This is post #9 in our 9-part series on ways to increase business profits.

You can find the previous posts in the series here:

1. Only 3 Ways to Increase Business Profits
2. Consumer Buying Behavior: The Natural Buying Process
3. How to Eliminate Market Competition
4. Get Your Customers to Spend More
5. Get Your Customers to Buy More Often
6. Increase Your Marketing ROI
7. Kaizen – the Concept That Created an Empire
8. Tracking Your Marketing Results

Make Like Santa Claus…

Here’s a simple tactic that can generate a nice return…

Give your stuff away.

That’s right, make like Santa Claus and give it away. No strings attached.

But do it in a way that you’re likely to profit. Here’s a real life example…

Last year, my family took a vacation to Hawaii. The tour company (Pleasant Hawaiian Holidays) holds an orientation breakfast where they try to sign you up for various excursions. To get more people to the breakfast, and keep them there after the plates are cleared away, they award door prizes.

I won a ticket to a luau.

One ticket, with a face value of $76. There were 5 in my party.

I had a decision to make. Use the freebie I won and go alone? Or buy four more tickets to go with it, so the whole family could go? Let the freebie go to waste and "lose" $76?

Do I have to tell you what decision we made?

We all enjoyed the show.

By giving away that $76 ticket, they sold $304 in additional tickets.

Okay, here’s another question for you. What do you think the odds were that someone in our party would have won that ticket? Actually, pretty good. You see, there were other tickets like that given away – prizes very unlikely to be used solo. And all of the winners seemed to be in larger groups. Hmmmm…

This was actually the second time my wife and I attended one of those breakfasts. The first time, it was just me and her. We won nothing. But there were some very lucky people in a few larger parties…

The other commonality was the tickets themselves had a fairly high face value, but the actual cost to the company providing them was fairly small. Even being generous, my luau probably didn’t cost the luau company more than about $10.

The same principle is operating on a smaller scale when your favorite restaurant send you a certificate for a free dinner on your birthday. Most people won’t go alone, and they won’t just order dinner. They’ll bring friends and family, order cocktails and wine, and finish it with dessert. The profit on the extra covers and add-ons more than covers the cost of the birthday meal.

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This is post #8 in our 9-part series on ways to increase business profits.

You can find the previous posts in the series here:

1. Only 3 Ways to Increase Business Profits
2. Consumer Buying Behavior: The Natural Buying Process
3. How to Eliminate Market Competition
4. Get Your Customers to Spend More
5. Get Your Customers to Buy More Often
6. Increase Your Marketing ROI 
7. Kaizen – the Concept That Created an Empire

There’s a quote in the advertising business that’s been around so long, it’s been attributed to a lot of different people…

"I know I’m wasting half the money I spend on advertising. I just don’t know which half."

Most small business owners simply don’t take the time to track which ads are effective, and which ones are losers that should be dumped.

Here’s another quote for you…

"What can be measured can be improved."

So what do you measure?

With most media, about the only things you can measure are what a given ad or campaign cost, and how much revenue  came in over the course of the campaign. If you have multiple ads out – say, a newspaper ad, a Yellow Pages ad, a few different magazine ads and a series of radio spots – how do you know which ad generated which sale?

Most small business owners simply don’t take the time to track which ads are effective, and which ones are losers that should be dumped.

One of the biggest advantages of marketing online is the ability to track an ad or campaign from the initial visit to the sale. A good analytics program will give you all the numbers you need to know.

Let’s take a look at pay-per-click advertising. That’s where your ad is shown, and you only pay when someone clicks on the ad to come to your website. You can easily track how many people your ad was shown to, how many clicked on it, how much each click cost and how much the ad campaign cost. Once on your website, you can track how many people signed up for your automatic follow-up messages. By coding you offers or simply asking how a buyer found you, you can tell how many buyers the ad brought and how much revenue the campaign generated.

Some useful numbers are:

Cost per lead
Cost per sale
Profit per visitor
Profit per lead

Ultimately, though, the number you want is the return on investment, which you can calculate:

Profit attributable to campaign / cost of campaign = ROI

If the number is greater than one, the campaign made you money. Less than one, and you lost money.

