6 – Revenue Regeneration

When I read the Duct Tape Marketing book by John Jantsch, the concept that really excited me was the idea of the Marketing Hourglass.

I love visual metaphors and analogies. The Marketing Hourglass combines the ideas behind the sales funnel with the concepts to building the profitable back end of a business.

It puts the entire business concept in such dramatic focus and emphasises where you will really make your money.

I use the same idea in my Six Steps Profit Formula report.

The First Part Of The Marketing Hourglass – The Sales Pipeline or Sales Funnel

The First Sale [continue reading…]

I introduced the idea of the Ideal Profit Formula in How To Target Your Ideal Profit based on the formula for calculating break even points.

This calculates a sales revenue value or volume that, based on the accuracy of the underlying assumptions, gives you an idea of what’s needed to give you the profit you want.

In this article, we’ll dig deeper into what the sales revenue value means in practical terms.

The Three Ways To Grow A Business

One of the best known ways to look at business growth is the Three Ways To Grow A Business Model.

This gave us the insight that sales revenue is made of three factors that multiply together:

1. The number of customers
2. The number of times they buy in a period
3. The average spend each time they buy

The big revelation is that when most business owners think about increasing sales revenue, they think about ways to attract and convert more customers (factor 1) and ignore the other two, often much easier to improve, factors.

Targeting Your Ideal Sales Value

The Ideal Profit Formula gave us an idea of the value of sales revenue, this next stage breaks down that total across the three elements of the ways to grow a business model.

Comparing what’s happening in your current business with how you’d like to reach your ideal sales revenue identifies the gap in each factor and lets you focus on how the gap can be closed.

What’s Happening In Your Current Business

The easiest number to calculate is often the average sales value per transaction.

This is

total sales revenue
total sales transactions

Obviously you use the same period of time for both.

The next easiest number to get to is the number of different customers who bought in a period.

If you’re good with a spreadsheet, you can download the sales transactions into a worksheet and then use pivot tables to count the number of different customers.

Otherwise, you may have to go through and count up who has been buying. If you have a lot of customers, this can be time-consuming. Try to find a quick way to do this because I’m going to want you to do this regularly.

Try not to use the number of open accounts on your sales ledger / accounts receivable computer program.

This is because you’ll realise that you have many customers registered who have not bought. They are lapsed customers and are useful names to know if you want to try to reactivate them.

If you get into the habit of looking at active customer numbers, you’ll realise that there is valuable information looking from period to period.

The number of customers in the last period

Plus new customers acquired

Minus customers who have stopped buying

Equals number of customers in the current period.

The length of the time period used for this customer reconciliation should be based around the number of times customers buy. If your customers buy on average every two months, then you can use a period of two to three months. If you use too short a period, you will have many lapsed customers but it won’t be valuable information because it’s part of your customers’ natural cycles.

You can calculate the average number of times customers by with this formula:

Total number of sales transactions
Number of customers who bought

You will now have the three numbers for the period:

1. The number of customers
2. The number of times they buy in a period
3. The average spend each time they buy

Because these numbers are important, check that they are right by multiplying them together.

You should finish up with the total sales revenue or close to it if you have rounded some numbers.

Using The Three Ways To Look At Your Ideal Sales Revenue

You can look at the sales revenue you want to give you your ideal profit in terms of what’s happening in your business.

In the future, you can:

• Look to reach the sales growth by increasing one of these three numbers while holding the others constant. This will give you a very focused strategy.
• Think about improving all three measures by similar proportions
• Think about all three measures changing by different proportions (including decreasing some to make it easier to increase others).

If you focus on one measure, your growth is linear and it’s easy to calculate how much your targeted factor needs to improve.

E.g. Current sales revenue

• Customers 1,000
• Transaction value £250
• Number of transactions 3
• Total sales revenue = 1,000*250*3 = £750,000

Ideal Sales Revenue based on your Ideal Profit Formula calculation is £1,400,000

Then if you target new customers with the others staying the same, the number of customers you need is 1400000/(250*3) = 1,866.7

This is an increase of 86.67% which is the same increase as jumping from £750,000 to £1,400,000.

