resulting in a lot of time, money and effort saved.

Basically, all you need to start your own eZine are an auto responder and broadcast feature to go with, enabling you to reach out to your massive subscribers whom you can regard as your prospects, too.

All in all, if you do not have the commitments of creating your own product for sale, then publishing your own online newsletter can be one of the wisest decisions you will ever make, given the benefits of impressive marketing power and influence it can offer to you.

Categories E-Commerce
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Sell Them What They Want, Not What They Need

by Gregg F

May 9th, 2009

There’s an old saying that you should find a need, fill it, and you’ll get rich. It’s not really true. You need to find a want and fill it. People don’t always want what they need. They need insurance, but theywant to spend their income tax refund check on a new TV. They need to stop smoking, but they don’t. They want the immediate nicotine fix.

You want to sell them what they want, but give them what they need.

Your prospects and customers are people just like you and me and they’re going to respond to messages similar to ones we might respond to. They’ll get turned off by the same things and exaggerations that we do. Filling their needs and wants typically involve things like convenience, long-lasting, time-saving, better-looking, more functional stronger guarantees, better service, etc.

We never know which hot button is their buying button. We need to test one feature or benefit against another until we discover what their hot buttons are.

Your objective is simply one of matching your marketing mission to the functions of the products or services that your business offers. If your business offers products and services that by design are problem solvers, then you need to use this function in your marketing approach.

You want to exaggerate and accentuate the types of problems they may have because your product or service will solve them. Point out a problem in detail and tell just how your product or service is designed to solve that problem.

Here’s an example. A diet program. You don’t want to sell the powder or the vitamin, but you want to sell better confidence, better health, greater attraction, and long life.

How do you uncover their real wants and desires? If you listen, you’ll discover the customer talking back to you in many ways. They might speak directly with you, your employees, the media, other customers. You have to pay attention.

You’ll hear more of what they don’t want instead of what they do want. They might say prices are too high or there’s not a big enough selection or the quality isn’t high enough. That’s telling you the opposite of what they really want.

However and whatever they say – listen to them! You’ll learn something every time you do. Then design your product to give them what they want. Then sell it to them.

Categories Customers
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Small Business Recession Plan

by Gregg F

April 30th, 2009

Here is a link to a colleague’s web post. She is an IT manager with several years experience as a management consultant. She has several thought provoking ideas for how small business owners can succeed during the recession.

Small Business Recession Plan

Categories Management
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Marketing is as Important as a Great Product- You Need Customers

by Gregg F

April 24th, 2009

Focus On Selling A Valuable Product Or Service: What Does the Customer Want?

Everyone’s heard the expression that if you build a better mousetrap, the world will beat a path to your door. If you’re in business, experience has probably proven this to be a great myth. You may be the best, have the best product or service, but you will go broke if you don’t have the customers. You probably know this.

Unless you properly market that product or service, no one is ever going to even look for the path to your door regardless of how unique it is. Marketing’s ultimate role in the sale of your product or service is 80% or more of the success of your business.

Marketing is more than just selling. It encompasses everything from creating the image of your company and product, a color scheme, location, background, and a lot more. Marketing’s goal is to take your valuable product or service (your better mousetrap) and position it as an “I can’t live without that product or service” or “I can’ live without that mousetrap”. Sometimes it can even be good for the mouse.

The prospective customer must really understand what your business stands for, and what your vision is. He must recognize that your products or services can fulfill his goals, satisfy his needs, eliminate his pain. When you have convinced him of this, sales are a natural byproduct.

Some examples of this vision might be someone coming up with a mousetrap that allows the mouse to go into the trap via a one-way door then it can’t get out. You can take that trap and let the mouse out in the woods without killing the mouse – in this day in age, that might be a better mousetrap.

It might be a health food store whose vision is that people should eat properly in order to enjoy a greater quality of life and ultimately live longer. Not just nutritional supplements, but a wholistic approach.

When the customer finally realizes and grasps the business vision, he’s a customer for life – at least if that business continues to use strategies that I’m discussing that continue to earn that customer’s loyalty and trust. These customers will keep sending additional business your way by not only returning themselves, but also by telling their friends and relatives.

Your marketing investment will be returned to you over and over again and that creates residual income.

Research has shown that finding new customers or clients can often cost you 500% to 2,000% more than actually selling your existing customers. The practical result of having these customers for life means that you can grow your business from just your existing customers, and don’t have to continually struggle to generate new customers.