How about a real-world example?

You print up a flyer with a special offer. To claim the offer, the buyer must present the flyer. You distribute 10,000 of the flyers. Your total cost is $500.

When the offer expires, you count up the redeemed flyers, and come up with 200. You wrote the total amount of the sale on the flyer, and you add that up. It comes to $2,000.

Your cost per flyer = $500/10,000 = $0.05
Your sales per flyer = $2,000/10,000 = $0.20
Your ROI per flyer = 0.20/0.05 = 4 or 400% return on your flyer investment.

If you knew you could send out $1 in flyers and expect $4 back, how many flyers would you send out? As many as you could, right?

Flip that over…

Suppose that something happened and you only got 30 flyers back and the sales only added up to $200.

Your cost per flyer is still $0.05
Your sales per flyer = $200/10,000 = $0.02
Your ROI per flyer = 0.02/0.05 = 0.4 or 40% return on your flyer investment.

If you knew that for every $1 in flyers you sent out, you’d only get 40 cents back, would you still keep spending money on flyers? You’d probably look for something more effective to spend your money on.

Okay, suppose you broke even?

If your customer retention rate is good, you might want to take break-even on the first sale and make your profit on future sales. Or you could test a different flyer to see if you could improve the results.

Obviously, we can’t cover all the possible material on testing and tracking. There are whole books on the subject. I hope I’ve given you at least an idea of what might be possible once you start tracking your results.

In the final post in this series, we’ll show you how to make big bucks by giving stuff away…

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This is post #7 in our 9-part series on ways to increase business profits.

You can find the previous posts in the series here:

1. Only 3 Ways to Increase Business Profits
2. Consumer Buying Behavior: The Natural Buying Process
3. How to Eliminate Market Competition
4. Get Your Customers to Spend More
5. Get Your Customers to Buy More Often
6. Increase Your Marketing ROI

After World War II, the Japanese economy was in tatters. As they slowly tried to rebuild a peacetime economy, the Japanese built a reputation for churning out cheap, shoddy goods. "Made in Japan" was code for "crap."

Then they turned to an American consultant named W. Edwards Deming. Deming taught the Japanese to improve the quality of their goods by fixing one thing at a time. Over time, these improvements started to compound. It wasn’t all that long until "Made in Japan" meant "good stuff."

The concept that enabled Japan to go from  economic stepchild to manufacturing powerhouse is called kaizen, or incremental improvement. The same kind of incremental improvements, applied to your business, can more than add to your profits – they can multiply them.

Remember back in Post #1, when we looked at the three ways to increase profits? If you recall, we looked at the effect of increasing each factor by only 10%. Logic would say that increasing three factors by 10% each would yield an increase of 30%, right? Yet the compounded increase was actually 33.1%. By stacking the improvements on top of each other, we came up with more than the sum of the parts.

That example was very simplistic, with round numbers chosen to keep the arithmetic simple. There’s a much better, more effective way to apply kaizen…

Start with the low-hanging fruit.

Suppose you sold one out of every four people that entered your business. That means three people are leaving without buying. What if you could turn just one of those people into a buyer by capturing their contact info and dripping your follow-up messages to them? Now you are selling 2 out of four people. You raised your conversion percentage from 25% to 50%, but you doubled your sales!

Let’s redo the example from Day 1 to see what happens…

Here’s the original baseline:

1,000 customers x $100/order x 10 orders/yr = $1,000,000 in sales per year.

That now becomes:

2,000 customers x $100/order x 10 orders/yr = $2,000,000 in sales per year.

Now we’ll add on the same 10% improvements as before…

Just adding $10/order adds 2,000 x $10 x 10 = +$200,000 in sales per year.

Just adding 1 sale/year adds 2,000 x $100 = +$200,000 in sales per year.

So how much more would we add if we could do all three?

2,000 customers x $110/order x 11 orders/yr = $2,420,000 in sales per year.

That’s a whopping 242% increase in sales per year – if you never duplicate the process.

Is that kind of improvement something that would get your attention? Would it make you want to tackle the next low-hanging fruit in your sales process and your business?

