How to increase profits: maximize before you multiply
You – a business owner – know that not all business growth is “good” growth. What is “good” growth? That which generates a profit. So, what is the best source for profitable growth for your company? This article will teach you how to maximize before you multiply, and share how to increase your profits with the customers you already have.
Estimated reading time – 8 minutes
Maximize before you multiply – do more for your existing customers
Did you know there are really only two ways to grow your business? You can find more customers, or you can have your current customers buy more from you. That’s it. Which of the two is more difficult? New customers. Do you really want more customers?
What does “maximize before you multiply” mean? It means that – before taking on more customers or opening an additional location of your business – you take the time to leverage the relationships you’ve already built. It means adding more value to your existing customers by helping solve more of their problems. There are two distinct strategies for increasing the profitability of your existing customers –
1.) Have your existing customers buy more often from you (frequency)
2.) Have your existing customers buy more products or services from you (breadth)
Let’s look at them separately.
Increase profits – existing customers buying more often
Using frequency to increase your profits is the more straightforward of the two ideas. If your current customers are buying from you twice a year, when you double that frequency, you’ll double your revenue. What’s a great way to encourage this behavior? Move from sporadic revenue to predictable revenue. This idea is often referred to as a subscription-based model.
A subscription-based model is something that Netflix & Spotify have done incredibly well. Regardless of the amount of entertainment you consume, you pay a flat, predictable fee. It’s great for you (because you can budget for it) and great for them (because they have recurring revenue). Many other industries (cable television, insurance, fee-based financial services) have done this for years, and subscription-based models are becoming more and more the norm.
How can you use this same idea? Let’s say you run a carpet cleaning business. You typically perform your service only when requested by a customer. Some customers may call you every six months, while others call you every three years. Revenue is sporadic and completely unpredictable. To remedy this, you contact your existing customers with the following offer –
“Thank you so much for being our customer. Based on requests from other clients like you, we’re offering a new service to ensure your carpets are fresh, your house smells great, and you’re proud to host guests in your home. If you take advantage of this program, we’ll clean your carpets every three months so you can ‘Set It and Forget It.’ We’ll take care of everything for you.”
This offer could add more detail, costs, and the like, but you get the idea. What if only 10% of your existing customers took you up on this offer? No longer will you have months that are completely unpredictable. No longer will you start each month at zero. As The E-Myth states so elegantly (one of my all-time favorite books), “You can move from working IN your business to working ON your business.”
As a side note, this is why I started investing in rental real estate 15 years ago. Owning something that pays you to own it is what we all want with our businesses, right? “Okay,” you might be thinking, “that sounds great for a business that benefits from more frequent transactions. I run an accounting firm, and we can only do one tax return per client per year. How can we maximize before we multiply, then?” Great question!
This is the more difficult of the two concepts, but it’s challenging because of our own apprehension. What do I mean? Business owners don’t want to do anything to jeopardize their relationship with their current clients, so they’re oftentimes hesitant to introduce products or services to complement existing solutions. After all, it’s hard enough to get someone to become a customer in the first place. What if you offer something additional to your clients and they say, “no?” Will it affect your confidence moving forward?
Here’s the best way to alleviate that concern – stop thinking about yourself and start thinking in terms of your customers’ needs. When we’re scared to offer new solutions to our existing customers, it’s only because of our own fear of rejection. If you can help your existing customers by fixing more of their problems, then it’s your responsibility to discuss this with them. Seth Godin coined the expression, “At the heart of all transactions is trust.” After you’ve worked with clients for a period of time, there’s a great deal of trust that has been built. Wouldn’t you want someone you trust to tell you, “Hey, I notice you’re facing this problem. Could I propose something that might help fix it?”
How do we discover what problems our current clients are facing? We ask them. When you’re calling or emailing your current clients, instead of just “checking in” or “touching base” consider starting a conversation that speaks in terms of their interests. If it’s feasible, try to ask these questions in person. Is this going to require more work than just doing maintenance check-ins? Of course. After having these conversations, though, you’ll find many of your existing clients have similar problems that you’re not currently solving. What do you do then?
Offer additional products or services by –
1.) Adding to your current offerings
2.) Forming strategic partnerships
Let’s look at them separately as well.
Adding products or services to your current offerings requires two considerations – do you have the capacity available, and does it align with your current business models? Back to the carpet cleaning example from above – if you already have trucks going on-site to client locations, it’s not unrealistic for you to add window washing and house cleaning to your array of services.
Instead of going overboard with advertising or re-branding, consider first trying what’s called a “Minimum Viable Product (MVP)” from classes I – and others – teach on Lean Business Models. Put simply, this means you create something and just try it out. It costs you almost nothing – and literally nothing if you use email – to ask your carpet cleaning clients if they would like help with window washing or house cleaning. By surveying your clients and saying, “Since we’re already at your house to clean your carpets, would you like us to freshen up the rest of your home as well?” you can easily figure out if the additional products & services would make sense for them.
If you start keeping an eye out for these strategies, you’ll see companies applying these ideas all the time. Have you ever seen an offer from a bank that says – “Open a checking account with direct deposit today, and we’ll give you $100?” Are banks in the business of giving away free money? Of course not. They want to service your other financial needs in the future. The checking account is the way they start the relationship, and then the additional offers follow. CDs, auto loans, mortgages, financial services, you name it.
So what if you find a need for your clients but you can’t service it yourself? What if your carpet cleaning clients tell you, “I really need some help with landscaping and general lawn maintenance?” Instead of buying all the necessary equipment to perform those services, you can find a strategic partner to help fix their problem.
Maximize by forming strategic partnerships
Referring people to others you trust is a natural instinct. Think about it – isn’t this something you’re already doing for your friends? Have you ever had someone ask you if you knew a good dentist/plumber/financial advisor? By applying this same idea to your business, you can be of tremendous service to your existing customers. How will this idea increase your profits, though?
One of the hardest things to do in business is consistently grow. Why is consistent growth important? All businesses naturally have a level of attrition. You’ve heard the expression, “If you’re not growing, you’re dying?” In the context of business, this means that natural attrition will shrink your business every year if you’re not growing. Natural attrition consists of customers moving to competitors, moving out of your service area, or simply not needing what you offer anymore. How do you assure consistent growth, then? You need to be engaged in the areas of sales & marketing.
If you’re referring your customers to other complementary businesses, you’re becoming a salesperson for that company. You’re offering that company qualified leads without any additional work on their part. Companies will (and should) pay you for these leads. I’ll stop here for a second because this is where people start to get apprehensive. “You mean other companies will pay me to refer them to my customers? I feel kind of weird about that.” Please remember – think in terms of your customers’ needs. If you’ve taken the time to uncover additional problems that a trusted, strategic partner can fix for your customers, it’s your responsibility to help. Because you’re adding value to both your customers’ lives and the business to whom you’re referring your customers, you should get paid for it. Just let your clients know up-front, in writing, that you have strategic partnerships, and that the partnership has monetary rewards.
These strategies truly offer a win/win/win for your customers, you, and your trusted, strategic partner. Remember, the operative words from that last sentence are trusted and strategic. If you have any trepidation in referring your customers to a possible partner, wait until it’s right.