Straight Up Business Talk

Business strategy and advice from the team at Straight Talk Group… you’re in the right place to get things Straight.


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Marketing Mistake #11 | Not Calclulating the Lifetime Profit Value of Your Customer

Life Time Value Straight Talk Group Marketing Business

There’s no question about it. Your existing customers are your most valuable assets. Since they’ve already purchased from you previously, and have experienced the benefits of your products and/or services (and presumably are pleased with those experiences), they are likely to purchase from you again, and if given the opportunity, are likely to refer you to others who may have a need for what you sell.

Yet, nearly every business allots more money, time and effort to the acquisition of new customers than they do to keep their existing customers.

Studies have proven time and time again, that it costs more than five times as much to bring a new customer on board than it does to retain existing customers.

It’s an interesting phenomenon, but most business owners can tell you almost to the penny, what the value of their furniture, fixtures and equipment is, as well as how much money they have tied up in stock and inventory.

Yet, when it comes to the most valuable asset they have… their customers, they don’t have any clue as to what they are worth.

Determining the Lifetime Profit Value of a customer is simple,

it’s the most profitable thing you can do for your business.

 

If you’ll take a few minutes to work through the numbers, in very short time, you’ll find yourself light years ahead of your competitors.

That’s right, this one simple exercise can immediately place you ahead of 95 percent of other businesses who compete against you.

 

The Lifetime Profit Value of a customer is simply, the total profit produced by an average customer over his or her lifetime of doing business with you.

For the sake of example, let’s suppose that the first time someone buys from you, you realize a profit of $100 on the sale. And, let’s say that they buy from you three more times during the course of the year, and each time they buy, you realise another $100 profit. That’s $400 in total profits for the first year.

Now, let’s say that your average customer continues to do business with you for 5 years before their needs change, they move, or switch to another provider.

If they continue to purchase from you at the same frequency and profit level for those next 4 years, you will have realized $2,000 in profits from them during their “lifetime” of doing business with you.

Now, of course these numbers are for illustration purposes only. You’ll have to use your own numbers to come up with a meaningful figure for the lifetime value of your own customers.

So, what does all this mean? Well, if you know how much your average customer is worth to you over the course of their lifetime, you gain several advantages over your competition.

For instance, if you know your average customer is worth $2,000 over the course of their association with you, you know how much you can afford to spend to keep that customer happy and coming back for more, and you’ll also know how much you can afford to spend to acquire a new customer.

For example, let’s say your competitors are using a direct mail approach to contact their prospects. And if they’re like most people who use direct mail, they only send one introductory letter with one or two follow-up letters.

If they don’t get a response, they stop contacting that prospect and move on to another. But now you, knowing that the Lifetime Profit Value of your average customer is $2,000 (in our previous example), know that you can spend up to $2,000 to acquire that customer and still break even.

Not that you have to spend that much, but look at the leverage and advantage you have over your competitors, just knowing what your numbers are.

But that’s not all. Let’s suppose that you give really great service (you do, don’t you?), and that your customers are thrilled enough with it to tell their friends about you.

What is the cost to you to acquire those friends as customers? They come on board as pure profit to you… no marketing costs, whatsoever.

 So, what should your marketing budget be?

Some businesses use a percentage of sales. Others use a fixed dollar figure. But think about it another way.

As long as you’re making a profit, why set a limit on your marketing budget?    Instead…

Spend whatever you can afford so long as the acquisition costs are less than the profits you make on your average customer.

The only limiting factor should be your cash flow. And, as you increase your customer base and your profits, increase your budget as well. Figuring out exactly what your average customer is worth to you (their sales plus the profits on any referrals they give), can be one of the most important things you can do.

Take a minute and put your figures in the accompanying tables. You’ll see just how valuable each of your customers is.

Below, is a table titled, “Restaurant Example.” This table is an illustration of how the Lifetime Profit Value can be determined for a restaurant, and is included to give you an idea of how you the table is to be used.

