This video clip was taken from an Inner Circle Mastermind call discussing the marketing strategies of discounting and bundling. Learn about more of our marketing strategies by taking the free E-Learning Marketing System Guided Tour.
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Get a FREE copy of my Marketing Strategies e-Book for ideas that you can implement immediately into your business! “More Leads – Joint Ventures” is one strategy outlined in the book, which I’ll share here as well.
Do you currently have any established joint venture partnerships?
JV’s involve two or more businesses who decide to form a partnership to share markets or endorse a specific product or service to their customer base… usually under a revenue share arrangement. The key to creating successful joint ventures is to find partners who service the exact same type of clients that need or want what you sell.
Let me give you an example and I’ll use one we’re both familiar with… a florist. One of the most financially lucrative product lines for a florist is providing flowers for weddings. The average floral bill for a wedding often exceeds $3,000. But what we discovered about florists is they fall into what we refer to as an “event chain.” An event chain simply refers to a series of businesses that customers purchase from in a specific sequence.
For example, a wedding will never take place until an engagement ring is purchased from a jeweler. So jewelers are at the forefront of every wedding chain. Once the young lady accepts that engagement ring, this event chain kicks into high gear. First, this young lady knows EXACTLY where she wants to get married, so number one on her agenda is to book the church, chapel or synagogue where she wants the ceremony held.
Second on her list is to line up her wedding planner. Weddings today are a really big deal, and often women like to use the services of a professional wedding planner. Next up, she wants to secure the venue for her reception.
She knows most venues book out months in advance, so locking in that venue is high on her priority list. After that comes the wedding dress, so she begins the search for the perfect dress at an affordable price.
Next is our florist. The bride-to-be will want to begin selecting her floral arrangements for both the wedding and the reception. Then after the florist comes the wedding cake… the printer for the invitations and thank you cards… and depending on the financial ability of the bride to be, she may also be interested in hiring a limo… a DJ for the reception… a travel planner for the honeymoon… the hotel… catering and so on.
This event chain is typical of this industry. And for the florist, it specifically identifies a multitude of potential and very lucrative JV partners. But here’s why this becomes so important.
Every business ABOVE the florist has the potential to ENDORSE and SEND prospects to the florist. Unfortunately, the florist has NO control over that flow of prospects. Every business above the florist controls the JV relationship, so it’s critical the florist create such a compelling offer and relationship with these businesses that they feel obligated to send prospects their way.
But here’s what’s even better. The florist controls the prospect flow to ALL the businesses BELOW them in the chain, and by establishing specific processes and procedures to make sure their customers use those businesses, the florist can negotiate compelling offers with those business owners as well. So consider these numbers.
Let’s say this florist cultivates a JV relationship with at least one of each business throughout this entire chain. Staying ultra-conservative with our estimates, would you agree this florist… since they have NO control over the flow of prospects from these businesses… is it likely they could obtain at least ONE referral each month from just one of the businesses above them?
OK, would you also agree conservatively that since the florist controls the flow of prospects to the businesses BELOW them… that they could easily send at least ONE referral to EACH one of them every month? Keep in mind these are VERY conservative estimates we’re using here.
Since the average floral bill for a wedding is $3,000… then just ONE referral per month from those businesses ABOVE the florist increases their annual revenue by $36,000. Now let’s consider the businesses BELOW the florist where the florist controls the referrals. Let’s start with the wedding cake maker.
The average sales price for a wedding cake is also $3,000, and the florist could easily negotiate a 10% referral fee. So, just a single referral per month produces an additional annual increase of $3,600 for the florist.
Now consider the printer. The average sales price for printing is $1,000, and the florist again could receive a 10% referral fee, so that single referral per month produces an additional annual increase of $1,200.
If we stop there, this florist has just increased their annual revenue by more than $40,000… and that’s using ridiculously conservative numbers. Imagine if you continued to add up the revenue produced by all the additional referral fees the florist would earn from all the other vendors in this chain.
This same process holds true for businesses that aren’t in a chain. But just like the florist, they simply identify partners who service the exact same type of clients that need or want what they sell. Now I realize this looks easy, but it’s not… and here’s why.
You not only have to properly identify who would make an excellent joint venture partner for your business… but you also must determine the order to approach each one… how to approach them… and when to approach them. It’s critical you do this properly or you wind up burning through all of your potential JV partners and come out with nothing in return.
Let me ask you a quick question. Just off the top of your head, how many potential JV partners would you estimate might be a fit for what you sell? Would you believe that I could identify more than a dozen for your profession? So conservatively, how many referrals would you estimate might be possible if a dozen other businesses were compelled to refer their customers to you for additional purchases?
Conservatively, let’s say you only get 3 referrals every month that buy from you. That’s less than one per week. How much additional revenue would that add monthly? Now multiply that by 12 to see your annual revenue increase.