Determine what your customer’ wants, give it to him better than he can get it elsewhere, ask him to tell his friends and relatives. Let your customers be your best Salespeople.

Categories Customers
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Your Business Needs A Long Term Vision

by Gregg F

April 20th, 2009

A marketing crusade is an all-out effort to convert others to your product or service, your company, and your way of thinking. Ninety-nine percent of the success of your business will result from the success of your marketing efforts.

You can have a great product or service, but if you don’t know how to get it into the hands of your potential customers or clients, you will go out of business before you can even start.

We compare our marketing approach to a missionary’s work or the launching of a crusade because only the fervor and the determination of a missionary or crusader will assure your marketing success.

Missionaries are driven by more than just their desire to sell someone on buying their product or service. Rather, a missionary’s goal is to convert the world to their way of thinking, their mission and their crusade. Only through such a conversion process can you expect to receive not just a customer, but customers for life.

When your business launches a marketing mission, it takes a different approach to marketing than is used traditionally.

Traditional approaches are taken and set aside in favor of our missionary or crusader’s goal. In a traditional effort, the real motivation for most marketing activity is just to make money. That’s nice to do, but that’s not all we need.

Every marketing effort, at this point, is tied directly back to its contribution to money coming in.

Now, as a missionary, your business goal becomes an effort to win your customer’s lifetime business and loyalty. If your business’ marketing activity is successful in changing the way your customers think about your business or products or services in such a way that the customer sees you as a vehicle to accomplish their goal and growth, then your goals and your growth will be a natural result.

As your business manages its sales growth properly, increased profit is going to follow. Immediate profits are nowhere near as important as long-term profits. To insure that you’re going to continue to profit for the long-term, your real objective is to convert your prospect into a customer who shares your vision of what you’re trying to accomplish and is a true believer.

Vision is a problem with the normal sales approach. There is no vision other than the short-term, which is to make the immediate sale. There is little or no real focus on back-end selling, which we’ll talk more about later on.

What is your vision?

Is your business focused on an area of interest to your customers, prospects or clients?

Are you driven fervently by the need to help them or yourself?

Why should others patronize your business rather than any other business? Or not do anything at all?

What will not only cause your customers to return again and again, but cause them to tell others to buy your products and services as well?

Can you take that vision and incorporate it with a main sales and marketing thrust, advantage or Unique Selling Proposition and use that for an advantage over your competitors?

We’re going to show you how to launch this marketing mission or crusade and how to re-think your entire mindset on how real success is created whether you want to use this to market personal assets or you want to market business assets.

Life is really about marketing and selling. You start out as a cute little packaged newborn baby and you’re selling your parents on responding to every whim and desire. I’m finding this out myself. Throughout our lives, we re-package and re-market ourselves continuously. We sell our parents on caring for us. We sell our spouses on staying with us. We try to sell our children on obeying us. We try to sell our bosses on employing us.

By trial and error, some of us come upon the right marketing approaches and the right sales techniques that tend to work better than others.

If you’re not a good salesperson, you can have difficulty in life.

If you are a good salesperson, you’re going to succeed.

If you’re a great salesperson, you’re going to be able to obtain your every heart’s desire.

Categories Management
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More on USP

by Gregg F

March 20th, 2009

Some people believe that a company can have more than one USP. That’s because when Rosser Reeves introduced the concept of a USP, he designed it for use in a 30 second TV spot. So if you have more than one USP, you could use them in different advertising channels.

The point is that your advertising must also be pointed. Make it reflect the background of the users of that channel. Website users are different from TV viewers, who are different from Direct Mail recipients. Tailor your USP to match the type of prospect uses that channel. That gets back to the fact that you must know your market, and why your customers buy from you.

Then target a USP for that channel. Make it count, because your prospect can generally only remember one important idea at a time.

Categories USP
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E-Commerce is Forecast to Grow 10% per Year Through 2013

by Gregg F

February 27th, 2009

I saw this recently in Direct Marketing News.

Forrester Research forecasts that online E-commerce will grow from over $141 B in 2008, to over $229 B in 2013. That is an annual growth rate of over 10%.

So the question is: Are you going to be part of this surge? Are you going to start (or continue) the E-commerce channel of your business, or are you going to pass up this 10% annual growth?

Even if you’re not ready at this exact minute, you can still start.