If you plan to change all three growth factors by the same amount, things get more complicated because of the exponential growth – a 10% growth in each gives a 33% growth in total sales revenue.

To give you an idea of how this works:

Increasing all three by 10% gives you 33% growth.

Increasing all three by 20% gives you 73% growth.

Increasing all three by 30% gives you 120% growth.

Or to put it another way:

If you want to increase sales revenue by 50%, you need to increase each growth factor by 14.5%

If you want to double sales revenue, each growth factor will need to increase by 26%.

You’ll have to do your own arithmetic if each growth factor is changing by a different number but remember you’ll only have to decide targets for two of them to reach your targeted sales revenue total.

Target 3 = Ideal Sales Total / (Target 1 * Target 2)

Moving Forward Into Your Marketing And Customer Strategies

If you know how many customers you need to reach the sales total you want, you can start looking at:

• How to retain customers for longer (to reduce the number of lost or lapsed customers)
• How to attract more customers.

When you start thinking through your strategies and tactics for new customers, you’ll recognise that again, this breaks down into two numbers.

Number of leads generated * % of leads converted

If you decide that you need to increase your new customer acquisition from 2 customers per week to 8 customers as part of your move towards your ideal sales and profits, you start to see insights into what you can do.

So if you get those 2 customers from 8 enquiries, you have a 25% conversion rate.

If you want to get to eight new customers:

• You can look for ways to improve your conversion rate to 100% but that’s extremely unlikely;
• You could look at increasing the amount of marketing you do or improving your existing marketing to increase your leads by a factor of four (from eight to thirty two each week); or
• You could look at ways to improve both, say double the leads you get from eight to sixteen and double your conversion rate from 25% to 50%

The issue then becomes how do you do it?

Why don’t your leads convert at the moment (see Win Loss Analysis).

This isn’t the article to go into details.

My point is that by drilling into the numbers and understanding what it all means to set a financial goal, you start making the improvements you need to make much more specific and tangible.

It’s terribly vague to think in broad terms like “we want to get our sales revenue up to $1 million” or “we want to double the business”.

It doesn’t move you into action.

Specific numbers linked to action plans (with completion dates and allocated responsibilities) and firm intentions are needed.

This way you start managing your business intentionally as it moves towards set goals and targets.

You get clear feedback.

X is working, congratulations but can it be improved more?

Y isn’t working as well as expected. Why not? What can be done to make it work in the way you expected?

A Different Type Of Business Planning

This is intentional business planning and management.

I’ll talk more about that soon.

Getting Everything You Can Out Of All You’ve Got
by Jay Abraham

Book Review 5 Stars

The full title of this book is “Getting Everything You Can Out Of All You’ve Got – 21 Ways You Can Out-Think, Out-Perform, and Out-Earn the Competition”

I Didn’t Like It At First

Strangely “Getting Everything You Can” was a book that when I first bought and tried to read it, I didn’t like it at all.

Just as with “The E Myth Revisited“, this Jay Abraham book is written from the practical, real world side rather than theory but unlike its title suggests, it is not a “21 steps to take” style book.

My advice is to stick with this Jay Abraham book or make sure you come back to it.

The key messages are profound. [continue reading…]

Have you ever noticed a fishbowl in a restaurant that has about 20 business cards in the bottom and a little sign next to it asking you to leave yours too?

The restaurant owner does this because he recognises that it’s a good idea to get your details so that he can send you details of special offers.

Of course many restaurants never get around to do anything but it’s a great idea in theory. [continue reading…]

What do you do if events outside the business have stopped you from keeping in contact with your customers and your potential customers who have shown interest in your business?

This is a problem I have and it’s a problem that one of the business experts I follow has.

Paul Lemberg has reached out to his email subscribers after eleven months with a mea culpa. [continue reading…]

In the rush to sell products and services, too many businesses make the mistake of creating marketing materials without first focusing on what customers want.

I like customer value thinking and the idea that we buy based on a hierarchy of product attributes, expected consequences and desired goals. These concepts pass between rational and emotional justifications and between the conscious and unconscious minds.

That makes answering the question “What do customers want?” complicated but if you want to different your business and make your marketing more successful, it is worth spending the time thinking through what customers want and carrying out research to find out what customers think they want.