One more thing before we move on. Remember earlier we discussed the critical importance of creating a highly compelling informational offer that would promise so much value to prospects that they would knock your door down to get it?
Suppose the florist offered this informational offer in their marketing, “5 Things Every Bride Should Know to Avoid Disaster on Their Wedding Day”. This offer would place TONS of prospects into their drip campaign and result in a tremendous increase in sales. Those new sales can then be referred to their new JV partners and they collect multiple referral fees every month.
This would absolutely dwarf the revenue we just uncovered for the florist in this example. What I find really exciting about JV’s is this is a strategy I help my clients implement immediately… and it begins generating instant cash flow for them right out of the gate.
In a recent case study I conducted, I found $75,000 in additional annual revenue just using the JV strategy.
And again, that’s revenue that business will generate year after year after year.
$75,000 in additional annual revenue increases the valuation of that business somewhere in the range of $225,000 – $300,000.
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I was recently working through some marketing strategies with one of my coaching clients and we got onto the topic of pricing. She really wanted to make a push to increase her sales in the short term and wanted to decrease her prices and have a sale as a promotion.
I told her that I didn’t think that it was a good idea. There are better ways in which you can offer your customers more value with different strategies such as bundling. But first I wanted to walk her through the numbers to show her why I didn’t think a sale was her best option.
Unfortunately I haven’t always seen it this way and have made similar mistakes with my own companies in the past. But now that I’ve worked through the numbers and see the math, I definitely focus on other marketing strategies.
I’ll spend some time in other articles to talk about different strategies, but for now I’m going to walk through the steps I showed her that explain why I don’t like the idea of using a sale to add value to your customers.
The real key to success in marketing is to offer more value than your competition. Prospects will pay twice the price if they believe they’re receiving four times more value. Unfortunately, most businesses in a vain attempt to increase their value begin to offer discounts, and that often destroys their margins.
Would you believe me that in some businesses if they discount their price by a mere 10%, they now have to sell 50% more just to break even?
Let’s look at an example:
If you sell a widget for $100, and you have a 30% profit margin, you make $30 for every widget you sell. That means your cost basis for that widget is $70. If you discount that widget by 10% and sell it for $90 instead of $100, your cost basis is still $70. Now you are only making $20 in profit instead of $30.
For this business to make $1,000 in profit selling their widgets at $100 each, they would need to sell 33.3 widgets ($30 X 33.3 widgets = $1,000). But by discounting their price 10%, now they need to sell 50 widgets ($20 X 50 widgets = $1,000). They now have to sell 50% more widgets just to get back to their original profit margin. (33.3 X 1.5 = 50).
But consider this… when was the last time you saw a business offer a measly 10% discount? Most of the time they offer 20% to 40% discounts… and wonder why they are going broke. And to add even more bad news on top of this already bleak scenario, did you know that the latest research shows that discounting doesn’t actually impact a prospect’s buying decision unless that discount is for 40% or more?
So what about increasing prices?
Most small businesses have NEVER raised their prices. That’s because they don’t know the facts when it comes to increasing their pricing. They’re scared to death that ANY price increase, no matter how small, will lead to a mass exodus of all their customers. But is that really true?
Let’s use the same scenario as before. You are selling your widget for $100 and decide to increase that price by 10% to $110. Will that small increase REALLY lead to a loss of customers? Honestly, I believe a few will leave, but they are most likely your biggest price shoppers that show NO loyalty or patronage to your business anyway. They are the ones that beat you down on price every chance they get, and the moment you begin to make a decent profit, they will leave you in a heartbeat for the next business willing to accept a financial beat down. But even though there will be some customer attrition… to what extent? Let’s look at the numbers.
Their business is now making an additional $10 per widget… All of which is pure profit. Right there, that’s a 33% profit increase. For their business to make $1,000 in profit selling the widgets at $100 each, they needed to sell 33.3 widgets. But now, by increasing the price 10%, they only need to sell 25 widgets.
That means just to BREAK EVEN, they would need to LOSE 25% of your customers over a measly 10% price increase… and that simply ISN’T going to happen!
Want to know the closely guarded secret that successful businesses don’t want you to know?
STOP Discounting!!! Instead, innovate your business so you offer more value than your competition and increase your prices.
Of course, if we were working together we would need to perform a thorough price analysis on your business and determine the most lucrative price increase for you, but this is definitely a strategy I strongly recommend to all of my small business clients to help them increase their revenue. There simply is no FASTER or EASIER way to generate additional revenue.
After working through these numbers my client made the decision to increase her prices rather than have a sale and decrease them. So far, along with some other marketing strategies we applied, it is proving to be the exact thing she needed to do for her business.
Once you know and understand these and the other marketing strategies I teach, it’s just a matter of getting it all implemented in a timely and efficient manner to watch your business explode!