Restaurant Example

A. Amount of average sale $ 50
B. No. of sales/year/customer (2 x per month) 24
C. No. of years customer patronizes restaurant 10
D. No. of referrals from customer 10
E. % of referrals who become a customer 50 %
F. Gross income per year per customer (A x B) $ 1,200
G. Gross income over buying lifetime (F x C) $ 12,000
H. Referrals who become customers (D x E) 5
I. Gross income from referrals (G x H) $ 60,000
  1. Total value of a loyal customer (G + I)
$ 72,000

 

Following the Restaurant Example we have two additional tables that you can use to determine the LPV of your own customers or clients.  Email us and request them – Don’t pass these tables up – seriously – they are Super Valuable! One condition though – make sure you take the time to complete them.

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Marketing Mistake #10 | Not Cross-Selling, Up-Selling Or Having A “Back-End”

upsell straight talk group marketing

Marketing or the promotion of your business can be a costly endeavor. For some businesses, the money it takes just to get prospects in the door or to get them to respond to your ads, is often as much or more than is made in total profits on the sale.

Some businesses look at spending money on marketing as a negative, or a “wash,” so they don’t aggressively engage in it. But marketing doesn’t have to be a business cost. It can really be an investment… an investment that returns a significant amount of profits to you, if you understand and approach it properly.

It’s true that in most cases, it’s easier and it costs less to sell additional products and services to your existing clients than it does to new prospects. Some studies show that it costs five to six times more to sell to a new customer versus an existing one.

In many instances, businesses actually lose money on each new customer they attract, because the costs of marketing exceed the profits they make on the first sale. If that’s the case, then it only makes sense to systematise your client acquisition activities, and sell more to your existing clients.

Actually, there are four main ways to build a business:

1. Get more customers.

2. Get customers to buy more.

3. Get customers to buy more often.

4. Extend your customer’s “buying lifetime.”

For now let’s limit our discussion to item number two… how to get customers to buy more. We’ve already established that this is the most cost-effective way to do business.

So, if you want your business to grow… really grow… and do it in the least painful way, and with maximum results and minimum costs, you need to establish a systematic way to get people to upgrade their purchases and/or to buy additional products.

People go through a variety of emotions prior to, during and after a purchase. Especially, a large purchase. In the time leading up to a purchase they go through a phase of excitement and anticipation about what your product or service will do for them.

Sometimes there may be periods of skepticism or doubt, but if the person really wants what you’re offering, those feelings will be pushed aside, and excitement and anticipation will take over.

After a sale is made, it’s not uncommon for a person to go through what’s known as “buyer’s remorse”… a feeling of uncertainty… not knowing for sure that they made the best or wisest decision. In time, those feelings can be overcome as they become more comfortable with the benefits of using your product or service.

But, at the time of the sale, your prospect or customer is probably the happiest and most pleased with you and your relationship than at any other time.

In fact, they are so happy that they have said, “yes” to your offer, and have even reached into their pockets or purses, opened their wallets or checkbooks and given you some of their hard-earned money.

Sometimes, depending on the size of the purchase, a lot of their money. You’ve just solved a problem for them. So, this is the ideal time… when they are most pleased with you and when you’ve come to their rescue… for you to recommend other options or additional purchases.

At this particular time more than at any other time, your customer is most likely to be receptive, open and willing to any suggestions you may make. So take advantage of the situation and timing, and recommend other options that would be in his or her best interest.

“Bundling,” “Packaging,” “Cross-selling” and “Up-selling” are just a few examples of how you might provide additional products or services to your customers at the time of purchase.

Any upgrades or additional sales you make in this manner are pure profit, since no advertising costs or other overhead expenses were incurred to create the sale. By incorporating this one simple step into your sales process, you can increase your sales amount per customer significantly, and really boost your bottom line.

Now, suppose you don’t have anything else you can offer your customers. You only have one product or service to sell.

What then?

Look around at complimentary, but non-competing businesses and see what products or services they might provide that you could offer to your customers. You want products or services that would be logical compliments to what you offer.