Next up – tracking results…

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This is post #6 in our 9-part series on ways to increase business profits.

You can find the previous posts in the series here:

1. Only 3 Ways to Increase Business Profits
2. Consumer Buying Behavior: The Natural Buying Process
3. How to Eliminate Market Competition
4. Get Your Customers to Spend More
5. Get Your Customers to Buy More Often

Over the first few posts, we’ve been looking at ways to get more customers and get them to spend more money with you, more often.

But what about the people who respond to your marketing, but don’t buy immediately?

What are you doing with them?

If you’re like most business owners, you watch the backs of their heads as they leave your office or store, muttering something unflattering about "tire kickers", "looky-loos" or "freebie hunters" under your breath. Am I right?

Wouldn’t it be great if there were a way to convert some of those "be-backs" into paying customers?

The plain truth is, while some people do shop purely for recreation and with no intent to actually buy anything, they are in the minority. Most of the people who walk out of your office or shop simply haven’t reached the last step in the Natural Buying process yet.

Suppose you could capture those people in a database, and drip-feed them information and offers until they DO reach that step. And you could do it for almost no out-of-pocket cost. What would that do for the ROI on your marketing dollars?

All you have to do is set up a timed sequence of messages (like this one) that feed out automatically. You can focus on the benefits of your products or service. Announce sales. Teach your prospects how to benefit from what you offer. Let them get to know you. In other words, build a relationship with them.

Then, if and when they do reach the point of pulling the trigger, you will be the first one they think of.

If you make $100 for every prospect that eventually converts, how many do you need to double your return on your ad budget?

That’s all for today. Next time, we look at one simple idea that saved the economy of an entire nation, and can do just as much for you…

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This is post #5 in our 9-part series on ways to increase business profits.

You can find the previous posts in the series here:

1. Only 3 Ways to Increase Business Profits
2. Consumer Buying Behavior: The Natural Buying Process
3. How to Eliminate Market Competition
4. Get Your Customers to Spend More

Last time, we looked at four ways to easily increase your average order size. Today, we look at ways to get people to order more frequently.

The first way requires that you know something about your customers’ behavior. Specifically, how often they normally buy.

For example, a restaurant may know that their average steady customer comes in once a month. If the owner has a way to contact those steady customers, he can start ‘training’ them to come in more often. Two weeks after a visit, the customer gets a coupon for something desirable – free appetizer, dessert, glass of house wine, whatever – but it’s only good for 7 days. If they use the coupon, you’ve gotten them to return a week or two earlier than usual.

When they come and use the coupon, guess what they get 2 weeks later? If you said "another coupon" pat yourself on the back. Now, most customers won’t use every coupon you send. But how much do you think the restaurant makes if, on average, regular customers come in 14 or 15 times a year rather than 12?

You can apply the same idea to bigger ticket items with longer useful lives, too.

Pretend you’re a car dealer and you’ve just sold me a shiny new car. You know that the average new car buyer keeps the car for three  or four years. At about year 2, I get a nice little report from you in the mail (or email) telling me about how much my two year old car is worth. Along with a shiny brochure for the sexy new model. No pitch, but the seed has been planted.

A few months later, I get another note from you inviting me to take a test drive of the new model so I can give you my feedback as the owner of an older model. Again, no pressure to buy. You don’t need it – I want that new model. A few months later, I’m signing on the dotted line for a brand new car, a year ahead of schedule. What would getting me to buy three cars (instead of two) over ten years do to your bottom line?

Another very useful way to increase the frequency of purchase is with some type of continuity program. Think "Fruit of the Month Club" here.

Continuity programs have sold billions of dollars worth of food, cigars, beer, cosmetics, books, magazines and more,

And billions of dollars more in services like air conditioner maintenance and bug service.

With continuity programs, also called "until forbid" sales, the customer agrees to purchase a set amount of product or service at predetermined intervals, and authorizes the seller to charge them automatically.

If you were a dentist, would it be hard to sell a monthly subscription to a tooth-whitening kit? How much profit could it add over simply offering the kit with a patient’s biannual checkup?

Next up – how to increase your marketing ROI…

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This is post #4 in our 9-part series on ways to increase business profits.

