How Much Is A Customer Really Worth To You?

Have you ever had service so bad that you made a decision right there and then NEVER to spend money in that  place ever again, and yet, when you look back at the issue,the actual cost of your complaint could have been rectified for just a few dollars??  Bottom line is that so many businesses get caught up in the cost of the “moment” they don’t calculate the cost that customers business might be over a  lifetime of service. One of the most important lessons you can learn in business is that existing customers are the most valuable asset of any business. This little fact is lost on most business owners and managers. Their brand, their reputation, their people, their products or services, and their cash flow are always mentioned, but never a mention of their customers!

So, understanding the “lifetime” value of a customer is incredibly valuable to the business.

What is the lifetime value?

The lifetime value of a customer is the amount they will contribute to the bottom line over the span of your business relationship with them. Hpwever, before you can calculate that you really need to consider the :following:

1. What’s the value of an average sale?

For this exercise, simply divide your total sales revenue by the number of sales over a given time period. Lets say the average sale is $100

2. What’s you % profit margin?

Lets assume a 20% profit margin. It’s important, however, for you to calculate the real number for your business. What’s the % of gross sales you bring to your bottom line.

3. How often do your customers buy from you?

Divide the total number of sales by the total number of customers for a given time period. Lets assume 3 times per year for the purpose of the exercise.

4. What’s Your Typical Customer’s Lifespan?

How long will a customer continue to do business with you. Clearly this will depend on your geo and demographics, however the trade associations studies have sown the average to be around 7 years.

5. How many referrals will they give you in a year?

When customers are happy, they tend to refer more often. More referrals dramatically reduce client acquisition costs. Its reasonable to expect at least 5 referrals annually from existing customers.

6. How good are you at closing referred sales?

Its reasonable to assume that since these are being referred by clients that you should be able to close 50%.

Armed with all this information, you can now calculate the typical customers lifetime value.

Using the above numbers, the customer contributes a gross lifetime revenue of $2100 (7 years x $300 (3 buys per year x $100))

IN addition, the customer generates another 2.5 customers per year ( 5 referrals x .50 closing rate) resulting in $5250 more gross revenue.

Therefore the average customer is responsible for generating $2100 + $5250 = $7350 per year. Accounting for a 20% profit margin, each customer adds $1470 to the bottom line.

If the customer remains satisfied they may actually refer another 5 referrals per year for another 6 years!! WOW!  That’s 30 referrals x .5 = 15 new clients!

In our example you would need 21 NEW customers to generate $2100 in revenue, so the question is, how much is it worth to you to keep and enhance the relationship you have with your current set of customers??

Try the example above but put in your own numbers and then calculate a 10% increase in the average sales value, 5% in the profit margin, the number of referrals from 5 to 8 and increase the number of sales per year per customer and the lifespan of a customer!  A modest change in all these areas will dramatically increase your overall business..try and let me know how you get on!

James Lawson

Business Coach and President

The Capital Coaching Group Inc

So, What Do You Do When Customers and Prospects Don’t Want To Spend Money?

There is, indeed, a secret to meeting sales goals in times of “tight fists”. The secret is – re-think your own habits of selling.

Positive Things to Consider During Economic Down Times:

1. People like to buy from people they know and trust. Go back to exiting customers and get to know them again.
   a. Take them small customer loyalty gifts.
   b. Show them new products you may have never shared with them.
   c. Engage them again in a strong customer relationship.
2. People don’t want to take risks when money is tight. Show prospects the safest way to complete a sale with the most effective delivery of products or services.
   a. Demonstrate ways you save them money.
   b. Show them ways other customers have benefited from using your products or services.
   c. Assure them of the ease of the sales process.
3. People always want to feel they have made a good investment when they have to be monetarily accountable.
   a. Apply their specific needs to the long term savings in their investment with you.
   b. Introduce them to employees, in your company, that can assist them in each part of the delivery process.
   c. Make sure you allow them easy access to you should questions
   or issues arise.

Positive Ways to Consider The Prospects’ Position:

1. People like to know their company and you, the sales person, have a good working relationship.
2. People like to feel important all the time.
3. People want to be surrounded by the familiar.

Positive Ways to Consider Yourself:

1. People want to buy from experts. Position yourself as a consultant sales person
   in your field of expertise.
2. People want to buy from the trustworthy. Position yourself as one who follows through on your promises.
3. People want to buy from those who care. Position yourself as the one who cares the most and they will remember you, first, when it is time to buy.

The secret is to re-think your selling habits. Let’s face it, your tired routine may need a gasp of fresh air. So, get rid of negative thoughts, go after your existing customers, continue to build new prospect relationships, and ask for the sale once you’re in front of the buyer. Remember, it could be YOU that is making this slower buying trend seem dismal.

 

In A Sales Slump? Give It A 3 Step Makeover…

In a slow sales cycle, it’s important to remember that your products or services are still as good as they ever were, or even better.

Your still doing all the right things you always did to obtain business, but maybe you have to do more of it or you have to do it differently.

A famous definition of insanity is describes it as “doing the same thing over and over again expecting different results”

Tough times have a nasty habit of changing the sales landscape, which is to say if you’re still trying to the same people, the same propositions as you did before – well you just might be crazy!!

