So you think you’re going to publish a newsletter?

Hey, that’s not a bad idea!

If you make it an e-mail newsletter — like the one you’re reading now — it’s a particularly cost effective exercise. Your distribution costs are nil. Your publishing costs are equivalent only to the time you invest in producing content.

And just think what your newsletter will achieve.

Your newsletter will keep your organisation ‘top of mind’ with your clients, potential clients and centres of influence.

Your newsletter will establish you as an expert in your field.

And your newsletter will enable you to maintain an enduring and intimate relationship with your marketplace.

Or will it?

How do you know that subscribers will actually bother to read your newsletter? They are busy people, after all.

What’s to stop them hitting ‘delete’ each time your periodical arrives in their inboxes? Or worse still, pressing ‘reply’ with that dreaded ‘unsubscribe’ word in the subject line?

It’s one thing to publish a newsletter. It’s another to produce a publication that will be avidly read, respected and even awaited by subscribers.

Of course, when it comes to publishing a great newsletter, content is the key. (The same applies to running a great event.)

But what’s the mark of great content? How should you select this content? How should you package it? And how can you ensure that you can keep producing quality content after the second, the tenth, or the one-hundredth edition of your newsletter?

Religion is the key!

Our belief is that great content is more than simple information, education or instruction.

Great content flows from a higher cause … an ideology.

The presence of this ideology adds an overriding purpose to all of your communications, supercharging their effectiveness.

Ask yourself, would Permission Marketing, Seth Godin’s runaway best seller, have been the hit it was if it had just preached textbook marketing practices?

Would upwards of 25,000 stockholders attend Berkshire Hathaway’s Woodstock-style annual general meetings if it weren’t for value investing, Warren Buffet’s counter-intuitive investment methodology?

Or would CRM (customer relationship management) have ever captured the executive share-of-mind that it has if it weren’t for Peppers’ and Rogers’ long-term one-to-one marketing crusade?

In each case, this higher cause has transformed what would otherwise have been an interesting concept into a religion (at least, in the more general sense of the word).

As a marketer, the notion of a starting a religious movement should be an intriguing one. And there’s a simple reason why.

When a concept becomes a religion it becomes infectious. In other words it self-propagates, like a virus! (It’s interesting to note that Seth Godin’s second book is called Unleashing the Ideavirus — it’s all about what he calls viral marketing.)

The real significance of this infectiousness is the impact it has on the ROI (return on investment) of your marketing activities. If you can successfully ‘start a religion’, the return on your marketing investment will increase exponentially over time. This is in contrast to the diminishing returns we see from most product-centric sales processes in mature markets.

So now you understand the importance of ‘getting religion’, how do you go about the process of starting a religious movement? And how does this concept of ‘religion’ relate to our Relationship-centric Marketing methodology?

Starting a religious movement

We’ve created a simple six-step process you can follow to start your own religious movement. The starting point for this process is your basis for communication.

If you’ve attended one of our seminars or workshops, you’ll have heard me introduce this concept. Your basis for communication is the content platform upon which the relationship with your marketplace is built. You can find your basis for communication in the area of intersection between your market’s interests and your expertise (and credibility).

Typically, your basis for communication consists of expertise that you have acquired as a by-product of the delivery of your core product or service.

For example, an office furniture retailer may establish relationships with its marketplace by sharing its workplace design expertise with clients, potential clients and centres of influence. (This firm’s market may not have an enduring interest in our office retailer’s range of workstations but it is likely to have an ongoing interest in improving workplace productivity.)

Once you’ve identified a basis for communication, you’re ready to go to work starting your religious movement!

Step one: identify ‘a better way’

It seems there’s always a better way. No matter what industry we consult to, we always hear the same thing: ‘standard practice is fundamentally flawed’.

In fact, one of the special benefits of being a consultant is having the opportunity to learn the truth about furniture design, industrial air conditioning, merchant banking, aerial mapping and myriad other industries.

Your challenge is to look at your basis for communication and describe standard practice.

Once you’ve done that, you can outline your better way.

Godin does this beautifully in Permission Marketing.

Godin refers to traditional marketing as interruption marketing. Every advertisement or promotional campaign is an unrequested intrusion. The marketer views the potential customer as an opportunity for a short-term relationship (a one-night-stand).