Then make arrangements with the businesses that provide those products to make them available to your customers. Remember, if your product and service really will help your customers solve their particular problems… if it really is in their best interest to purchase from you…

…then you have a moral obligation to see that they get the very best use of that product or service.

And that may mean that you make other products that will help them maximise the use of your product available to them… even if you don’t sell them yourself.


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Marketing Mistake #9 | Failing to Establish and Obtain Referrals

ReferralsGetting referrals from the users of your products and/or services is one of the quickest, most effective and painless ways to build your business. Yet, most businesses fail to take advantage of this important marketing and business-building tool.

In fact, not only do they not have a referral getting system in place, it’s surprising how many don’t even realise how powerful such a system can be.

Referrals are simply happy or satisfied customers telling others about their positive experience with you, or them giving you permission to contact another person in their name.

Every business should have a “system” in place for getting referrals. For some business owners or salespeople, asking another person for the name of a friend, relative or other business associate to contact so they can offer their services is very uncomfortable.

But it doesn’t have to be that way. Especially, if you have a system in place to do it. A very simple 4-step system for getting referrals from your customers is:

1. Earn the right to referrals by providing exceptional service.

2. Ask for referrals from your satisfied customers.

3. Reward (or thank in some way) those who give you referrals.

4. Next.

Earn

One of the best ways to get referrals is to offer great service… to make your customer or client feel as though he or she is the only customer you have. But offering “good” service… even “exceptional” service may not be enough. People are used to getting a certain level of service from the businesses they deal with on a daily basis. Some of that service is good, and other service they receive is lacking.

If you want to stand out, you must go beyond… way beyond the normal service they expect from, not only similar businesses to yours, but from any other business they’ve ever dealt with. You must ‘WOW’ your customer.

You’ve got to go way beyond anything you, or anyone else in your industry or profession has ever done before. When your customer is so completely blown away with your service and attention, they’ll want to do business with you again, and they’ll feel almost obligated to tell others about their experience with you.

Once you can see that you’ve not only met their expectations, but you’ve exceeded them and they are happy with the service or performance you’ve given them, you are in a position to go to the next step. There are a number of ways to do this.

Ask

One way is to simply ask them who might be candidates for your services. Now, I know you might feel this step can cause tension in a newly created, positive experience, and undermine the relationship, but if you have a systematic method of asking, and your customer is excited with what you’ve done for them, it can be as natural as getting up in the morning.

Reward

Once you receive a referral, make sure to express your thanks by giving some type of reward to the referrer. A simple thank-you is often enough. But many businesses or salespeople take advantage of small gift items such as movie tickets or gift certificates for dinner or a department store.

Discounts or free merchandise or services from your own business sometimes can be a good choice. Whatever the reward, it doesn’t have to be grand or costly but it must be sincere and timely, and show that you really appreciate the confidence your customer or client has shown in you, and their gift of a name of a person you can contact.

Next

Once you’ve earned the right to ask for referrals from your customers or clients, then have asked them and followed up with a reward for their help, you’re in a perfect position to ask for more help from them.

Whatever you do, don’t think that just because you asked and received one or two names, that it’s over. If you treat your customers right, knock them out with great service, then reward them for their help, they’ll be more than anxious to refer more of their friends, neighbors or acquaintances.

After all, if were in your client’s shoes, and you’ve gotten great service from someone you’ve done business with, you’d like people you know to receive the same service, wouldn’t you? Especially, if you’ve been thanked or in some way shown that your help was appreciated.

Competition is fierce in the marketplace today, and there is often little difference between competing products, services and prices. Getting referrals from your clients can no longer be considered a luxury or a “nice thing to do.” If you’re going to enjoy maximum success from your business with a minimum amount of time and effort, getting referrals is simply a “must-do” activity.

And the best way to do that is by having a well-defined pro-active, referral-generating system in place. This can make this important marketing tool not only effective, productive and painless… but fun!


