Getting rid of overstock can be quite a handful of problems, until you finish reading this post! Overstock happens, and without taking huge losses, you can find ways of selling all of it to the point where you may want to order more again for the new flow of revenue you just created. Consider these options:
- Selling to another supplier at a discounted rate
- Selling to clients as an up sell or add on to an existing purchase
- Selling as a loss leader to sell other products and services
These should help get you started on getting rid of the overstock you may have. If you are stumped, give me a call and I will help you get rid of it! (727) 231.4335 Ask for William, and mention this post!
This is a main marketing principle that you should always be implementing in every campaign you can. A/B testing is the most effective way of improving one aspect of any marketing campaign. It is important that you only test one thing at a time per campaign, so you do not mix and match results. But you should never run a single ad, you should always be testing ads, offers, campaigns, pricing etc. This is the best way to keep your finger on the pulse of the market. By being able to feel the pulse of the market, you will know how to better use your resources to gain more market share.
Every business has them, yet most of their clients when asked don’t know them. Therefore they are hidden, because nobody that needs to know about them knows about them! This goes back to an important part in providing value to your clients in the form of education. Educating your clients on the benefits of having your service and what the main purpose of your business is (client satisfaction superiority in your industry) can have an awesome effect on your sales conversion numbers as well as retention numbers.
When you track your results it’s a great idea to keep the results handy for analysis. You should be able to put your reports together and know what your popular items are, how much people are spending with you on average and other important figures. This tracking information, in short, provides you with a detailed “client getting map”. This information can be tailored for a “client keeping map” too. These figures separate mean little, but when you combine them, you end up with very revealing information into your market and what makes them buyers! The better your tracking, the better your map is for finding the sweet spots.
What better way to gain a base of clients than to buy out the rights to sell to clients of a related business that’s is going under? Those clients most times (even past ones) are the most valuable asset that business has, yet how many businesses that are going out of business sell that asset? The answer is not as many as you think. Naturally, you will want to be able to afford the buyout and have your marketing systems in place (referrals, one-time offers, client retention methods, etc.) And you simply feed your funnel with the new clients.
Becoming an authority can mean a significant increase in sales and client retention. Everyone wants to do business with some who is reputable, reliable and knows what they are doing! How can you become an authority? Give lectures, speak to groups of your target market, write important ground breaking pieces of information for client education. Make good overall positive waves in your industry. Even with only a little effort each week, you can be an authority in your industry in no time.
Here are three points to consider as you test your prices:
- Unless you are selling a commodity or a product that competes in a market ruled by rock-bottom prices, there is always some flexibility in your pricing. So you do have the opportunity to test.
- Finding the best price for a product, service, or subscription is both a science and an art. A prospect’s perception of your product or service will play a part in determining their own opinion of the “right price.” However, the price itself can also have an impact on how the product or service is perceived, thus creating a kind of causal loop. Within this loop, you have to find the price point that brings you the highest revenues.
- A very small difference in pricing can have a huge impact on your revenues. This is particularly true if you sell high volumes, or if you sell a subscription which could continue for years.
This article is a bit mathematically dense. To make it a lot easier to calculate your lifetime value, be sure to download the companion Excel spreadsheet. The four worksheets in the spreadsheet make it as simple as plugging in a few variables and the lifetime value and lifetime profit is computed for you. Feel free to distribute this file to your friends and associates.
When many businesses look at a customer they see the value of the first sale. If Sue bought a product worth $39 many companies would see Sue as being worth $39 in revenue. Then if, and only if, later on Sue buys, say, another $39 product from you will she be seen as worth $78 in revenue. Let’s assume S Company looks at customer value this way.
Other businesses, with managers perhaps a bit more experienced that S Company’s know better than to follow the above model. They know that the true value of Sue is the value of all the purchases she has made plus the value of all the purchases she is likely to make in the future (discounted to the present). This is called the lifetime value (LTV).
The essence of what you must know here is that to obtain the lifetime value of an average customer multiply your average sales by the average number of times they come back. You can estimate these figures to come up with a rough lifetime value figure.