The permission marketer views the potential customer as an opportunity for an ongoing relationship. While she may use interruption techniques to initiate this relationship, she then attempts to exchange value for increasing levels of customer permission. (Godin refers to the highest level of permission as intravenous permission — that’s the kind of permission you give to a surgeon when you submit to general anaesthetic!)

Your better way can describe the optimal process. Alternatively, it can describe the process that should be followed in order to design the optimal process.

Step two: create an ideology

For your better way to be converted into an ideology, it needs good packaging.

And the first step in packaging a concept is to assign it a name.

It’s interesting to note that, neither Ricardo Semler (Maverick) nor Michael Gerber (The E-myth) gave their management methodologies names. I suspect their methodologies would have been more infectious had they taken this next step.

As well as naming your better way, you should also assign a name to the standard practice. (You can see how Godin has done this in the example above.)

You’ll find that it is easier to sell your better way if you position it against standard practice.

While it may seem manipulative to use polarisation as a selling tool, the reality is that you are selling only an intellectual position. (You may have noticed how ideological arguments tend to assume extreme opposing positions: ‘pro life versus pro choice’, ‘political left versus political right’, ‘salvation versus eternal damnation’, etc.)

Once your ideology has a name, it needs a model. A model is a simple diagram that provides a portal through which complexity can be viewed.

Your model can be a decision-making tool like a two-by-two matrix or investors’ economic clock. It can also be a process diagram, like our own Relationship-centric Marketing model.

It’s also worth developing your own terminology (when appropriate). When I attend meetings with potential clients, I often notice that they use Relationship-centric Marketing terminology. They do this because they have become sold on our ideology as a result of their exposure to AdVerb and our events.

We once received a request for a proposal from a potential client where the project brief was sprinkled with our own terminology. This document had been circulated to two or three other consultancies. Our potential client was kind enough to provide a link to our Website to enable our competitors to decipher the brief! Needless to say, we won the work.

Step three: write a manifesto

Now that your ideology has a name, a model and its own set of terminology, it’s time to commit it to print.

Your manifesto can be as simple as an eight-page discussion paper or as complex as a traditional book.

The purpose of your manifesto is to argue the case for your ideology. Nothing more, and nothing less.

Your manifesto should build a bulletproof case by contrasting standard practice with your better way. It should then present evidence in the form of real-life case studies. While it’s nice if the subjects of your case studies are your own clients, it isn’t absolutely essential.

If you do a good job of producing your manifesto, you will find that it rapidly becomes your most valuable communications tool. In fact, we often recommend that our clients produce their manifestos in place of a corporate brochure. The fact is, your manifesto will do a much better job of selling your organisation than a traditional corporate profile ever can.

While the first evolution of your manifesto is likely to be a discussion paper, it’s well worth ultimately turning it into a book. If you can get your book onto the shelves of bookshops around the country, you have just created a self-liquidating, perpetual promotional machine!

One of the best manifestos I have ever come across is a book called The Goal, by Eliyahu Goldratt. The Goal is a gripping ‘business novel’ about manufacturing process design. It does a superb job of selling Goldratt’s contrarian process design methodology, the Theory of Constraints. The Goal has sold over two million copies, a remarkable feat for any business book — particularly one about manufacturing process design.

Step four: start a movement

Now that you’re armed with a manifesto, it’s time to start spreading the word.

In reality, this undertaking isn’t as ominous as it may sound (no, you’re not required to don a suit and spend Sundays knocking on doors!)

You simply need to redirect your promotional resources from the promotion of your organisation to the evangelism of your ideology.

And there are three good reasons to do this:

• It’s easier to sell an ideology than it is to sell a product or service.
• If you can sell your ideology, you end up selling your organisation by default.
• Each time you sell your ideology you have an opportunity to recruit a disciple — an assistant in the propagation of your ‘religion’. (Of course, this is the key to the viral growth of religions.)

If you’re familiar with our Relationship-centric Marketing methodology, you’ve already got a pretty good idea of how to go about evangelising your ideology.

Step one is to attract ‘followers’ with the offer of your manifesto. And step two is to build an intimate relationship with ‘followers’ by subscribing them to an automated communications program (consisting of regular newsletters and seminars).

Acquiring ‘followers’

You’ll find that a magical thing happens when you begin promoting your manifesto. People actually respond to your promotional campaigns!

While campaigns that promote your organisation are unlikely to yield much of a response, an advertisement for a discussion paper that advocates a new, better way can easily generate one hundred or more replies.

