A while back, I consulted with a prospective client about implementing a newsletter in their business. They were keen on the idea, they could see the benefit in a newsletter but… the maths didn’t really work.
They were making on average about $80 profit per sale and their products were the sorts of things people may only need once every few years, so there was not a high repeat purchase opportunity. Their referral rates were pretty good though, about 1 in 4 jobs would refer a client to them, which is better than most businesses I talk to.
When it came time to talk pricing and implementation, they were not really in a position to afford it. Knowing the maths in the business, I could see why. I told them that a Newsletter is going to benefit them long them, however I also mentioned that they need to make some adjustments in their business to really accommodate a newsletter and to be able to afford it.
I am a firm believer that if you can’t afford a newsletter, then the structure of your business needs re-thinking. Ideally you want to be able to calculate the lifetime value of your average customer. This involves working out how much your average client spends per transaction and what the gross profit is, how many times they purchase each year. This then allows you to work out what a client is really worth to you each year. I advise that ideally to make a newsletter work, a customer needs to be worth at least $200 per year. A newsletter will on average cost you $30-$60 per year, per customer depending on how many you are mailing. Which is a small price to pay to keep them active and continuing to buy and refer, especially if you are getting back $200+ a year from each and more referrals!
So if your average yearly value is less than $200 and you can’t afford to implement a newsletter. There are a few solutions:
- Scrap your business and start over – Sometimes it’s better to admit your baby is ugly… If the maths really don’t work and you can’t find a way to fix it, maybe it’s time to find a new money-creation vehicle.
- Increase Transaction Value – You can do this in a number of ways, add additional products (preferably ones that are purchased regularly), find cheaper suppliers which will increase your profit per transaction, increase your prices. Cross sell other products, Partner with affiliated businesses with similar or relevant products and take a cut.
- Increase number of transactions per year – Actively follow-up with customers, educate your customers about whay they need it more regularly, get new products or additional services that are needed more frequently.
- Change the market you’re targeting. – Sometimes we are fishing in a small, smelly pond… There’s no big fish to be caught in a small pond… Throw your bait into the ocean and you’ll have a better chance, there are a few changes you’ll need to make, but often it’s not a lot more effort to go for a different market. Often to increase repeat purchases if you target re-sellers, contractors etc. someone who is buying regularly vs one-off it can make a massive difference to your bottom line because now you’re talking $1000+ transactions on a more regular basis than $200 transactions.
In a nut shell – if a newsletter doesn’t fit in your business, it’s likely that there is some aspect of your business that needs changing and you’ve got much bigger problems. Try some of the suggestions above and hopefully you can make a significant improvement to your bottom line.