You can find the previous posts in the series here:

1. Only 3 Ways to Increase Business Profits
2. Consumer Buying Behavior: The Natural Buying Process
3. How to Eliminate Market Competition

Last time, we looked at how to increase the size of your prospect pool and how to hook them on seeing you as the best solution for their problem or desire. We also looked at how you could position your business to charge premium prices. Which leads us to the first way to increase your average order value…

Increase your prices.

Unless you truly are selling a commodity, like corn or beans, your market probably isn’t as price sensitive as you think it is. Would your sales really plummet if you raised your $17 widget to $19.50? This represents an increase of about 15%. Even if sales fell slightly, as long as they don’t go down more than 14%, you still make more money overall. And this doesn’t account for…

Add-on sales.

The classic example happens millions of times a day at fast-food places across the country. Order a combo meal, and the order taker should be asking you, "want dessert with that?" When you throw in that apple pie or cookie, you just gave them an add-on sale.

Order something through a catalog or infomercial, and try getting off the phone without  at least hearing about the ’special of the day’… Another add-on sale.

And speaking of combo meals…

Bundling

That’s a third way to pump up your order size. Can you put together a desirable bundle priced to give the customer good value while adding to your bottom line?

Burger, fries, drink. Oil change, new filters, new wiper blades. What kind of bundle can you put together?

Upsells

The last way to increase order size that we’ll look at today is called an ‘upsell’.

Back to our fictional fast food joint. You order a #3 with a soft drink. "Would you like to super-size that for only a dollar?" You can bet that the marginal cost of the super-sized meal is less than what they charge you. You get more food, they get more profit. How could you ’super-size’ what you offer?

Another way to do an upsell is to offer different grades or packages. Airlines typically offer Coach class, Business class and First class. With each bump, the buyer gets incremental improvements in leg room, service and status. Yet it costs no more to fly the First class elite from point A to point B than the guy stuck in the last row of Coach next to the restrooms. The only added cost is a few glasses of cheap champagne and some mediocre food. Yet First Class passengers often pay hundreds of dollars more for their tickets.

Summarizing, four ways you can increase your average order size…

1. Raise your prices.
2. Add-on sales.
3. Bundling.
4. Upsells – either more or better.

Next time, we’ll look at ways to get your customers to buy more often.

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This is post #3 in our 9-part series on ways to increase business profits.

In post #1 (Only 3 Ways to Increase Business Profits), we looked at the only three ways to multiply your profits – more customers, ordering more, and ordering more often.

In post #2 (Consumer Buying Behavior: The Natural Buying Process), we looked at the process people go through when considering a purchase.

You’ll recall that the five steps in the Natural Buying process are:

1. Your prospects must first realize that they have a problem they want solved, or a desire they want filled.
2. Your prospects seek to educate themselves and look for the options available.
3. With an array of options now, your prospects try to narrow down the choices to the ones they believe will best solve the problem or fill the desire.
4. They decide on a course of action.
5. They actually pull the trigger and act on their decision.

Most business owners concentrate on connecting with people at the end of the process; they’ve already decided what they want to buy, and they’re looking for the best source.

Catch them at Step 2, and you can guide the education process so that your offer is the only option that gets considered. You can make your company appear unique.

Why is this important?

If your company appears to be the same as every other company that does what you do, you become a commodity. Without some other way to draw differences between offers, the fallback is usually price.

Competing solely on price sucks. All it takes to wipe you out is someone who can go a little lower than you, or take the loss a little longer than you. If you run a dollar store, what happens when someone opens a 99¢ store across the street?

Did you notice I said "appears to be the same" as every other company?

It doesn’t matter if you have the lowest prices, highest quality and best service in your field if no one can tell from your marketing. And most small businesses do not stand out.

Don’t believe me? Try this test. Open the Yellow Pages to your classification. Take a black marker and cross out the company names in the ads. Can you tell which is which? Or could you just shuffle the names around and it would make no difference?

If you can catch that prospect at the point where he starts the education process, you can guide that education, gain the ‘know, like and trust" factor, and take both your competition and your pricing out of the equation. Meaning you can offer custom solutions at premium prices.

