How Many Customers Would You Like With That?

How much should you be paying to convince a customer to buy?

The advertising in the local newspapers, the business cards, the brochures, the signage on the front of the building, the signage on the vehicles, the give-aways, the promotions, all provide a professional image that attracts enquiring customers.

Business Owners put a lot of effort and money into attracting enquiries only to have most enquiries slip out of their hands like a slippery fish.

Customers have a choice, they can deal with you or go next door and deal with your competitor! So it is important that when your marketing pays off and that customer rings or walks through the door, that you convert them to a life-long customer.

The lifetime value of your customer is the total profit generated over the lifetime of his or her patronage to your business.

Say an average customer generates an average profit of $75 on the first sale, then repurchases on average 3 times in 12 months with an average repurchase profit of $150. And the average patronage life span is 2 years, then your average lifetime client value is $975.

You could theoretically afford to spend up to $975 to bring in a new customer and break even. And that's not including the referrals they may provide in those 2 years.

Business is about creating relationships with people. Most businesses make the fatal mistake of making it far too hard for customers to start a relationship with them. They make it too hard to get potential customers to start trusting them and start using their products or services.

If you take away those hurdles and objections to use your product or service far more people will develop a relationship with you.

If you provide great value, service and results these customers will continue to deal with you. They would have no reason to go anywhere else. The fact that you had faith in your product or service and absorbed the perceived risk will be remembered by the customer resulting in loyalty and a customer that will talk about your great service.

It is therefore very important to develop those relationships very quickly and nurture them so these customers turn into life long clients.

Most businesses fear that the customer will come in once and never again, so they try and maximise their profits on the first sale.

This is a fatal mistake because it is 6 times more expensive to sell to a new customer than to an existing customer. Your existing customer has experienced your service, trusts you and has been through your system. If they are happy they will even recommend you!

Many businesses increase their profits and client base by shifting their focus from making a profit on the first sale to making an ongoing profit from repeat purchases over the life of the customer.

I heard of a Refrigeration Mechanic that installs heating and cooling systems in houses and offices. Now once someone has bought a heating and cooling system there is usually no need to buy another one for many years to come, unless they move.

But what he does is sends out a 6 monthly mail out offering a $19.95 service to the unit, which is usually a $49.95 charge. He offers it to his existing customers and also advertises to the market.

Now every service he completes he is actually losing $30 but by testing and measuring, his results show that 49% of people responding to the $19.95 service requested him to complete additional work resulting in an average of $124.00 of profit.

Even though he loses $30 on the initial service, in 49% of cases he makes an average of $124.00 profit. Net result is a great profit and new life-long customers in his system.

Copyright 2006 Ian McConnell

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The Ultimate Profit Producing Formula

Why do some small businesses become glorified jobs for the business owner, often earning the owner less money per hour than if they had a job?

I see this happening very often in small businesses. The owners start out enthusiastically, then experience all the extra paperwork, organising and chasing that needs to be done and slowly the novelty wears off. For the majority of business owners it gets too hard and they give up, adding to the high failure rate of small businesses in the first 12 months.

It doesn't have to be like that!

There may be some tough times in any small business and there is nothing worse than wondering if you are going to sell something today. Wondering if the sales in the month will be enough to cover the bills. As a business owner you need to know, with a level of certainty, what your income will be next week, next month.

In lean times it may seem that the only solution is to cut costs, like cutting back on the advertising budget. But by cutting back on costs you may save 10% or maybe even 20% but it is far better to improve your income by 50% or 60%? There is a limit to how much you can cut costs but there is no limit to how much you can improve your income.

Take the time and energy that you would normally use to try and save money and refocus it on 4 areas of your business:

1. Improving enquiries
2. Improving the conversion of those enquiries
3. Improving the average transaction size
4. Improving the average transactions per year
   

Focusing on these 4 areas of your small business is guaranteed to ensure success. A 10% improvement in each area will multiply to a huge increase in profit.

Start measuring these 4 areas and keep a record of the results on a weekly basis. Your goal should be to gradually improve all 4 areas by 10% per month.

Improving enquiries - being creative in generating enquiries is the secret to customer attraction. The coffee shop offering a free muffin will win over the coffee shop next door without the free muffin. Find a point of difference... ask yourself "what will make a customer choose me over my competitor?" And when you find your unique selling proposition shout it out in every way you can possibly think of.

Improving the conversion of those enquiries - after all the cost and effort of attracting a customer it's now up to you to sell them something. You need to answer every objection, have a strong risk reversal guarantee with a product and service range for all their needs. Often this area can be dramatically improved in many businesses. I ask businesses what they believe their conversion rate to be and they usually say around 50%... They are always shocked when they start to measure it and it is less than 20%. This is a good thing though, as it leaves lots of room for improvement!

Improving the average transaction size - your total sales over the last year divided by the amount of transactions will give you your average transaction size. Again it comes down to creativity - how can you get customers to spend more. The easiest way is to offer a freebie if they spend over a certain amount. Look at McDonalds with their "Would you like chips with that?"

Improving the average transactions per year - your customer may buy from you several times a year, once a year or even once every 7 years. So how could you encourage them to come in more often and buy from you? What other product or service could you offer them?

Whether you are a plumber, a salon owner or a dentist, focusing and improving on these 4 areas will guide you to business happiness and prosperity.

Copyright 2006 Ian McConnell

Ian McConnell is the author of Instant Small Business Profits - compulsory reading for any small business owner. This step by step guide contains valuable information on... "How To Dominate Sales In Your Marketplace, Create a Flood of Customers Chasing You For Your Product or Services And Turn Your Business Into a Powerful Profit Magnet!"

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