So, to estimate your lifetime value of an average customer
|Estimated Average Lifetime Value = (Average Sale) x (Estimated Number of times customers reorder)|
Go ahead and calculate this figure right now.
1. Your estimated average sale is _______________.
2. The estimated number of times customers reorder is ________________.
Now, multiple figure one by figure two to get _________________. This is your estimate for the average LTV of a customer.
Now, to determine how much you can spend to acquire each customer, you must determine the lifetime profit (LTP) you receive from an average customer. To do that multiply your average profit per sale by the estimated number of times customer reorder.
Now, what does lifetime profit mean. Well, two things. First, it means the average amount of profit you are going to receive from each customer. Secondly, however, it means how much more you can spend to acquire each customer and still make a profit in the long run. To determine how much in total you can spend simply add back your average customer acquisition cost to this figure. Follow these steps to determine this very valuable information.
1. Average profit per sale is ________.
2. Estimated number of times customers reorder is __________.
3. Figure one multiplied by figure two is __________. This is average lifetime profit.
4. Figure three plus your average customer acquisition cost is _________. This is how much more you can spend to acquire each customer and still turn a profit.
|Estimated Average Lifetime Profit = (Average Profit Per Sale) x (Estimated Number of times customers reorder)|
If all you are looking for is an approximation of your average lifetime value and lifetime profit from a customer then you can stop with this article here. Simply know that this lifetime profit plus your current per customer acquisition cost will be the maximum amount you can afford to spend to obtain a customer and still break even, in the long run. It should be your goal to spend less to acquire a customer than this figure, so you can turn a profit.
Do not be afraid to spend more than the profit on the first sale to acquire a customer, however. In review, As long as you cash flow is healthy enough to support it, spend whatever you need to acquire that customer, as long as it is less than the average lifetime profit plus your current customer acquisition cost.
As you can see, however, this lifetime value and lifetime profit figures are very important numbers to know. Therefore, let’s look at a way to obtain a much closer approximation.
In case you missed the message at top, I’d very much recommend downloading the Excel companion worksheets at this point. It will make the following much easier to understand. Just scroll to the top to download them.
Once again, the following is a bit mathematically dense. You may wish to just download the Excel worksheets to compute more accurate numbers and leave the reasoning and formulas to others. However, do go forward if you wish.
Finding A Closer Approximation of the Lifetime Value of and Lifetime Profit From an Average Customer
As stated above, it is important to know your customers’ lifetime value as closely as possible so that you can make informed decisions about your marketing costs and budget.
While you should be able to determine your average sale fairly easily (divide total sales by number of sales), in some cases it may be difficult to estimate the the number of times customers reorder.
So first, let’s get a ballpark figure of the number of times customers reorder and refine our figure from there.
What we are doing: Getting a closer approximation of the number of times customers reorder so we can have a more accurate average lifetime value figure.
To estimate the number of times customers reorder, divide the number of customers you have by the number of sales you have made.
|Number of Times Customers Reorder = Number of sales you have made / Number of customers you have|
So to get this approximation of the number of times customers reorder
1. The number of sales you have made (not the number of products you’ve sold, but the number of orders you’ve filled) is __________________.
2. The number of customers you have is _________________.
Now, divide figure one by figure two to get ________________. This is an approximation of the number of times customers reorder. Is this figure close to your estimate above?
Now, you may notice that there is a bit of problem in this formula. Customers that you have acquired recently will not have ordered as many times as a normal customer would. Therefore this figure you just calculated will off. Therefore we must make the following adjustment.
To come up with a more accurate figure for the number of times customers reorder, you must remove the data from all the customers who, on average, have not yet finished their relationship with you.
What we are doing: Removing data from recently acquired customers as these relationships will not have come to a conclusion.
This calls for a crucial estimation. You must estimate the length of time a customer stays with you.
If you are an older company you can obtain a pretty accurate estimation by taking a random sample of 50 customers who have not ordered from you in at least 12 months. The larger your sample is, the more accurate this estimation will be. Simply determine the last data they ordered from you and the first date. Determine the number of days (or months if your average relationship is longer) between these figures. Add up all the days for each of the fifty customers, then divide by 50. This will be a very good approximation of the average length of a customer relationship.
