If you really want to scale up your marketing, then it’s critical to know how much you can afford to pay to get a customer. The more you can pay to acquire a customer profitably (or at break-even), the faster you can grow your business.
Let me illustrate with an example…
Let’s imagine your average customer (or client or patient) pays you $1,000 and $300 of that is profit (after considering overhead and other costs of delivering your goods/services). In that scenario, you might be thrilled to invest $100 in advertising or marketing expenses to generate that $300.
After accounting for the marketing expense, you’re doubling your money. Not bad! I’d do that all day long…
But what if you run some ads and you discover it’s costing you more like $400 in marketing expenses to acquire a customer. Uh oh… You’re stuck. You can’t afford to invest money into marketing to grow your business, because it’ll literally bankrupt you! You’d be losing money on every new customer.
When faced with that kind of challenge, you can do 1 of 2 things. You can shrink from high cost to produce the sale, and look for the lowest-cost ways of acquiring customers… or you can find ways to increase your profit per sale.
I always recommend trying to find ways to increase the profit per sale. You’ll not only enjoy more profits, you’ll be able to invest more dollars into marketing to grow your business faster and dominate your competition.
Here are 4 ideas for how you can increase the profits you earn on each customer who walks through your doors:
1. Offer premium options at point of sale (“upsells”)
McDonald’s made the process of “up-selling” famous with these 7 words: “Would you like fries with that?’
Think about what additional services your customers might also benefit from at the point of sale. It’s been shown time and time again that roughly 20% (or more) of customers will reliably choose an upgrade when offered.
By simply offering premium options and add-ons, you could increase your profits by 20% or more overnight. So go ahead and start testing some upsells and premium upgrades to your customers, clients, and patients. Don’t be shy about it and don’t feel guilty about it. Recognize that giving them the option to customize their buying experience and enjoy more value from you.
2. Make special offers via email an on-going basis
Most business owners I know don’t stay in touch with their customers, and that’s a big mistake. The easiest and most affordable way to generate additional sales on an on-going basis is to send special offers exclusively to your customers (and prospective customers) via email.
Essentially, this is like running your own private Groupon. However, you don’t always have to have sales and chop your prices. You can also put together premium, higher-ticket offers tied to specific events. For example, a florist could create a special Valentine’s day program especially for their male customers, where they offer a bundle with two dozen roses, champagne and chocolates for $100 or more.
(Note: You can also combine these ideas. For example, the florist in this example could run a special Valentine’s Day offer, and then up-sell the men to a flower delivery of-the-month service).
3. Stay top-of-mind with a print newsletter
Email marketing is good, but you’ll capture even more of your customers’ mindshare if you send them a friendly print newsletter every month in the mail. So I recommend using both email and print newsletters.
By staying in touch with your customers on a regular basis, and letting them know what you can do for them, you’ll be more likely to enjoy additional repeat business and spur word-of-mouth referrals.
All of this means more profits with little additional cost. It typically costs less than $1 to get a newsletter out in the mail – so that’s only $12/year to stay top-of-mind with a customer that is likely worth hundreds of dollars to you. Smart investment.
A word of advice: Show some personality in your newsletters, and don’t make it all about what you do and the services you provide, otherwise your customers won’t want to read it every month. Include some light, fun stuff like stories about what’s going on in your life, crossword puzzles, trivia, etc). That way, people will be more likely to hold onto your newsletters (and keep you top-of-mind), rather than throw them in the garbage.
4. Test raising your prices
This may seem too simple and easy, but you’d be surprised how much of an impact simply raising your prices can have on your bottom line.
Your customers may have less price resistance than you assume. What if you could increase your prices by 20% or 30% and see no real drop in conversion rates? Or, what if conversion rates dropped by 10%? It still might be worth it… This is something you should test in your business.
And there are reasons to raise your prices that go beyond immediate profitability. Once you charge higher fees, you’ll also have to manage fewer customers. You’ll likely deal with fewer headaches, because high-paying affluent customers are often more pleasant to deal with than more budget conscious buyers. You’d think the affluent customers be more finicky because they’re paying more, but it’s usually not the case – often the budget customers are the toughest to manage.
Now, I don’t necessarily recommend that you double all of your prices overnight. Test price increases gradually and see what effect higher prices have on the number of new customers you’re signing up, and your overall profitability. Of course, the best way to raise prices is by simultaneously increasing the value that you provide with your services.
Finally, another benefit of raising your prices is that you will be seen as a premium player in your marketplace – and that’s a good position to be in. For better or worse, people usually equate higher prices with premium service. And so, if you’re capable of providing premium service, why not charge premium prices?
In summary
If you can increase the average profit value of a new customer, you can afford to invest more in marketing, and as a result, you’ll grow your business much faster.
In today’s article, I’ve given you 4 ideas that you can use to increase the profitability of your business:
1. Offer premium options at point of sale (“upsells”)
2. Make special offers via email an on-going basis
3. Stay top-of-mind with a print newsletter
4. Test raising your prices
Here’s what to do now
Take 5 minutes out of your day right now to brainstorm how you can implement at least one of these strategies in your business. Then go take action on it and let me know how it works out for you!
Do you have questions about these ideas? Other ideas for how to increase the average profit per customer?
Share your comments and questions.