And that doesn’t suck…

So how do you intercept your prospects that early in the process?

First, you have to look at your own image in the mirror. What problems are you uniquely qualified to solve? What desires can you fill better than anyone else?

Next, put yourself in the prospect’s skin. If you had this problem or desire, and you knew nothing about it, where would you start? What would you want to know first?

[Hint: More and more people every day are looking online for answers. Looking on the Internet. Craft an offer that promises those answers and put it in front of them.]

Capturing prospects early on in the buying process has another distinct advantage…

The pool of prospects is many times larger at the top than it is at the end.

Putting it all together:

• Decide what problem you want to solve or desire you want to fill.
• Find the places people with that problem or desire go to begin the education process.
• Offer them information that guides them toward making a decision in your favor.
• Make them an offer that helps them pull the trigger.
• Repeat with another problem or desire.

[Incidentally, the words 'rinse and repeat' added to a shampoo label doubled sales of the shampoo.]

Done correctly, the end result is a steady stream of eager new customers.

And as you recall, more customers is one of the three ways to add more profit.

Stay tuned – in post #4 of this series, we’ll show you how to get your customers to spend more.

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This is post #2 in our 9-part series on ways to increase business profits.

In post #1 (Only 3 Ways to Increase Business Profits), we looked at the only three ways to multiply your profits – more customers, ordering more, and ordering more often.

One question that always comes up is, "what about cutting expenses?"

Cutting back can add some contribution, especially in the short term, but there are some obvious limitations…

The first thing to do is to identify and eliminate waste, which can be harder than it looks. And for most small businesses, there just isn’t that much waste. Stay tuned – in post #8 I’m going to show you the big exception to this.

Once you’ve identified and eliminated the waste, you’re left with the essentials. By definition, cutting back on these can only have a negative effect on your business. Besides, you can only cut costs so far before you reach zero. And you only reach zero when you go out of business.

You’ll come out much further ahead concentrating on raising the ceiling. There’s a lot more sky than dirt.

Consumer Buying Behavior: The Natural Buying Process

Once you get past the "do you want fries with that" impulse purchase, most buyers go through a similar 5-step process before they buy. Here are the five steps:

1. Your prospects first realize that they have a problem they want solved, or a desire they want filled.
2. Your prospects seek to educate themselves and look for the options available.
3. With an array of options, your prospects try to narrow down their choices to the ones they believe will best solve the problem or fill the desire.
4. They decide on a course of action.
5. They actually pull the trigger and act on their decision.

Let’s look at an example.

Buying a car…

Step 1 > You take your car in for basic routine maintenance. In addition to your oil change and lube, you get a list of periodic maintenance jobs that are coming up along with a few things that are getting close to failing. Along with an estimate of what taking care of the list will cost. You realize that you’re reaching a decision point – pour more money into the old car, or put that money towards a new one.

Step 2 > You start looking into the new models and what they offer. You check out Consumer Reports and go online to see what you can learn.

Step 3 > You’ve narrowed the field down to 5 or 6 vehicles that you think might fill the bill for you. It’s time for more research. You go back online to look at reviews of the vehicles you’re considering. You head for the dealers and take some test drives. You check a few sites and read some ads to see what your old car might be worth.

Step 4 > After weighing the options, you decide you want Vehicle A, and that you don’t want the hassle of selling your old car yourself; you’ll be trading the old car in.

Step 5 > You pick up the phone, make an appointment with your chosen dealer, and head for the door…

Stay tuned – in post #3 of this series, we’ll show you how to eliminate your competition.

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This is post #1 of our 9-part series on ways to increase business profits.

When you boil things down to their essence, there are only three ways to increase the profits from your business…

1. Get more customers.
2. Get each customer to buy more.
3. Get each customer to buy more often.

Most businesses spend way too much time on number one and little, if any, on two and three. But two and three are where the big gains in profitability are hidden.

Depending on which marketing guru you listen to, it can cost five to seven times more to create a new customer than it does to sell an existing customer a second time. (Or third, fourth, etc.) Let’s call it five times to keep the arithmetic simple…

If your average sale is $100, and it costs you $50 to get a new customer, that same $50 should get you $500 in sales to existing customers.

