Do you know what the hardest task in all of the marketing world is?
Generating new customers!
Think about it. If you’ve been going to a doctor for 5 or 10 years, it’s going to take a lot more for the new kid on the block to get you to become a patient than introduce himself with a postcard and a smile.
You’ve got a lot of trust built up with your current doctor, and he has to overcome that first – before any type of new relationship can ensue.
This is why for most businesses, advertising is such a dreadful process. They know they have to advertise, but just can’t seem to get the results they hope for when they write those big checks.
While that is the case for the vast majority of businesses – there is a way to generate new customers infinitely faster, easier, and more profitably than the way most businesses can even dream of.
It’s called “lowering the barrier of resistance”. Or in other words, acquiring customers at a breakeven and generating all of your profits on the back end repeat purchases.
It’s a total mindset shift in what the actual purpose of the first sale to a customer is designed to do.
Most mediocre businesses operate with the mentality of finding customers to make a sale.
Meanwhile, the savvy business owner operates with the mentality that the purpose of the first sale is simply… to generate a new customer. To get someone into the buying stream, or into a buying relationship as quickly and easily as possible. Then you can do your major selling afterward.
Think about it this way… Would you rather make 100 sales to new customers with $20 in profit each… or would you rather make 500 sales and breakeven, knowing that for each sale you’d get 4 repeat purchases at $50 profit?
This is an oversimplified demonstration, but breaking even and lowering the barrier to doing business with you is one of the easiest — yet woefully underutilized — marketing strategies there is.
The purpose is simple. Make it easy to start a buying relationship with you. Most businesses make it too hard. The barrier to entry is too high and there’s too much risk. This is an easy way for you to stand out.
Show them how much you want their business. That you’re willing to take on most of the risk in starting the relationship – and not simply dumping it all on their shoulders. Make it worth their while to get out of their comfort zone – the buying relationship they currently have with someone else – and consider starting one with you instead.
For example, an auto repair shop opens and offers a $19.95 oil change & tire rotation service for new customers.
It probably costs them $19 in oil and oil filters, but they also get to inspect the rest of the car to find if there are any other necessary repairs.
They can also get the customers contact information for future promotions, and keep a log of their recommended services to follow up with getting them done – or even offer special incentives to get them done at their shop.
If the customer had a good experience, they can also tell them about all the incentives they have for referring friends and family to the shop – and how they can save long-term by joining their customer loyalty program etc…
Or if they wanted to go after a higher dollar segment of customers, they could package a number of smaller services in one. They could bundle a complete automobile fluid flush package.
Say they had a deal for flushing brake fluid, anti-freeze, power steering and transmission fluids all in one. It costs them about $180 in hard costs for fluids and cleaning solvents to perform the service. The retail value of all these services might be around $550 separately, but they could market the entire package for $199.
This way, it’s still a great deal for the customer. The auto repair shop gets a new customer to build an ongoing relationship with. And, the chances of these people having money to get other needed repairs done is drastically higher than those who come in for a simple oil change.
But cutting prices isn’t the only way to lower the barrier. You can also use the would-be profit, to acquire other products to package in.
For example, if you were selling men’s clothing, and your initial suit purchase was $150 and $75 was gross profit. You could simply give them another one free… you could invest the other $75 to throw in a shirt, dress socks, tie and a pair of cufflinks to make the sale more attractive.
You could also invest the other $75 in incentives for your sales people. For example, you could reward whoever had the most full presentations that day – or other sales building activity.
You could also use it to package advertisements of other special offers in with the initial purchase. Brochures, sales letters, gift cards towards future purchases etc…
Here’s how to use this to your advantage.
In order to know exactly what you can afford to spend on creating an offer like this, you must first know how much the average customer is worth to you in profit over their “buying lifetime”.
This is the true way to calculate a marketing budget, not by simply allocating some random monthly number pulled out of thin air – or a set percentage of sales like some people adhere to.
First, calculate how much it costs you to get a customer. This is determined by how much it costs you to run an ad, divided by the number of customers it generated.
Then you calculate how much the average sale amounts to in gross sales, and profit.
Next, find the average of how many times the customer will purchase again over the course of a year, and how many years they will typically buy from you.
Finally, subtract how much total profit you will make over the customers buying life cycle, by your cost to acquire them.
Here’s an example:
Suppose it costs you $1,000 a month to advertise in your local paper.
You generate 25 new customers a month from running this ad. This means it costs you $40 to acquire a customer.
Now let’s say the initial sale is $60 with no profit, and the average customer makes 5 repeat purchases a year, for 3 years. Each of these repeat purchases is worth $200, with $100 of that being gross profit. customized dress socks