Accordingly, your advertisements, direct mail and other relationship-acquisition campaigns should be re-configured to offer respondents a complimentary copy of your manifesto.

Now, if you’re worried that this promotional approach will fail to deliver the brand building benefits of traditional campaigns, you shouldn’t be. The reality is that the promotion of your ideology will do more for your brand than traditional self-congratulatory advertisements ever could!

Turning ‘followers’ into ‘disciples’

Your ongoing communications should offer your subscribers assistance with the application of your ideology to their businesses (or their lives).

Each communication should focus on one facet of your ideology and explore its implementation in detail.

As previously mentioned, the presence of an overriding ideology will multiply the effectiveness of your communications. Rather than being isolated points of contact, each communication with your subscribers will be a part of an ongoing dialogue.

If you can succeed, over time, in converting interested subscribers into ardent believers (or even activists), you win in two ways:

• Your subscribers are almost guaranteed to turn to you for assistance with the implementation of your better way.
• Your subscribers will join you in your efforts to spread the word!

It’s interesting, isn’t it, that your search for compelling newsletter content has lead to the development of a complete marketing program. You could call this marketing program an ideology-based marketing strategy — or you could simply call it getting religion!

Before I leave you with your quest to identify an ideology worthy of religious fervour, let me briefly introduce you to the two final steps in starting your own religious movement.

Step five: make your ideology the industry standard

The idea of making your ideology the industry standard seems counter-intuitive. This is because I’m advocating that you give it away!

Specifically, I’m suggesting that you encourage channel partners — and even competitors — to join your religion.

In practice, as long as you’re recognised as the originator of your ideology, you will always have the most to gain from its growth.

Ask yourself, would Stern Stewart & Co have ever been able to make their Economic Value Added (EVA) the financial standard that it is today, if it was the only consulting firm to advocate it?

Step six: extend the standard

This last step isn’t really about starting a religious movement; it’s about extending the life of your movement.

You can extend your standard by showing your followers how your ideology can be applied to other areas of their businesses or lives. I mentioned the Theory of Constraints (TOC) previously. Although this theory initially related just to production, Goldratt has subsequently applied it to finance, project management, marketing, management and other business functions.

It is important not to extend your ideology until it is firmly entrenched as an industry standard. To do so would be to divert resources from what should be your number one marketing objective.

In fact, if there were ever a competition to judge the most self-indulgent of all business communications, the newsletter would have serious competition from only the corporate video for first place!

A tragedy, when you consider that newsletters have the potential to be by far the most valuable communications tool any company can invest in.

Certainly, for most JRMA clients, newsletters are the backbone of their marketing programs.

Our newsletters generate a steady flow of new customers, unlock the ‘lifetime value’ of existing customers and position our clients as leaders in their fields.

This article explains both why and how you should establish a newsletter as the backbone of your marketing program. It all starts with a little marketing theory – an introduction to our ‘relationship-centric’ marketing model.

A ‘relationship-centric’ marketing program

We like to say that there are two types of customer in the world.

One type of customer buys a product. (They focus on product attributes and price.)

And the other type of customer buys a relationship. (They are less interested in a transaction, and more interested in a longer-term relationship.)

Most small- to medium-sized business would be wise to focus on this latter type of customer. Certainly, small businesses have a natural advantage when it comes to ‘customer intimacy’. Furthermore, relationship-focused customers are prepared to pay a premium for these relationships – insulating smaller businesses from the inevitable ‘margin shrinkage’ that efficient markets (read: their larger competitors) inflict upon them.

Smaller businesses tend to recognise this. But few have any idea how to attract, to service, or to profit from relationship-focused customers.

The solution is to turn traditional marketing methodology on its ear and build a relationship- rather than a product-centric marketing program.

Selling a relationship

If you’ve decided you’d rather be in the business of selling relationships than (keenly priced) products, here’s a three-step introduction to our ‘relationship-centric’ marketing model (click to enlarge):

• Take your focus off sales. If your customers aren’t transaction-focused – you certainly shouldn’t be.

• Create an automated communications program. Because a key ingredient in any relationship is ‘communication’, this system should provide your customers with regular (and meaningful) points of contact with you. Your automated communications program should be designed to exploit the value resident in the relationships under your management. However, rather than designing this program to optimise the value of individual transactions, you should design it to maximise customers’ ‘lifetime value’. ‘Lifetime value’ is a measure of the gross profit earned over the life of a typical customer relationship.