Now, simply remove all the sales and customers you have gained during this period and repeat the formula above, number of sales times number of customers.
|Closer Approximation of Number of Times Customers Reorder = Adjusted Number of sales you have made / Adjusted Number of customers you have|
Now, if you are a younger company, you may not have been in business as long as the average length of a customer relationship.
If this is the case, you must estimate as closely as you can the length of an average customer relationship. Take a look at the sales data you do have to verify your estimation. Now, remove all the sales and customers you have gained during this period and repeat the formula above, number of sales times number of customers.
So to get a closer approximation of the number of times an average customer will reorder do the following.
Assume X is the length of an average customer relationship.
1. Total number of sales you have made is _________________
2. Number of sales made during the previous X number of days is _______________.
3. Figure one minus figure two is ______________.
4. Total number of customers you have is ______________.
5. Number of customers you have acquired during the previous X number of days is _________.
6. Figure four minus figure five is _______________.
7. Figure three divided by figure six is _____________. This is the adjusted number of times an average customer orders.
Now, that you have a closer approximation of the number of times an average customer orders you can plug it back into our original lifetime value formula and get a very accurate figure.
Do the following.
1. Average Sale is ____________.
2. Adjusted number of times an average customer orders is ______________.
3. Figure one divided by figure two is ________________.
This is a much closer approximation to the true lifetime of value of an average customer. Is it far from your original value?
|Average LTV = (Average Sale) x (Adjusted number of times customers reorder)|
And there you have it. You now have a very accurate figure for the average lifetime value of your customers. To get the amount you can spend to acquire each customer simply subtract the per customer cost of goods sold and per customer operating expenses.
Alternatively, you could find Average lifetime profit by multiplying adjusted average profit by the adjusted number of times an average customer reorders.
The one note I must make here is that average lifetime profit is not the total amount you can spend to acquire a customer. Rather, it is the additional amount you can spend to acquire a customer above and beyond what you are currently spending. Add back what you are currently spending to get the actual total amount of what you can spend to acquire a customer and still turn a profit.
In summary, every business wants as many new customers as they can get, but very few business owners know exactly what they will receive ultimately from each customer nor how much they can spend to acquire each customer. This is very important information, and if you know it you will have a marked advantage over your competitor. As long as your cash flow is healthy, spend as much as you must to acquire a new customer, as long as it is less than the present value of average lifetime profit.
Now, if you have not yet downloaded the Excel spreadsheet and you do want to calculate your actual lifetime value and lifetime profit, here it is again.
|Download Companion Excel Spreadsheet|
Now that you have quantified your Average LTV, make it a goal of yours to increase it.
Knowing what a client costs is very important to your business. If you don’t know, your primary goal should be to find out, immediately! Why is it so important you ask? It comes down to this: Are you able to make more money with the client than it costs you to obtain the client. If the answer to this isn’t a resounding “YES”, then you have a decision to make: Either you pack up shop or you figure a way to leverage your marketing campaigns to produce profitable results. This may sound harsh, but it is an absolute. Meaning, there is no getting around this one fact.
Once you have the cost figured, there are always ways and methods in reducing this cost or increasing your profit made on each client. But you must have some kind of starting point, and you must track your progress relentlessly. Only the really successful business owners take advantage of tracking everything to do with their clients. It is the one thing that EVRY successful marketing campaign must have. Don’t leave home without it! J
Need some upfront capital to work with? Have you ever thought about selling your service in advance for a discount rate? Say you have a car wash, with a fixed location. As your clients pass through hand them a flyer and explain briefly the offer of advanced purchases and the discount they can get. Remember that clients locked into this offer will be loyal and during their trips back to your car wash, they will (and often do so in great numbers) purchase additional products/services etc. This worked wonders for one of my clients several months ago! Now we are working on finding other related businesses to exchange promotions with (joint ventures), as his sales have doubled since then, and he wants to go triple before Christmas!