People buy items not for what they are but what they do and what they say about themselves (to themselves and to others).

What Customers Want

In the article I intend to bring together various insights into what customers want and what motivates them to buy including references back to the motivation theories developed for employees and how that relates to buying decisions.

Beware The Concept Of The Average Customer

First I want to break the idea that you should find out what customers want on average and set out to provide that.

There’s no such thing as an average customer but instead segments of typical customers, some of whom are more typical than others.

This is most vividly demonstrated by the example of people and how we are split into two genders, male and female. The average person with one testicle and one ovary doesn’t exist.

It reminds me of the joke about the statistician who had one foot in a bucket of freezing water and the other foot in a bucket filled with very hot water and said “On average I’m fine.”

Creating Customer Personas To Reveal What Customers Want

In face to face selling, we have the option to continually adapt our message to what the other person says which is a powerful advantage although it does open the door for manipulation and deceit by the unethical.

In marketing, we usually lack the ability to adapt the message based on responses on a one-to-one basis but we can create personas or avatars based on typical customers and how they think, feel and act.

What Customers Want According To Rich Schefren

One of my Internet marketing mentors, Rich Schefren, recently sent out an email which included a list of 25 human needs and desires. Hopefully he won’t mind that I’ve shared them with you.

1) Add More Fun To Their Life
2) Avoid Criticism or Embarrassment
3) Escape Physical Pain
4) Be A Good Parent
5) Be More Efficient
6) Be Healthier
7) Be Fashionable
8) Be Independent
9) Satisfy a curiosity
10) Be More Popular
11) Be Proud Of Their Possessions
12) Be Recognized As An Authority
13) Satisfy Their Ego
14) Escape Shame
15) Express A Personality or Creativity
16) Fulfill a Fantasy of an Adventure
17) Gain Confidence
18) Gain Knowledge
19) Save Time or Money
20) Work Less
21) One-Up Others
22) Overcome Obstacles
23) Protect Oneself And Family
24) Relieve Boredom
25) Renew Vigor And Energy

Rich doesn’t claim that the list is everything that customers want but it is a good starting point.

The exercise he suggested was to take each item and to look for connections with your product or service so that you can see how you help customers satisfy a deeper need.

What Customers Want – The 37 Livingston Emotional Benefits

Another or my Internet marketing mentors, Glenn Livingston, introduced me to the work of his wife, Sharon Livingston and the 37 Livingston Emotional Benefits.

1. Feeling Loved
2. Feeling Attractive
3. Sense of Adventure
4. Feeling Financially Secure
5. Sense of Accomplishment
6. Feeling Caring or Nurturing
7. Being Altruistic
8. Being Assertive
9. Feeling Brave or Courageous
10. Feeling Creative
11. Excitement or Liveliness
12. Feeling Fair, Just, or Ethical
13. Feeling Luxurious or Pampered
14. Feeling Healthy
15. Feeling Athletic
16. Feeling Flexible or Adaptable
17. Feeling Free
18. Being a Good Friend
19. Enjoying Humor
20. Feels like a Good Teacher
21. Being In Control
22. Feeling Independent
23. Being Insightful
25. Feeling Wise or Intelligent
26. Taking a Leadership Role
27. Peaceful – Relaxed – Calm
28. Having a Sense of Power
29. Being Productive
30. Feeling Respected
31. Feeling Spiritual
32. Feeling Sexy
33. Feeling Romantic
34. Feeling Safe
35. Sense of Belonging
36. Feeling Trustworthy
37. Feeling Unique

What Customers Want – To Be Continued

This looks like it will be a very long article, so I want to take my time putting it together provided there is enough interest shown in the topic.

If you’d like to know more about what customers want, leave me a comment and share your ideas and thoughts.

I love Amazon and it’s very useful to look at the Amazon strategy in relation to my Six Step Profit Formula.

Summary Of The Six Step Profit Formula

The six steps in the profit formula are:

1. Find a starving crowd.
   .
2. Create an irresistible promise.
   .
3. Get your irresistible promise in front of the eyes and ears of your starving crowd often.
   .
4. Deliver on your promise with a great customer experience.
   .
5. Sell them a second course and then a second meal.
   .
6. Encourage word of mouth referrals.