• Identify potential customers and introduce them to your automated communications program. Rather than establishing a relationship with people after they make their first purchase (as is normally the case) you should establish a relationship in advance. If your potential customers are those who will buy on the basis of a relationship, doesn’t it make sense to deliver this relationship in advance? (You’ll discover, in a moment, just how inexpensive it can be to introduce potential customers to your automated communications program.)

Enter the humble newsletter!

Well, that’s the theory out of the way – and the stage set nicely for the newsletter!

Step two of our ‘relationship-centric’ model involved building an automated communications program. And, as you already know, your newsletter should be the backbone of this program.

The purpose of your newsletter should be to provide those regular and meaningful points of contact we mentioned previously. Of course, your newsletter can be augmented with other types of customer contact (outbound calls, face-to-face visits, workshops, and so on), but your newsletter is likely to remain the most important component of your automated communications program. This is because a newsletter allows you to provide your customers with a considerable amount of value, for a fraction of the cost of face-to-face (or even telephone) communications.

Think ‘mini-magazine’

Now, for your newsletter to make an effective contribution to the quality of your customer relationships, it must be genuinely meaningful. Remember, if you emulate the self-indulgent style of the half-dozen newsletters that are currently providing ballast for your wastepaper basket, yours is likely to suffer a similar fate.

The best model for the editorial style of your newsletter is a magazine. The competitive nature of the publishing industry has resulted in magazine editors becoming particularly adept at producing publications that their readers want to read. (In fact, it’s worth noting that Australia has the highest per-capita readership of magazines in the world.)

You would, no doubt, have noticed the rapid fragmentation (specialisation) of magazine titles over the last few years. We suggest that your newsletter should be a ‘mini-magazine’ designed to appeal to a finely targeted group of individuals – your customers (and potential customers).

The key is to emulate the editorial style (and the look and feel) of a publication your customers are already likely to read. Your newsletter’s articles can then provide readers with more specialised, and perhaps more current, information. The test of the quality of your newsletter is to ask yourself: Would my customers be prepared to pay for this? If your answer is yes, you have a powerful communications tool.

Compelling content: four components

Once you’ve settled on the editorial style of your newsletter, your next challenge is to decide what you’ll write about. Each of our newsletters typically contains the following four components:

• Feature story (or stories). To write a feature story, pick a subject of interest to your customers from within your field of expertise, and ‘empower’ your readers with a clear understanding of it. (As Queensland’s Noel Whittaker has demonstrated with his best-selling books on money, a great way to take ownership of a category is to freely share your expertise.)

• Editorial comment. Typically, editorial columns are used to share company news (new employees, etc). If I were you, I’d bump this exciting stuff to your ‘news in brief’ column below, and use this space to deliver a thought-provoking (and preferably controversial) opinion piece. Where other articles in your newsletter may be written in third person, your editorial comment should definitely be written in first person – preferably by your company’s designated spokesperson.

• News in brief. Here’s the spot for industry (and yes) company news.

• A case study. One of the challenges you face selling relationships is that your ‘product’ is intangible. Consultants often tend to find it difficult to dimentionalise the benefits of their services. Obviously, one of the benefits of your newsletter is that it enables potential customers to experience a relationship with you prior to making a purchasing decision. Another particularly effective way to demonstrate the benefits of a relationship is to allow your potential customers to ‘walk in the shoes’ of existing customers.

A case study should introduce a customer, outline a problem they were facing, walk the reader through the steps your company took to solve that problem, and then paint a picture of the end result.

… just add people!

Once you have a newsletter that communicates meaningfully with its readers, you have your ‘automated communications program’ – the backbone of our relationship-centric marketing model.

Your next step is to introduce people to this communications program. These people should come from three sources:

• Customers. Obviously, your customers have a higher propensity to spend money with you than strangers do (that is, unless you’re doing something dreadfully wrong!)

• Prospects. These are people who have both the reason and the ability to become customers of yours. More importantly, they are people you feel are likely to be relationship- rather than product-focused. We’ll talk more about identifying prospects in a moment.

• Centres of influence. A centre of influence is a person who is in a position to refer customers to you. He or she may not actually be a prospect. A typical example of a centre of influence is a journalist from your trade publication.