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Marketing Mistake | #8 Failing to Use Testimonials

Testimonials business success marketing straight talk group

Testimonials are one of the most powerful tools any business owner can use, but also one of the most under-utilised. Testimonials are not limited to any one type of advertising or promotional media. 

Television ads, radio announcements, newspaper layouts and infomercials all make use of testimonials in one form or another.

Sometimes, celebrities are used to promote certain products, especially when national or large scale exposure is involved. That is generally referred to as an “endorsement” rather than a testimonial, but the principle is pretty much the same.

It happens when another person makes a positive statement or recommendation about a certain product or service.

In marketing, it’s sometimes known as creating a “Herd Mentality.” Dr. Robert Cialdini calls it the “Principle of Consensus.”

That is, if other people who are like me say this product or service is good, it improves the probability that it will be good for me, too. Also known as social proof.

Celebrity endorsements are simply another form of testimonial and are very effective. If a certain well-known actor or celebrity says something is good, then it must be good. Therefore, I should give it a try.

 Most people know that in such commercials or endorsements, the actor is reading a prepared script written by professional copywriters, and are getting paid to read it. But they still attach a certain amount of credibility to what the actor says, in sufficient numbers to not only pay for the actors’ salaries, but to make substantial profits, as well. Your own clients are some of the best sources of endorsement you could possibly want. Especially if they are known to those you are marketing to or if they have something else in common with them.

Perhaps they live in the same town, have similar businesses, or belong to the same organisation or association, etc. At any rate, when people hear that other people, much like them, who have similar interests, needs, wants, or desires have benefited from a certain product or service, the chances of them wanting to know more are dramatically increased.

 In reality, there are really only four reasons people don’t buy from you:

  1. They have no use for your product or service.
  2. They can’t afford your product or service.
  3. You haven’t developed the level of trust and believability they need in you to do business with you.
  4. They don’t know about you (your marketing is ineffective)

There’s not much you can do if a prospect can’t use or pay for your services. But there is a lot you can do to help wipe away the underlying layers of skepticism they bring to the relationship and establish the trust level they need to say “Okay” to your offer.   And, well ineffective marketing, that’s another conversation altogether.

People don’t like to be the first to do anything… especially if it involves parting with their hard-earned money.

If they can see that others have done what they are being asked to do, or that others are currently doing it, they tend to feel more safe and will be more likely to participate. You first have to relieve any nervousness they may have of being “taken.”

Testimonials are not difficult to get. One of the most effective ways is to send users of your products or services a questionnaire that asks for their feedback on how they’ve benefited from using it.

The questions should be in “open-ended” form, and ask for them to write their feelings… not just for yes or no answers.

Another effective method is to call your clients on the telephone and record the conversation (with their permission, of course). Then you can transcribe the parts you want to use, and send a copy to them for their approval and authorisation.

Often, after a brief warm up, people will forget the tape is running, open up and give you all kinds of good, useable information.

Remember, when getting others to say something about you, it’s not enough for them to say something like, “Thank you for all your help. You helped me save a lot of money, and I’ve really enjoyed doing business with you.”

It would be far better to have testimonials that pointed to a specific benefit you’ve helped them achieve. Something along the lines of “I’ve been shopping for [this particular item] for more than 6 weeks. Everywhere I’ve gone, I get the runaround. No one has wanted to be of much help, and the prices seem so out of line. Thanks to you, I found exactly the size and color I’ve been looking for, and you helped me save $132.64. Thank you very much!”

Using testimonials… specific testimonials, is one of the most effective ways you can eliminate fear, increase the believability and credibility of your offer, and add to the number of sales or inquiries to your advertisements or promotions.

Whatever you do, don’t overlook this important and valuable tool. But before you use anyone’s comments, make sure you get their permission. An easy way to do this is by using a simple permission or consent form. (Don’t reinvent the wheel, email us at results@straighttalk.com.au with the subject  BUSINESS TESTIMONIALS and we’ll organize to send you a free one you can use in your business)