Undraw treasure of9i

5 ways to find more profits in your business

Where to look when you have sales but no profit

Written by Stephen Pratley
on Feb 01, 2020
Read Time 6 minutes

When I was 9, I sprained my ankles no less than 8 times in the course of a year. The same pattern of leaping out of trees and off climbing frames like any kid. I'd try to go higher and higher until "CRACK!", and I'd be off to the hospital again.

Eight times I went to the Accident ward, had it X-rayed, and they found nothing.
I was sure there was something up. My parents thought I was being irresponsible. They were getting bored of the monthly trips to the hospital and the endless waiting for X-rays of my ankles.

Then a doctor decided to X-ray somewhere else.
He looked at my whole leg and saw a problem further up, nearer my knee. There was a slight twist in the bones that meant my feet weren't hitting the ground white how they should.

Nothing huge but under extreme stress it would show up.

So how did this doctor find the problem, and how did 7 others miss it?

Well, my mum had wasted enough time at the hospital and she wanted to know this too. My mum's not the kind to sit quietly while people waste her time.

I remember his answer though. Even back then it sounded pretty profound. He had one principle that he always used that helped him find the problem.

"The problem is almost never where you're looking. Only the symptom shows up where the pain is. The problem is always at least one step away."

Always look at the steps connected to the problem, not the problem itself.

We don't do this because it's not where our attention is held.

When my ankle was in pain, I looked at my ankle. When you need more money you look for customers.

We think our pain is revenues, which comes from customers, so we try to cure everything with sales. The real problem is profits, and they're not always where the sales effort is.

You can be forgiven for this though. The noise is all about revenues, keeping your focus in the wrong place.

The marketing industry keeps us focussed on revenues not profits

We're constantly being told about new advertising platforms, new ways to optimise what we're already using.

And the success stories you'll see are always about revenues. That's the data we feed back to Facebook, Google Analytics and the other tools we're using. It's the only currency they know. It's the only currency your media buyer can see as well.

Revenues are fine if you're selling a digital product, where there's almost zero cost for each product, but when you're selling something physical, something that has to be shipped, or a service, the costs are significant.

Revenues keep us focussed on new business
If we ignore the cost of winning a customer, then a new customer and a repeat one are the same. It also seem easier to keep doing the same thing we did to win our first customer.

The alternative is to create a whole new bunch of processes to turn our first-time customers into repeat customers. That effort puts a lot of people off. Particularly in the early days, when you have very few customers anyway, it seems crazy to divert your efforts to them, rather than the whole world of potential new customers that are waiting for you online.

But when we fail to do that, we watch our new customers lose interest in us, and when we go back to them, they've found someone else to take that next step with.

A small investment in the follow-up of new customers will stay with you for life. Most of these are automated processes that you can start on as soon as your website shows it's capable of turning strangers into buyers.

Fundamentally there are two ways to grow. Bigger sales, or more sales. When we apply this to turning sales into long term customers we can break it down a bit further.

Here are the 5 ways we apply Customer Conversion 1. More value - increase your average order values by selling bundles or add-on product 2. More margin - test higher prices, especially as proof grows that your product is working 3. More frequency - get customers to come back more often 4. More predictability - get repeat customers onto subscription or membership plans 5. More salespeople - give good reasons, and the tools, for your customers to recommend you

The first two are about getting bigger sales, or at least bigger profits. The next three are about getting more sales. Two from the customer themselves, and the last one form their connections.

The easiest ways to get your first sales work against these principles If you sell your product on Amazon or your online course on Udemy, you're making sales, but you're not making customers.

You have no way to sell bundles, test prices, communicate with your customers to get repeat purchases, or get them to recommend you.

Amazon owns your customer, because they know that's where the long-term value is.
They know that getting the first sale is expensive.

After all, they lost billions for years building up their customer base. But now they have them, and they've locked other people out using Prime. Now they're making big profits in retail again.

Plenty of companies are doing it right.
The subscription model is very popular right now, and not just for Netflix and Spotify. The Beard Club (formerly The Dollar Beard Club) sold to Unilever for $1 billion because they own their own customers, and Unilever has even more products they can sell into that market.

Even if you need to site behind a retail chain, there are companies that follow at least some of these principles.

Have you ever noticed how often shampoo is on a buy-two-get-one-free deal? Well, a friend of mine who works at Unilever explained it to me.

"It's not about a price war. It's about locking out the competition. Once we get three bottles in your bathroom, you're not going anywhere else for a long time."

Mastering these principles means you can advertise where other customers can't afford to.
I used to work with a client who made men's office shirts in London. My work was all online but he did a lot of sales through adverts in the Sunday papers. I was interested to see what I could do with these other channels.

I asked him what returns he got from his press ads and he answered "about 80%".

"Wow", I replied. "So for every £1, you're making £1.80?"

"No, 80%, not 180%."

I was shocked. My client was in these papers every weekend. Why was he pouring money away like this? But he carried on...

"But they come back again at least four times a year, so as long as I keep my bank manager happy in the first couple of months, it's good business."

This conversation taught me something I learned to look out for for years afterward.

Good marketers talk about conversion rates. Great marketers talk about Life-Time Value.

Lifetime value is best talked about in terms of profits. You can take profits to the bank.

Too many people overlook thee principles because it's an extra set of processes that you need to add to your business when you've already exhausted yourself trying to get new sales.

It's tempting, once you've got the sales machine to work, to just keep running it as hard as you can, but the profits, are a step further along the line, with your repeat customers.

A few extra steps, which you can mostly automate, will stop these customers drifting away to your competition.

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