Introducing people to your communications program is as simple as adding their details to a database. You could manage this database in-house. However, our advice is to outsource it to a specialist. Most capital cities have mail bureaus that provide database management, as well as mail processing (and often list rental and telemarketing) services.

We do not recommend creating a fanfare when you introduce prospects to your communications program. A simple letter of welcome will do.

Identifying prospects

The great thing about dealing with relationship-focused customers is that you don’t have to ‘make a sale’ to have a relationship with them. In other words, initiate a relationship first, then leave the selling (or should we say ‘buying’) up to them.

But how do you identify prospects?

Well, if you sell to businesses, it could be easier than you think. You might just find that the names and contact details of your prospects are available from a list broker. For example, if your target prospect is a ‘human resource manager working in a company with 100 or more employees’, this list is available from all good list brokers. Simply buy the list and add the records to your database.

If your prospects need to be better targeted than this, it might be worth commissioning some telephone research to filter these records. For example, if you want to identify those human resource managers who operate a particular software application, it’s still cheaper to have someone ring and ask, than it is to try and strike up a relationship with advertising!

If you cannot purchase (or otherwise acquire) a list of suitably targeted prospects, you may have to resort to less direct forms of ‘lead-generation’.

Now, because you’re looking for relationship-focused prospects, the trick with lead-generation is to promote a relationship – rather than your product or service. The obvious way to do this is to offer prospects a free 12-month subscription to your newsletter. Remembering that your newsletter has been designed to be truly valuable to prospects – this is an offer that’s likely to be eagerly accepted. (About 20 people a month request free 12-month subscriptions to AdVerb via our Website.)

We recommend the following promotional mediums for your lead generation-campaign (listed in typical order of effectiveness):

• Strategic alliances. Your prospects are already other business’s customers. Identify businesses that serve your prospects, and convince them to offer a free 12-month subscription to your newsletter to their customers.

• Direct mail. If the lists that you can obtain from your list broker are not qualified enough to warrant the cost of telephone research, you can identify qualified prospects by offering a newsletter subscription to this list. Respondents are likely to have both an interest in your services, and a bias towards relationships.

• Advertising. A successful lead-generation advertisement is little more than a good direct mail letter, reformatted for the media in which you’re advertising. Of course, your offer is still a free 12-month subscription to your newsletter. (You’ll find a couple of articles on advertising on our Website.)

Not just a newsletter. A total marketing solution.

Once you’ve navigated our three-step process, developed a relationship-focus, built an automated communications program and introduced prospects to this program, you’ve successfully converted your newsletter into a total marketing solution.

Your newsletter is now the backbone of a coordinated program that identifies potential customers, develops a relationship with them – perhaps even before they need your services – and then manages that relationship to exploit their lifetime value.

The good news is that the management of your relationship-centric marketing program shouldn’t consume a lot of resources – financial or otherwise. Key functions, including the research, writing, production and distribution of your newsletter, the management of your database, and the creation of your lead-generation campaigns, can all be outsourced.

And even if you do choose to outsource all of these functions, once it’s established, your newsletter should cost you around $4.50 per contact. That’s less than the cost of a face-to-face (and probably even a telephone) contact.

The theory is simple and, in most cases, its application is easily affordable.

Now might be the time to dust off your newsletter and see if it’s really living up to its true potential.

That’s right. If you have a cost advantage, flaunt it. Cut your prices, build marketshare, consolidate that cost advantage and annihilate your competitors.

So what’s the catch?

Well, to successfully compete on price, you need to be able to manufacture, market and distribute your product more cheaply than your competitor can. Plus you need the resources to win the price war you inevitably start.

If you’re a small business, you probably don’t have a cost advantage – let alone a sustainable one.

A far better strategy is to exploit your larger competitor’s Achilles’ heel and compete on customer intimacy.

Focus on a niche too small to attract the attention of your competitor, customise a product-service offering specifically to fill the unique needs of that niche, charge a premium for your ‘total solution’ and thumb your nose at your price-obsessed competitor!

So can a small business ever compete on price?

Sure. If, and only if, it can develop a cost advantage that can’t be emulated by its competitor.

Case in point: Dell Computers. Selling direct provided Michael Dell with lower distribution costs than Compaq, HP and IBM. The big three couldn’t emulate Dell’s distribution strategy for fear of disenfranchising their reseller networks. Last quarter, (for just one quarter) 14 year-old Dell pipped Compaq to become the world’s largest seller of personal computers.

Can price competition be a valid strategy? Yes it can. But tread carefully.

