Sales evaluation for small businesses

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every week layla and i my wife talked to five to ten new companies to potentially invest in that have already passed a couple rounds of screening and i was on a conversation the other day with a coaching business and the founder made a very ridiculous statement and i thought i would make a video about it because i think you'll get a lot of value from it they made the statement i just don't think there's a way that we can make our customers more valuable uh which as you can imagine if you've been following my channel for a while you know drove me into a fit of rage not really but i i stopped and i wish i had recorded it but the basic premise is that that's just patently false and i'll show you six different ways you can increase lifetime value in a coaching or service based business all right and so if you don't know who i am my name is alex mosey i own acquisition.com it's a portfolio of companies that right now does about 110 million dollars a year and continuing to grow and so i just make these videos because i hope you get value from them okay so there are there are two ways that you grow a business right number one is you get more customers the second is you make them worth more that's it that's chunked all the way up at the top of this right like either get more customers you make them worth more all right there's lots of sub buckets underneath of that but those are the two fundamentals if you're attacking a business in terms of like trying to figure out how you want to grow your own business you can use these mental frameworks and so these are kind of like my own checklist of what i'm thinking through or someone's talking because we only have 15 to 20 minutes with these new companies because we talk to a lot of them just to get a feel if we want to invest time and money into them so that being said with this particular company it was a coaching business now the nice thing is that with coaching businesses it really applies to all types of businesses so if you're a service-based business if you coach for weight loss that is a service business if you you know a lot of businesses just don't like the term coaching but it is more or less what you're doing you're advising clients on some sort of outcome right and so in this particular business they said that they didn't have a way of you know making the customer more valuable and so these are the six ways that you can make a customer more valuable and i'll give the example that i shared with them to try to drive it home all right so if you can think about this within your own business you will make more money so the first and obvious one is you can raise prices so you can sell the exact same thing and add money to it and make more money sounds wild but that is something that a lot of people don't do and so getting the pricing right is a way of making more money there are sub pieces that we could sell higher percentages of people by having different pricing levels but just big picture number one is you can increase the price number two is that you can lower the cost of goods right because we're looking at how can we make a customer more valuable we can make that by raising the price but you can also lower how much it costs to fulfill on them and so there's two easy ways you can do this within a coaching business one is that you could decrease the cost of the people themselves so you keep the ratio that you have with your clients but then you probably outsource a component of that uh you know to somebody who might be abroad who'd be willing to work for less money all right that would be a way of decreasing the cost of goods the other way of decreasing the cost of goods is keeping the same number of coaches but increasing the ratio between coaches to clients if one coach is managing 10 clients and then they go to managing 20 clients your cost of goods cuts in half right and in so doing that your margin goes up hopefully you're tracking with me so number one increase the price number two decrease the cost of goods number three is increase the purchase velocity or frequencies the number of times people buy all right and so within the context of a recurring revenue business that would be decreasing churn though getting people to stick and stay and pay longer right so if somebody normally buys and then stays for three months in your you know service-based business or coaching business or whatever it is then if we can get them to stay just an additional month it's a 25 increase in ltv so how much that person is worth to us over the lifetime of them being with us right and so number one price two cost of goods number three getting them to buy more times the other whole next three buckets all kind of fall they're different flavors of the same thing all right and so it's cross sells upsells and down cells and so i'll give you examples of each of those so cross sales is when you have them buy something and then buy a different thing as in a as an add-on all right so if you have a level of service uh let's say you have a coaching business right because i'm using the example that we were talking about if they if they have a core service but there's an element of something that uh someone needs to do so let's say they're they're doing some sort of business coaching right a lot of times they're gonna have some sort of model that they're helping people execute within their business or flip to and then there's sub-components of the execution so there might be creating ads that would be an add-on service that you could add it could be drilling their their sales team right so helping them train their sales or train themselves on sales because they need that additional level of support and so just think about the different bottlenecks that people are experiencing within the execution of the core business that not necessarily everyone will use but some people would get a tremendous amount of value from those are kind of perfect scenarios for add-ons that you can add to the service levels that will increase the lifetime value because let's say twenty percent of people take uh an upsell you know of an extra thousand dollars a month and they're paying a thousand dollars a month well just like that you took your average monthly from a thousand to twelve hundred right so it's a twenty percent increase because you got twenty percent of people to take an additional uh level of service all right the second type of sell here so i said there's six ways so we've covered four price cost of goods increasing purchase frequency cross sells the next one is upsells all right so i like to delineate this from cross sales cross sales is selling a different thing to the same customer all right so in the mcdonald's version this is like would you like fries with your coke right or whatever it is fries with your burger doesn't matter but like it's the crossover selling something different that still goes with the core thing an upsell is where you sell more of the thing that they just bought so this is where in i'll use the mcdonald's example to drive it home and then i'll give you a coaching example so in the mcdonald's example it's would you like you want a burger do you want a bigger burger right that would be an upsell right it's the same but more of the same thing and it's good to think through these these frameworks because this is how you can think of and iterate your own service levels within the business so let's say that somebody in this coaching business you know meets with their coach every whatever every every two weeks