How The Six Step Profit Formula Is Used In the Amazon Strategy

Step 1 – Amazon Strategy & The Starving Crowd

Amazon first started as an online book store.

The business model was new but what was sold was well established.

People love buying and reading books. As a book addict what stopped me buying more books was that my knowledge was limited to what I saw on the bookshelves on the big book stores in the UK like Waterstones. If I saw something I liked the look of, I bought it.

Step 2 – Amazon Strategy & Their Irresistible Promise

While physical stores are limited in the books they can stock on the shelves, Amazon could list every book that was published and quickly became the “biggest book store in the world”.

One quick search by title, subject or author would bring up a list of books and you’d realise that there were many more books that you could read. This is the long tail that Chris Anderson wrote about which makes selling low volume, niche products profitable when sold worldwide.

Even better, other customers of Amazon have provided reviews of the books, praising some and criticising others. This gives you confidence to try a book you haven’t had the chance to skim.

Amazon has since extended their range from books to CDs, DVDs, games, electrical equipment… in fact you can get almost anything through Amazon these days that isn’t perishable.

Step 3 – Amazon Strategy & Presenting The Promise To The Starving Crowd

According to Alexa, Amazon.com is the 15th most popular website in the world and that is just their American store. I buy from Amazon.co.uk which itself is the 127th most popular website and many other countries have their own local websites.

Amazon are one of the businesses – like Wikipedia – that dominate Internet search listings.

I usually recommend that businesses also use outreach marketing tactics but unlike many of the dotcom that crashed and burnt, Amazon didn’t waste money trying to promote the brand name. It let its customers do it for them as we’ll see in step 6.

Recently Amazon has been more active promoting the Kindle on TV and in print advertising but with the Kindle, it’s creating a market for people to read ebooks.

Step 4 – Amazon Strategy & Delivering On The Promise

I buy very regularly from Amazon and their service is excellent.

It is very easy to buy and the One Click feature makes it very fast if you don’t have to change payment cards and delivery addresses.

Products arrive when expected – or they email me to tell me there is a problem – and in good condition. If there is a problem, then Amazon put it right quickly.

The confidence in Amazon’s service helps to create word of mouth recommendations.

Technology and the development of the Internet have made Amazon’s strategy possible but it is clever business design which has powered the success.

Step 5 – Amazon Strategy To Encourage You To Buy Again

As you buy, Amazon suggests other items to buy with little bundles and extras.

It also lists books, CDs, DVDs etc that will be released soon and encourages you to pre-order with the assurance of the price promise that makes sure you get a good price.

After you’ve bought, you receive email recommendations based on your purchases. This works well if you’ve made personal purchases, not so well if you buy presents for others.

Step 6 – Amazon Strategy and Word Of Mouth Recommendations

Amazon do what they do so well that it creates plenty of word of mouth recommendations. The entire Amazon system is easy, quick, simple and very convenient with very competitive prices.

Amazon were amongst the first businesses to realise the power of affiliate marketing and thousands of websites contain links and Amazon logos which help to build the brand.

The success of Amazon as an Internet pioneer also means that it has received great PR. Amazon is the example for an e-commerce store.

What Are Your Views On The Amazon Strategy?

Recent figures show that Amazon continues to grow very quickly.

What do you think of Amazon’s strategy?

What do you think the key success factors are?

A crucial concept for any marketing practitioner is what Jay Abraham calls the Marginal Net Worth and what others call the Lifetime Value Of A Customer.

What is Marginal Net Worth?

Basically marginal net worth is the profit that will come from the total stream of customer transactions after deducting the costs of creating the customer in the first place.

What is The Lifetime Value Of A Customer?

The lifetime value of a customer is the profit on all the transactions with an average customer.

Beware, some marketing experts define the lifetime value as the sales revenue from a customer but that is dangerous. There is a big difference between sales revenue and profit (see Turnover is vanity). You can make the wrong decisions because you don’t have a number to compare to the average cost of acquiring the customer. [continue reading…]