At worst, these communications run the risk of damaging the very relationships they are supposed to be cultivating.

The problem is, from a marketing department’s perspective; every relationship looks like a sales opportunity.

Accordingly, marketing (and sales) people tend to design communications based upon the assumption that every recipient is in the process of making a purchasing decision.

Few potential clients are sales opportunities

Unfortunately, as the diagram below illustrates, nothing could be further from the truth.

This diagram portrays a marketplace consisting of six potential customers. Each makes a buying decision every 25 days. The duration of each decision-making process is two days.

If a marketing person (‘you’ in the diagram) were to view this marketplace for a total of eight days, only two sales opportunities would come into view.

Of course, if the marketer were to notice these two sales opportunities and assume that they were representative of the market as a whole, he would be sorely mistaken.

In the real world, the odds of a marketing communication striking a potential customer within her decision-making process are nowhere near as generous as those illustrated in this diagram.

If you’re selling a service or a ‘major’ product, your customers’ buying cycle (time between sales opportunities) is likely to be three or more years. The duration of a sales opportunity may be one or two months. And the persistence of your marketing communication (how long it stays top-of-mind) may be less than a week. (In this more realistic scenario, only one out of every 144 recipients of your communication would be in the process of making a purchasing decision.)

The real cost of irrelevant communication

In other words, the odds of your communication striking any given customer at just the right time is comparable to the odds of your being able to spear a particular fish in a pond, while wearing a blindfold!

Marketers traditionally compensate for these lousy odds by broadcasting their sales communications to large numbers of potential customers simultaneously.

Now, this approach is like electrifying the pond. You’ll get your fish, but the pond will sustain a lot of collateral damage in the process!

Obviously, repeated exposure to irrelevant communications (perhaps for a period of many years) is likely to damage your relationships with potential clients. If these communications are delivered by e-mail, many recipients will eventually unsubscribe themselves from your list — cutting-off your future access to them.

You could argue that this collateral damage is likely to be minor, because those individuals for whom your communications are irrelevant are more likely to simply treat them with indifference.

This is a valid argument. However it ignores the opportunity cost of this promotional approach.

What if, instead of deliberately creating and distributing communications that will be treated with indifference by the greater majority of your marketplace, you were to create communications that were relevant to recipients, at any stage of their buying cycles?

If this were possible, each communication would make a positive contribution to a developing relationship with your potential customers.

Well it is possible.

Invest in relationships, not sales opportunities

All you have to do, is identify a basis for communication that transcends your quest for sales opportunities. Our article entitled The importance of getting religion explains that this basis for communication should consist of the intersection between your market’s interests and your expertise (and credibility).

These relationship-building communications may be less effective at inciting action from that small percentage of recipients who are in the midst of their decision-making processes — but that’s okay.

The effectiveness of your communication should not be measured on an individual-to-individual basis; it should be measured across the marketplace as a whole.

Remember, when you broadcast a communication to your marketplace, those potential customers who are ready to buy today are a tiny minority. You’ll enjoy a significantly greater return on investment if you design your communications to be relevant to those individuals who are not currently sales opportunities!

I don’t know about you, but sometimes I feel that managing a traditional ‘bricks and mortar’ business is downright unsexy!

Particularly when stories abound of Web entrepreneurs who have reinvented business as we know it (and become billionaires in the process) – seemingly without being slowed by any of the trials and tribulations of ‘real-world’ business.

The good news is that you don’t need to start an online enterprise to benefit from the power of the Internet. With the right approach, you can use this exciting virtual world to multiply the effectiveness of your real-world marketing activities.

This article will show you how.

Know your model

In the last issue of AdVerb, we introduced you to our Relationship-centric Marketing Model.

We explained that this model is appropriate for those businesses that sell a product with an essential service component – in other words, a product that isn’t a pure commodity. (I’m guessing that’s you!)

You’ll remember we explained that our Relationship-centric Marketing Model consists of two components:

• An automated communications program. A system of pre-programmed communications, designed to nurture relationships with customers, prospects and centres of influence. (Your ideal customers are likely to make a buying decision based on relationship first; price and features second.)

• A relationship-acquisition program. Once you have a system that deftly converts prospects into customers, you need a program that provides you with a constant stream of new prospects.

If you’re comfortable with our Relationship-centric Marketing Model, you should be excited about the Internet. This is because the Internet provides you with both a low cost communication channel and a lucrative source of new relationships.