Before you continue investing more time and energy for an uncertain return, give your sales funnel this 3 step makeover and get your sales moving again!!

1. Qualify (or Disqualify) Your Current Sales Forecast
2. Look at the Purchase Process in Each Target Account
3. Examine Your Value Proposition

Qualify (or Disqualify) Your Current Sales Forecast

Take a hard look at all of the sales opportunities on your current sales forecast. Be ready to be very critical in qualifying their likelihood of becoming real business.

a)      Business that Can Be Won in the Short-to-Medium Term if the Right Things are Done. These are the opportunities where there is still clearly a pressing need for what you have proposed, and the will and means to do business still exists.

b)      Deals that look doubtful given the recent sales slowdown. Some of your opportunities will probably qualify as “ nice to have,” as opposed to “must have,” in the minds of your prospect.  Be prepared to face the reality that they may not close for you until things start to look a little brighter.

c)      Dead Deals – Bury them!  Although it can be hard to walk away, you simply cannot afford a time and energy investment in hopeless cases. Save your time, energy, and resources for less hopeless cases – take them off your forecast.

The Purchase Process in Each Target Account

Now that you know which opportunities deserve your fullest attention, you must now determine what’s going on in those accounts! There are a number of reasons why your prospects are taking longer to make buying decisions but usually its due to a change in the internal decision making process. As things slow down, the decision making process changes dramatically.

If you find that your current account contact can’t tell you where your deal is in the decision making process, it’s likely that your buyer in no longer in real control.

You will need a lot of information on any changes that may have occurred before you can decide to proceed, however, at a minimum you must find out the following:

a)      Who else is now involved in the decision

b)      What, in the eyes of the new these new buyers, are the perceived risks of proceeding with your proposal

c)      How is your proposal currently perceived (nice to have, must have, ho-hum)

d)      What are their particular priorities (cost cutting, revenue improvement, strategic positioning)

Examine Your Value Proposition

Ok, so now you have identified the deals you want to go after, and, you have determined the internal purchasing structure and priorities, don’t go rushing in full steam ahead BEFORE you are sure that what you have to offer is going to appeal. When the buyer or purchase process in one of your key accounts or prospects changes, It’s key to know what you have to offer will stack up to the expectations of the new buyer.

Previous arguments and justifications for your proposal may have become redundant if they were not formulated to appeal to particular motivations of a new set of buyers.

It’s key that you position your offerings specifically to appeal to the new motivations

Even if your newly constituted value proposition is well positioned and financially justifiable, you could still be exposed if it suffers any element of ‘me, to”.  If it is not sufficiently differentiated from the propositions of other competitors who may be vying for the same business.  Don’t forget your basic marketing. Be sure that your proposition includes strong Unique Selling Propositions to put you head-and-shoulders above any potential competitors. Completely remodel your value proposition until you are satisfied that your “new” proposal will fly in the new decision making environment.

James Lawson

The Capital Coaching Group Inc

Sales Training and Consultancy,

703-745-8197

SWOT what? SMART who?

And so the saying goes, “We don’t plan to fail, we fail to plan.”  According to the Small Business Association, 9 out of 10 independently owned businesses will fail inside of 10 years.  You can’t succeed without a plan, in anything you do!

Do you have a strategic plan?  Is it sitting in a drawer somewhere?  Even worse, is it in your head?  If  it’s not written down, it doesn’t exist?  Lacking clearly defined outcomes and measurable goals, how can a leader lead?   How can a team perform?  Results will be short of expectations for sure!

Every athlete and large corporation have clearly defined goals to attain specific objectives. Yet, in the world of small business, many lack a focused goal.  Are we so time-strapped, that we don’t have the time to set goals?  In reality, small business owners don’t make the time or they reply “get more business” when asked of future plans.  Any self-respecting CEO would be tossed out of a shareholder meeting for uttering a vague response.

Whether you have a 50-employee company or an empire of one, your business success depends on your ability to set and achieve goals.  It helps you focus your efforts,  a key ingredient to success.  Before we look at S.M.A.R.T goals, let’s take a look at another acronym, SWOT analysis.  Doing a SWOT analysis allows you to view your strengths, weaknesses, opportunities and threats at a specific moment in time and, then, you can build your goals around further development of your strengths, ways to overcome your weaknesses, becoming strategically aware of your opportunities, and thinking about how to minimize your threats.   Typically, strengths and weaknesses focus internally, and look mainly at the past and present.  Opportunities and threats focus on external factors, such as the economy, competition, etc., and look toward what your company might do in the future.  In a matter of one page, you have a very clear, concise picture of the road ahead and your organization’s ability to move down it.

Now lets look at your goals, S.M.A.R.T goals.  The acronym stands for goals that are specific, measurable, achievable, realistic and, time framed.  First, they should be specifically designed to improve on the situation as outlined in your SWOT analysis.    Secondly, they should be goals that you can measure, a certain number of new customers, or a goal of additional revenue.  Next they must be achievable that is, goals that you can really achieve, if you apply yourself and then they must also be realistic.  Finally, they must be goals that have a deadline; goals achieved within a specific time frame.