We haven’t even touched on the power of compounding yet.

How Can 10% = 33.1%?

Suppose we could acquire 10% more new customers, get them to spend 10% more on average, and increase their purchase frequency by, yup, 10%. What would happen?

Let’s say that for a given period, you normally get 1,000 customers, each customer normally spends $100, and buys 10 times per year. Keep in mind that I’m pulling these numbers out of thin air, just for the sale of illustration. As the car companies say, your mileage may vary.

Okay, here we go…

Increasing customers by 10% means going from 1,000 to 1,100, or adding 100 extra customers.

Increasing order size by 10% means going from $100 to $110, or adding $10 extra per sale.

Increasing order frequency by 10% means going from 10 purchases per year to 11, or adding 1 extra purchase per year.

Here’s the baseline:

1,000 customers x $100/order x 10 orders/yr = $1,000,000 in sales per year.

Just adding 100 customers adds 100 x $100 x 10 = +$100,000 in sales per year.

Just adding $10/order adds 1,000 x $10 x 10 = +$100,000 in sales per year.

Just adding 1 sale/year adds 1,000 x $100 = +$100,000 in sales per year.

So how much more would we add if we could do all three?

1,100 customers x $110/order x 11 orders/yr = $1,331,000 in sales per year.

For a net gain of $331,000 per year over the baseline. $331,000 PER YEAR, even if you never duplicate that improvement again!

Next, we’ll look at how customers decide to buy, and how you can profit from the natural buying process.

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One of the basics of doing business is to make doing business with you as easy as possible. The more obstacles you put in front of a possible buyer, the more likely they are to simply give up and go somewhere else.

Here’s one good example of how to make things difficult…

My wife likes to print coupons she can take to the store, and one of the places she likes to get them is SmartSource.com.

On the surface, it looks easy. You set up an account, choose which coupons you want to print, and go. IF you use the bug-ridden and vulnerable Internet Explorer, it might work that way.

If you use Firefox, you get a page telling you you need a plugin. Okay, I can buy that.

Install the plug-in, click to start printing…

And you get a page telling you that you need a plug-in.

Jump through the hoops again. Same result. Finally notice a small text link with instructions.

What, the big graphics with clear instructions were NOT the real instructions?

Click the link…

I saw the same four steps as before–along with a FIFTH step not mentioned on the prior page.

Click that button, restart Firefox again. Now we’re back to the original table asking us to select which offers we want to take. Page through all seven pages of choices, and make the selections. Click to print the coupons and get…a page telling us we need a plug-in.

Close the browser. Take a few deep breaths. Open a new browser and start over. Make the selections. Click “Print” and…FINALLY, the promised land! “Printing coupon 1 of 8…2 of 8…” Printer noise! YES!

If my wife was less motivated to save us money at the store, or I was less stubborn about making that darn thing work, SmartSource would have lost us – forever. Imagine someone a little less than tech-savvy running into these obstacles. How many opportunities is SmartSource missing by not making things easy?

There are several points at which this whole mess could be avoided…

First, browser detection is pretty easy these days. All they had to do was read which browser my wife was using and redirect her to a page with complete Firefox-specific directions.

Second, they could have put the complete set of instructions on the original page – including the final step that was buried on the alternate instruction page.

Third, they could have made the link to browser-specific instructions more obvious. A small, six-word text link is lost on a page full of colorful graphics.

Fourth, they could have said that the browser needed to be closed and a new session started before the new plug-in could work. An apology for making us do our selections over would have been nice.

Here’s the big takeaway from this. If you sell anything online… If you collect contact information in return for a premium or gift… If you do anything interactive with web visitors who might not be real tech-savvy…

Make it as simple and obvious as you possibly can.

Remove the bottlenecks that keep people from completing their objective. Especially if that objective is giving you money.

Test your process by going through it yourself. Ask someone without a high level of tech skill to go through it. Look for the sticking points and smooth them out.

You want your whole order, sign-up or fulfillment process to be more like a water slide at a fun park than the obstacle course in boot camp.

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