Picture this: you see a mountain reaching up into the sky. It may be a gentle, rounded mountain or one of those jagged peaks. Running down from the mountain are the slopes, stretching down gradually to the plains below. And the plains slowly run on to the sea.
Your customer base will be something like that. There will be a group of customers who provide the majority of your sales, and profits; they are the mountain, making up the bulk in dollar terms of your revenue. It’s the 80/20 factor; 20% of your customers will provide 80% of your profits.
Then there are those who buy less frequently, or in smaller amounts, but are still regular customers. They are slopes of your customer mountain.
And lastly there are the plains stretching out to the distant sea, that great mass of customers who may comprise the bulk of names on your customer base, but in fact buy very little and do so only occasionally. In marketing terms, particularly in these days of e-marketing, they are known as the marketing ‘tail’, the 80% of customers who provide 20% of your profits.
When you promote your products or service, to what part of the terrain are you promoting? The whole landscape, (i.e. everybody), or to the mountain, the slopes or the plains.
Let me ask you which landscape is going to give you the best return on your promotional dollar? As a small business, my assumption is that you do not have unlimited dollars for promotion. I guess the corollary question at this stage is whether you actually measure the return you are getting now from your promotion. But that is a question for another day.
If you spend $500 on a promotion from the mountain to the sea, your promotional message will be about everyone, and no-one. The first thing any potential buyer looks for in any promotion is WIIFM (what’s in it for me). Because your ‘landscape’ message will of necessity be general, no-one will be able to say “that’s me”, and be enticed into your message.
So now ask yourself: who is more likely to buy; those customers on the mountain who buy from you frequently, or those who may only do so occasionally, and for small amounts at that.
Why would you waste money promoting to the tail? Think about it; that tail will be made up of a great diversity of people, each with different needs and requirements. Your message will be meaningless to the majority, and being meaningless, be ineffective, a complete waste of money.
On the other hand, if you target a particular part of your customer base (those on the mountain), and direct your promotional message specifically to their needs, they will be much more likely to say “that’s me”. And if they say “that’s me“, they will be much more likely to buy.
Seek to gain more customers like those on the mountain; good, regular buyers who will build your business, and your profits and cash flow.
When clients approach me for coaching, so often, they are not getting the clients they need, the right clients. Eight times out of ten this comes down to not knowing what is working, and what is not working, and how to develop that WOW factor that makes them different.
For more than 28 years I’ve been helping small business owners plug the profit leaks in their business and restoring their cash flows by assisting them understand how to use the 80-20 rule to determine their most profitable customers, and to determine the message to bring them on board.
If you would like to discuss with me how you might do that, book a Strategy Consult here.
© Copyright 2017 Adam Gordon, The Profits Leak Detective
Some profit losses are pretty obvious - so you fix them.
BUT, what if you don't know profits are leaking, cash out the door?
Possible leaks could be anywhere.
Are there some clues or symptoms that are tell-tales?