Start a blog and talk about the subject of your business. The idea is to show readers that you are an expert in your field. I use WordPress as my platform (WordPress.com is where you can start if you know nothing at all about blogging. )

Every other day or so, post comments to your blog talking about some facet of your business. You’re the expert after all aren’t you? If you’re a vet, give tips on how to care for your pet. A dentist can write about why it’s useful to whiten your teeth. An insurance agent can write about why families need life insurance, and the bad things that happen if one spouse dies without insurance.

After you’ve been posting for a while, you’ll notice that nobody has read your posts, unless you’ve taken steps to publicize yourself and your blog. It takes time to remedy this, and I’ll discuss that in a future post.

The point is to get started. To quote Mike Littman, an online consultant, “You don’t have to get it right, you just have to get it going.”

So get it going. Call me if you need help.

Categories Management
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What is a USP and why you need one

by Gregg F

February 5th, 2009

Several years ago, the term USP (Unique Selling Proposition) was discussed only in Business School and on Madison Avenue. In today’s hyper competitive business environment, the concept and value of a USP must be recognized by any business owner who wants to survive.

The term Unique Selling Proposition was made famous by Rosser Reeves in his book “Reality in Advertising”. Reeves was an advertising executive who worked on some very large campaigns in the 1950s. Though he did not invent the term, nor was he the first to recognize that the success of an advertising campaign was directly proportional to the use of a USP, Reeves was probably the first to write a book that made the concept known to people outside of advertising circles (like universities). Today, ”Reality in Advertising” is out of print, and old copies of the book sell on E-Bay and Amazon for several hundred dollars.

So what is a USP? According to Reeves, a USP has three specific criteria:

Each advertisement must make a proposition to the Customer. “Buy this widget from me and you will receive this benefit.”
The proposition must be unique . The competition either cannot or will not match it.
The propositon must be so strong that it can pull new customersto your product.

A USP answers the prospect’s overarching question: “Why should I buy from you right now rather than buying from your competitor or doing nothing?” The idea is to communicate identifiable value to your prospect that differentiates you from your competitors.

Some examples:

Federal Express: “When it absolutely, positively has to get there overnight.”

Domino’s Pizza: “Hot, Fresh pizza delivered to your door in 30 minutes or it’s free.”

Foldgers Coffee: “Good to the last drop.”

M&Ms: “Melts in your mouth, not in your hands.”

La Bamba Restaurant in Indy: “Burritos as big as your head.”

The thing to note is that all these statements indicate why the company is unique and exactly what a customer can expect to receive from doing business with it. In marketing parlance, a company’s USP is the company saying “This is my major point of differentiation, and if you want this benefit (the USP) you should do business with me.” Also note that these companies DO NOT try to be all things to all people. Dominos never said that it was the best pizza. Federal Express never said its service was as inexpensive as regular delivery.

One consultant who really emphasizes the idea of creating and broadcasting a USP is Jay Abraham. He devotes Chapter 6 of his book ”Getting Everything You Can Out Of All You’ve Got” to the importance of having a USP. He says: “The more clearly you telegraph what makes you the better choice (offering more benefits, advantages and bottom line payoff), the more often they’ll choose you over your competition. You need to create real and perceived advantage in your clients’ and employees’ eyes and minds at all times.” Not only does he explain the concept, he also gives examples of USPs that have been successfully used by others to convey the value of their business to their customers and prospects.

Warning: Though you want to communicate value to your prospect, think very hard about making “lowest price” your USP. This is generally not a winning strategy, UNLESS you have a defensible, best in class, low cost structure (think Wal-Mart) that supports your low price. Though you may survive in the short term with a low price strategy, in the long term you need a profit margin, if only to invest back into your business. If you continuously undercut your competitors’ prices to get business, you will not survive in the long run unless your cost structure allows a profit margin at the low price.

Jay Abraham is an in demand, high priced business consultant. He has helpe hundreds of owners grow their businesses, and his seminars and consulting time costs thousands of dollars. However, his book “Getting Everything You Can Out Of All You’ve Got” is easy to read, is full of easily usable ideas (like developing and broadcasting a USP), and costs around $20 from Amazon. Small Business owners can get the core of Mr. Abraham’s ideas and be miles ahead of their competition, just by reading this short book. Buy it and read it soon.

Categories USP
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Thoughts on Small Business

by Gregg F

January 21st, 2009

Here is where I will post articles that will be helpful to small business owners. Sometimes I’ll write the articles, sometimes I’ll reprint articles that I find elseshere on the internet.

These articles will be very useful to small business owners.

Categories Uncategorized
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