Webster's defines alchemy
as:
"an apparently
magical power, or transmutational process."
If you're in business for yourself, I'm sure you know the answer
to this question. If you're not in business for yourself, you
want to know because it will impact your future. Why?
Because in 21st century America, there is no room for redundant employees. The knowledge worker must possess an ability to impact the company's top, middle or bottom line in some way.
"What is the
most expensive part of a business?"
In big corporations, as much as 50% of the company's revenues
and resources are used for this process. Small business owners,
entrepreneurs, professionals, self-employed and the home-business
person also spend a lot to accomplish this most challenging of
all activities. The answer:
Getting a Customer!
How much do you spend to get a customer? Put pencil to paper. Even a rough estimate will add big money to your bottom line. Example:
One of my clients, a large insurance company, wants to increase profit-ability and account rep productivity. I asked them to figure out how much they spend in mailing, phoning, visiting, gas, tolls, office expenses, computer time, and every other expense they incur to attract and convert a client. In other words, how much does it cost to prospect, market and sell?
Here's a shortcut.
Go to your tax return. Divide total expenses (on schedule C, line
28) into gross income (line 7). If income is $100,000, and expenses
are $50,000, customer acquisition is 50% of revenues. To
find your cost per customer, divide expenses by the
number of customers. If you get 1000 for $50,000,
cost per customer is $50.
The reps figured it cost 75% of their first commission to get
a customer to buy the first time. Their average first commission
is $400. Let's see what this means to their profit-ability?
Commission (sales) = $400
- Expense (aver. 75%) (300)
Profit on 1st sale = $100
Let's look inside the numbers.
They got a Return on sales of 25% ($100 profit/$400 sale).
Return on investment, (ROI) is 33% ($100 profit/$300 investment or expense). What numbers did you come up with for your business?
This calculation doesn't take time into account. I asked them to estimate how much they earn per hour by dividing gross income by 2,000 hours (50 weeks @ 40 hours). If I make $100,000 and work 2,000 hours, I earn $50/hour. Why is this important to know? So you can make sure you spend your time doing $50 an hour work.
A rep takes four hours to convert a sale. If he gets 100 sales a year, he spends 400 hours getting customers. Good. This is $50 an hour work. But this means he's only 20% productive!
What does he do the other 1,600 hours? Prospect, market, administration and paperwork. He also spends too much time with people who don't buy. Too many sales calls end in NO SALE.
Here's the incredible thing. Companies spend a fortune to get a customer (in real dollars, time and percentage of gross income), then they invest pennies to keep them. Many companies actually view customer service as an expense, a "necessary evil" as one corporate exec told me. It's no wonder people are frustrated with customer service, which is at an all time low. Businesses miss a HUGE opportunity to skyrocket profits, because
There's gold in 'dem 'dere hills!
Sales Alchemy turns customers into GOLD!
Let's look at how a little Sales Alchemy can magically transform your bottom line...
Repeat Sales to Existing Customers Explode Your Bottom Line
Successful and profitable companies can recite chapter and verse what it costs to get their customers, and the value to keep them. Since most of the expense to acquire a customer is up front, even with big ticket items, they're keenly aware that the first sale is often marginally profitable. Record companies can give away $120 worth of CD's and still make money. How? They know
The best and most profitable new prospect is an existing customer!
Not everyone knows this. What do most reps do after they get a new customer? You got it! They go find another new one! They invest 75% of their time, money and resources to get a client, then they repeat the most expensive and least profitable process of new customer acquisition all over again. This is costing a fortune in lost profits and missed opportunities for repeat business.
Consider this: many buyers buy again within 14- 30 days of their initial purchase, and between 30% and 40% of all people buy another product, service contract, option, rider, upgrade, or add-on at the same time they buy the first. Yet, many companies don't even give a new buyer a chance to spend more money. They fear the customer might be turned off, or re-consider the original purchase. Nothing is further from the truth.
Human nature is immutable. When I buy, I have strong momentum and high expectations. I'm in an ideal mind-set to buy another product or service, add-on, upgrade, service contract, rider or option. I'm open to complement or enhance my main purchase. If I don't buy, you've lost nothing. Actually, you've gained a lot. Here's how.
By making me another offer, you find out my readiness to buy again, now, or in the future. You can lock-in your next sale simply by asking me what I would be looking to purchase next, and when. If you don't have it, refer me to, or joint venture with, someone who does and earn a referral or finder's fee.
Now, for how you can...
Increase Profit-Ability
from Every Customer by 300% to 900%!
Let's stay with the same dialogue. I asked them, "How often does a person buy a second insurance policy within the first year?" It happens often. "How much does the second sale cost you?" Almost nothing. "It's mostly profit?" Right!
What's the return on sales (ROS) and return on investment (ROI) of the second sale? Let's say the rep invests one hour ($50), and earns only half the commission ($200) of the first sale.
Remember the First
Sale
Commission (sales) = $400
- Expense (75%) = (300)
Profit on 1st sale = $100
Return on Sales (ROS)
= 25% ($100 ÷ $400)
Return on Invest (ROI) = 33% ($100 ÷ $300)
Now, the Second Sale
Commission = $200
- Expense (one hour) (50)
Profit on 2nd sale = $150
Return on Sales (ROS)
= 75% ($150/$200)
Return on Invest (ROI) = 300% ($150/$50)
Did I really triple my ROS (25% to 75%)? Can I increase ROI by 900% (33% to 300%)? With a second sale only half the size of the first? YEP!
Eureka! Instead of running out, these reps now spend a few extra minutes with their clients to discuss other needs and wants, and ask them their timetable to act. You can achieve outstanding results by following these two simple steps:
1- Offer all new customers a series of options or upgrades when they buy the first time. Offer other complementary products and services.
2- Follow-up with customers regularly by mail and phone, and make repeated offers to them. You can make a fortune on your back end.
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All Rights Reserved.
Duplication of any kind with author permission.