Furthermore, the Internet provides you with the ability to hand control of your sales process to your customers – conserving your resources and often improving your conversion ratios. (We’ve been encouraging our clients to relinquish control of their sales processes for years!)

A low-cost communications channel

E-mail is already like the fax machine. Yesterday it didn’t exist, but today we can hardly live without it!

E-mail is exciting for the Relationship-centric marketer for three reasons:

1. It is an extremely low-cost communication channel. It costs no more to send ten thousand e-mails than it does to send one.
2. It is immediate. Within minutes of pressing ‘send’ your recipients are clicking ‘yes’ and reading their messages.
3. It is intimate. Think about it: are you most likely to communicate with a close friend by letter, fax or e-mail? E-mail wins because an e-mail is less formal than a fax, and much less formal than a letter.

The Relationship-centric marketer understands that the more frequently he communicates (in a meaningful, value-added way) with his customers, the more intimate a relationship he will build.

The problem is, until now, higher frequency has equalled higher cost. (Even with postal discounts, it’s difficult to mail anything to anyone for less than a dollar.)

E-mail makes frequency affordable. Because it costs virtually nothing to send an e-mail, the only limit to your frequency of communication is your ability to come up with interesting things to say!

How does e-mail fit into your automated communications program?

Once our clients grasp the implications of the low cost of e-mail, many ask if they should replace all of their existing points of contact with e-mail.

The answer’s no. The problem is, e-mail is nowhere near as potent as other (more costly) communication mediums. (In fact, when it comes to communication channels, there seems to be an inverse relationship between potency and cost.)

What you should do is design a communications mix relative to the lifetime value of each of your categories of relationships. (The table below illustrates a possible communications mix.)

You must genuinely add value

Planning to e-mail your customers is one thing. Coming up with something meaningful to say is another! (Remember, each point of contact must genuinely add value to the relationships under your management.)

As I’ve often stressed in the past, the best way to add value to these relationships is to give the gift of information. As well as inspiring the same tendency for reciprocity as any gift, the gift of information is special because it positions the giver as an expert – making future gifts appear all the more valuable!

You can deliver value to your customers via e-mail in two ways:

• You can include the information of value within the e-mail itself (e.g. snippets of industry news).

• Or you can use an e-mail message to point to information of value (usually with hypertext links to content on your Website).

We like to use our monthly ‘eBulletin’ primarily to advise our clients of additions to our Website (i.e. new books we’ve added to our reading list, new marketing tools in our download zone, or the addition of articles from the current edition of AdVerb).

You might be starting to realise that you can get enormous benefit from the Internet, without even building a Website. Such is the power of e-mail.

If you don’t already have your customers’ e-mail addresses, now is the time to start asking for them – and you should ask at every point of contact.

Acquiring new relationships

Most organisations ‘go online’ hoping that their Websites will somehow attract more customers. Sadly, most don’t!

Of course, most Websites don’t ‘work’ for exactly the same reasons that most advertisements don’t. They provide no incentive to visit in the first instance; they deliver little value once you’re there; and they contain no compelling reason to initiate further correspondence.

It should come as no surprise that we suggest that your Website (like your advertisements) should not suffer from these performance impediments.

It all starts with an offer

Before you start work on your Website, you need an offer. This offer will provide your visitors with both a reason to visit and a reason to initiate further correspondence.

Fortunately, because you are a Relationship-centric marketer, you already have such an offer. It’s called your ‘automated communications program’. Think about it. You designed your communications program specifically to add genuine value to your relationships with customers. Doesn’t it make sense that potential customers will jump at an opportunity to ‘subscribe’ to this program?

It does. And they will!

Typically, we recommend that our clients use the offer of either a free 12-month subscription to a newsletter, or a free ticket to a workshop. (Of course, you can also use these offers in your real-world promotional activities.)

Your offer should be featured prominently on your Website (to get your visitors to volunteer their e-mail addresses) and on other people’s Websites (to convince their visitors to click-through to yours).

Fishing for e-mail addresses

We suggest that, in most cases, the primary objective of your Website should be to convince visitors to surrender their e-mail addresses.

This means that your offer should be:

• Prominent. It should be your home page’s most noticeable element.

• Desirable. The benefits of subscribing need to be ‘dimensionalised’ for the visitor.

