So, your business is doing great. Your workers, tools/equipment, and resources are being fully utilized and you’re too busy even to take on new customers. And, you’ve done this all without developing a serious marketing strategy while not spending much or any money on advertising. This is what I hear from many potential clients when I approach them to discuss marketing. So why does your successful business need marketing? Let me tell you why.
We think about marketing being necessary and viable only in competitive environments where consumers have other, feasible alternatives. In many places, like here in rural areas of Maine, it is dominated by small business in small markets. There may be only one or two businesses in town that provide a particular good or service. In this case, investing in marketing seems like an unwise expense. But even if you’re free of competitors now and there aren’t many more customers to attract because of a small market, you should still look at the mix of customers you do have and maximizing the benefit for you.
If your business is so busy that it can’t handle more customers, then you need to examine your current customers. Let me pose a few ideas. If your business is busy and you’re being fully utilized, then the business’ time and efforts are very valuable. In other words, the opportunity cost of that time is high. This means that time spent doing alternatives is that much more costly because you’d be forgoing substantial revenue. But, think about it this way: could you be getting more out of your “busyness”? What does this even mean?
Let’s talk about customers and their value. Some customers spend more money overall than others, and some spend money on higher margin products and services. Some customers, being the really valuable ones, not only spend more money than other customers, but they also spend that greater amount on high margin products and services. One thing businesses need to be able to measure and analyze is CTV, or Customer Lifetime Value. This is how much a customer spends in the course of doing business with you for the entire time that they are your customer. This leads to some customers being more valuable than others. You can do that by utilizing an ERP system, many of which are built for a particular industry or business, like retail, restaurants, etc.
Now, back to the idea of getting more out of your “busyness”. Let’s say we look at the mix of your customers. Let’s say you are are able to measure CTV and have 100 customers. 80% (80 customers) spend $10,000 with you over their lifetime with your business and 20% (20 customers) spend $25,000. Some simple math is outlined below.
80 x $10,000 = $800,000
20 x $25,000 = $500,000
Now, what if you increased the 20% (20 customers) spending $25,000 to 40% (40 customers)? Let’s look at the math if that were the case.
60 x $10,000 = $600,000
40 x $25,000 = $1,000,000
By changing the mix of customers so that it’s more comprised of the valuable, higher spend variety, you’ve increased your revenue by $300,000 to $1.6 million. Let’s say it costs you $50,000 in marketing expenses to shift 20% of high paying customers to 40% and make that $300,000 in additional revenue. Who wouldn’t spend a small sum (in the big picture) to see a 500% return, in this example?
This is the power of segmentation. This involves identifying the value proposition of the customers you have and the ones that you hope to attract, then tailoring messaging and offerings that resonates with them in hopes of garnering their business. Due to the smaller audience size of higher paying groups of customers, it will cost more to reach and attract them. This is because you have to perform fine-tuned targeting on the marketing channels that they use. But, as we’ve seen in the previous example, it is worth it as long as it is done right. This is where most small business owners will need their efforts augmented by professional marketing expertise.
After all, if you’re a business owner that is busy trying to manage all of the activity of the business, it’s unlikely that you will be able to: define the characteristics and values of your higher paying customers; decide on which marketing channels to pursue that will reach them; develop the messaging, creative assets, and offers for them; implement and execute the campaigns; continuously analyze the results; and, finally, optimize based off that insight. Many small businesses leave money on the table by either trying to do this themselves or overlooking it.
Reallocating the mix of your customers is also a safe approach since generally those customers that spend more will be of some insurance to you during economic downturns. This is because even if they do reduce their spending – they’ll most likely be spending more than the people who were already lower spenders. So, as we can see, there are many advantages to a small business of taking this approach.
At Unique Minds Consulting, LLC, we have extensive experience with understanding the current state of your marketing and developing it into the powerful tool it should be to drive results that will increase profitability and achieve greater organizational efficiency. To schedule a free consultation of your overall marketing or any specific channel, please schedule an appointment here or call us at (207) 303-5634. You can ask questions at our Facebook group – Small Business Advice from Unique Minds Consulting – or visit our website to check out our services and chat with someone regarding any questions that you have.
Written by Austin Bayley, owner of Unique Minds Consulting, LLC. It is a local small business marketing agency located in Scarborough, Maine committed to offering novel solutions through creative strategy that create competitive barriers. We do this through extensive analysis, methodical implementation, continual refinement, and effective optimization.