we could increase that frequency and say okay well like our higher level of service you can meet with the coach more times right or you could have it's more access whatever the thing that we're selling is it's just more of it and you'd be surprised a lot of people just want more and this is where this gets kind of interesting from uh from a from a pricing and lifetime value perspective customers are fractal and what that means is that it's 80 20. so one out of five customers is typically willing to pay twice as much as the core offer that continues to go up so if you know if you have 100 people 20 of them are willing to pay five times you know as much as the the base adr which then means that if you get 20 to take something that's five times as expensive then you actually just double the lifetime value now if you look at that 20 and look again and do another 80 20 split on that then four of those 20 are gonna be willing to pay another five times more than the remaining 16 in that group right 80 20. and so it continues to get fractal so it's like 80 20 95.5 99.1 all of those are fractal distributions and with each of those increments you usually have people who have significantly higher spending power and so simply offering a significantly more expensive version to 20 of the customers is simply a really good way of increasing ltv all right and so in this coaching example if they had a large group component and they wanted to do a semi-private component or small group then that would be something that should reasonably be you know probably four or five times as expensive um given the fact that it's now significantly more narrow and more attention is given to each customer all right so increase the price increase uh decrease the cost of goods get people to buy more times sell them more stuff that's different sell them more of the same all right cross sales upsells and the last one number six is downsells all right so this is when and in the purpose of the down cell there's kind of two two key areas in the business where this is helpful number one is on the front end number two is on the back end all right so on the front end getting more down cells it's i'll tell you where it backfires but if you have another offering uh for people who get on the phone it's especially useful and this is how you do it right for disqualified or under qualified leads all right because you've already paid for the marketing to get this person on the phone or into your kind of conversion event but if the person does not qualify for your core offer because they don't meet certain you know requirements that you've already predefined of like what a perfect customer is for you then you want to have something for them that can help them ascend into that that's going to be significantly lower touch or ideally no touch at all right and so in this instance i think this was a health coaching thing they i was like just create a done for you at home or done uh do it yourself at home program that people who can't afford to have the level of service they get a little bit of a head start they get a little bit of education to get them going so that they can then you know if they succeed with that they show themselves they're motivated they show themselves this is more valuable than then they can ascend up where it gets sticky is where you have people who otherwise would have bought the core offer but then the sales team starts down selling them that's the no no that's what you don't want to have happen and that's why tracking before you make it like implement a downsell into your sales process is important because you can see the percentage of people who are buying the core offer and so we should just simply be adding on more sales without detracting from the amount of people who are buying the core offer the second way that we protect against this is that when you have the customer requirements if someone meets the customer requirements for your core offer they should never be presented the downsell that is in my opinion that's how i prefer to do it because it also keeps it black and white for the sales team so because you don't want to have gray in making sales decisions in my opinion i think it's much easier to say like if they are this sell this if they are not this sell this that way we're just treating the customer for what was best for them rather than trying to like go based on their budget this is me personally because i just want to say like if i'm going to make this promise to you i'm going to fulfill this promise to you period and if we need to find a way for you to get the resources to do it then we will help you do that but like we're not going to just give you a deluded version of what we had right and so it's only like if you do not qualify then and only then will we down sell the reason this is effective is that you have these people you've already paid to get on the phone and so if you can liquidate a certain percentage of that cost by having a down sell it will help you offset cost of acquisition and ultimately make some more money and you also get more customers because those people have potential to extend in the future which is a great thing now the other place where down cells help is actually on the back end so information declines in value over time right and a lot of businesses that we work with are e-learning service coaching et cetera types of businesses and so one of the difficulties is how do they uh attack churn and so part of the way of attacking churn is realizing how people are consuming value through the services that they offer right and so if someone you know the day before you learn something very important it's incredibly valuable the day after it you don't need to learn it again because you already have it so the value declines very very precipitously um in these types of businesses which is what we've spent you know our life kind of fixing and making them more valuable right but having a down salt component on the back end when people are like you know what i've gotten a lot from this you know i don't i don't need the training and all that kind of stuff anymore what it is the question is what do they need or what would they like to keep right a lot of times community access is something that people will continue to pay for even though they're not access to the information anymore because like they don't need it because they already they've already figured it out right um or certain levels of troubleshooting and support whether it be technical support or accountability level support those are things that are are consumable right in terms of like you might need to be held accountable last month and you need to be held accountable this month um towards doing the actions and so when we think about this and we're looking at a business and this was the the coaching business that i give you as an example hopefully those answers uh give you some light depending on what type of business you have but there are always ma ways to make a customer more more valuable over time and so those are the six um that i think through when i'm looking at any kind of coaching info service type business that we're looking to take on which is like where do we see opportunity that we can increase the ltv per customer so that we can then turn around and spend to get more customers on the front end right because we're chunking back up two ways to get more make more money get more customers make them worth more and that is a wrap so uh thank you guys appreciate if you're new to mozy nation welcome i appreciate you and i'll see you guys in the next video bye