The SWOT analysis is a quick and simple tool to understand the overall big picture.  Setting SMART goals is critical to get and maintain focus within your business.  This is the starting point of strategic planning.  Congratulations!!  Now that you have done this exercise, it is important that you make sure that every employee is aware of their part in achieving these goals.  The more they buy into the idea the more likely you are to achieve the success you want.  And if you need any help with this, PCM (Please call me)!

Angela Inzerillo

The Capital Coaching Group Inc

703-691-2299

Its Not a Challenge, It’s a PROBLEM!

When is a Challenge not a Challenge?  When it’s a Problem!

In the mid 90’s I built and ran a very successful sales organization for a Fortune 1000 company with operations in Europe.  These were, for most companies and salespeople, the best 3 or 4 years in the last 20.  In Europe, the term was actually coined “The Champaign and cigar years”.  Anyway, for 3 years (or as Corporate America would call it, 12 quarters), the team never missed a revenue goal.  Then in quarter 13 it happened, our numbers dropped to a fraction of the previous quarter. We saw it coming but were not prepared for the severity of it. A technology change had occurred and what we used to sell for $15.00 was now on the market for under $4.00.  Challenge or problem?

After I put my ego in a box, and realized that I had a “problem” not a “challenge”, I recruited the help of several managers from our distribution business.  They helped me formulate a plan to go after a new market, with different product sets and bundles and subsequently helped me stave off another missed quarter.  The business flourished and became one of the fastest growth businesses in the company’s history.

OK, so what’s the point of me telling you about my (almost) failure?

We have become pre-disposed into believing that by calling something a problem we are somehow calling out our own inadequacies.  Common wisdom tells us that problems don’t exist, only challenges.  In my opinion there are some major drawbacks to that way of thinking.

First, I believe that if we think only of challenges, we have a tendency to think that we have what it takes to overcome or defeat said challenge, making it less severe.

Second, by believing that we have what it takes, we will often find ourselves getting deeper and deeper into trouble and in most cases, passed the point of potential recovery.

Third, by not admitting a problem exists and taking action early, we put our business and our employees at major risk.

So, what’s the difference????

Here is a Challenge:  I can’t seem to find time to get my marketing plan done!

Here is a Problem:  My revenue has dropped 50% in the last 6months!

If  business owners continue to look at the “problem” merely as a “challenge” there is a strong possibility they will try to resolve it themselves, when in fact, they lack the required skill sets to do so.  Getting outside help or council isn’t just smart, is shows that YOU, as a business owner, understand where your strengths and weaknesses are.  Always work to your strengths but enlist help to overcome your weaknesses.

Don’t believe me?  Look at the facts….80% of independently owned business close their doors inside of 2 years!   Over 90% close inside of 10 years!   Do you think some or most of these owners tried to start, build and run their businesses without any outside help?  Probably…

Final point, STOP fooling yourself!!  No one ever said that success should be a one person show.  Enlist the help you need to be successful.

One of my favorite business people is Sir Richard Branson.  He says it like this, “Follow Your Passions”, “Keep It Simple”, “Get The Best People To Help You”, “Play”

There is a vast world of difference between a “Challenge” and a “Problem”.  A challenge will cost you missing dinner (got to get that marketing plan done) and a problem could end up costing you your business!!

With so many resources available from SBA and SCORE to (yes, engaging a business coach) you have at your disposal a huge arsenal of weapons to fend off doom.  Make your life easier, spend some time with your family.  Be proactive and take advantage of what’s available.   As the saying goes “admitting you have a problem is the first step to recovery”.

James Lawson

President, The Capital Coaching Group Inc

703-745-8197

Creating a Competitive Advantage.

There is no doubt that every business looks to add more and more value to what they sell, be it a service or a product.  Where it becomes problematic is knowing how and where that value can be added, the analysis behind it and how do we know we are right!

Generally most companies will take two approaches, there is the “Typical” approach which is the analysis of factors that we and our rivals invest in and seek to compete.  Then there is the “Lateral” approach which is the analysis of factors that, if we invest in and compete on, WILL ALLOW US to create significant value in our business and offerings.

in 1985, Michael Porter introduced us to  a “generic” value chain model that brings together a sequence of activities that can be found in almost all businesses. By defining the primary and support activities and by taking a value analysis approach, most companies, regardless of size, can make determinations on how and where the level of value is exceeding the cost of the activities resulting in a profit margin.

So why is this so important??  Unless you can effectively separate the business system into activities it will be almost impossible to understand which of activities you can create a competitive advantage.

Many of the businesses that we work with have a difficult time understanding how to do this, but by applying a simple 7 step approach you can make headway into defining where and how in your business you can add value.

1. Identify the key activities performed
2. Identify how these activities combine to add value.
3. Delineate the factors That rivals Invest in and seek to compete on.
4. Identify key players who can affect added value.
5. Identify key trends that can affect any of these relationships.
6. Investigate alternative strategic options.
7. Delineate appropriate strategies.

Angela Inzerillo

The Capital Coaching Group Inc
703-691-2299
e-mail Angela