• Accessible. Ideally, your visitor should be able to enter his e-mail address and click ‘submit’ right there on your home page. (Certainly, the form that captures his e-mail address should be no more than one click away.)

• Affordable. The number of e-mail addresses you collect is inversely proportional to both the cost of your offer and the amount of information you request from your visitors.

This last point is an important one. Many marketers attempt to ‘qualify’ visitors by insisting that they part with either money or information in order to receive the offer. This is counter productive for two reasons:

• If a visitor wasn’t already reasonably well qualified, he probably wouldn’t be on your Website in the first instance. For example, if a property developer ran a banner advertisement featuring the headline: How to use the equity in your home to build a million-dollar property portfolio, it is likely that the visitors to his site will be home owners with an interest in investment property.

• If you are going to deliver your offer by e-mail or via your Website, the incremental cost of acquiring an unqualified name is absolutely nothing. You’re better off making it as easy as possible for your visitors to respond.

Once you have an e-mail address, it’s relatively easy to convince its owner to volunteer additional information. (We acquire the details of close to 90% of our e-mail subscribers by offering an invitation to a forthcoming workshop in return for a name, address and telephone number.)

Site promotion

Once you’ve built your Website, the next step is to convince someone to visit it.

In the early days of the Web (three years ago), it was possible to generate an instant traffic flow by registering your site with the various search engines and online directories. Today, as a result of the exponential growth of the Web, search engine registration has become a science in itself – with no guarantee of immediate results.

While you should obviously register your Website with search engines, there are more immediate ways of driving site traffic:

• Real-world promotion. One low-cost way to generate site traffic is to feature your site address prominently on your corporate stationary and on all of your communications (including the signature on your e-mail messages).

• Reciprocal links. Your next step is to encourage those non-competitive organisations that share your client profile to put links to your site on theirs – in exchange for your doing the same for them. This is a highly effective (and often overlooked) form of site promotion.

• Banner ads. In spite of their regular poor publicity, we have found banner advertisements to be remarkably cost effective. As a rough rule of thumb, we typically find that we can generate a response from a banner advertisement for around 20% of the cost of a response to an advertisement in a metropolitan newspaper.

As mentioned previously, the trick with banner ads is to use them to promote your offer (rather than your Website). Because banner ads are so small, they should consist of little more than a headline. The essential selling copy should appear on the page that the viewer clicks-through to.

Our current banner advertisement provides us with a constant stream of new subscribers to this publication. It reads as follows: Turn your business into a finely-tuned marketing machine … subscribe to AdVerb free … Marketing tips! … Advertising tricks! … And strategies to fast-track the growth of your business! (Because our banner ad is animated, each ellipse denotes a new frame.)

Putting your customers in control

The great thing about a well-designed Website is that, if you let potential customers loose inside it, they tend to sell themselves!

This is nice because it conserves your valuable promotional resources. But it is also significant because your Website can provide an environment that’s less threatening to a potential client – meaning that they tend to stay longer (and explore more) than they would if they visited your real-world business.

An introduction to a well-designed Website

While Web design could easily be the subject of another AdVerb feature, here are three tips to get you started:

• Make your site’s content readily accessible. Try and minimise the clicks required to travel from one area of your site to another. If your site attracts non-technical, as well as technical, visitors, be sure to provide a secondary jargon-free navigation bar.

• Provide resources of value to your visitors. Such resources could include articles from past editions of your newsletter, transcripts of lectures, a self-analysis questionnaire, software-based tools and a reading list. Perhaps some of these resources can be provided by your suppliers and business partners.

• Remember, this is a marketing, not a technical exercise. Your Website should be designed to communicate, to educate and to transact – not to show off!

If the media hype surrounding the ‘dot coms’ had you convinced that the Internet and traditional ‘bricks and mortar’ business were mutually exclusive, I hope I’ve changed your mind. The fact is, clicks and mortar can coexist quite happily!

[Listen to a seminar on this subject!]

If your organisation sells expensive (or complex) products and services, odds are, you get most of your new clients by ‘word of mouth’ or referral.

If you’ve tried your hand at lead generation advertising, you’ve probably discovered that, even if an advertisement does make the phone ring, it’s a pyrrhic victory. (Isn’t it true that traditional advertisements tend to attract a calibre of clients better suited to your competitor’s business than yours?)

The problem with ‘word of mouth’ as a primary promotional medium is that, because it’s passive in nature, it’s difficult to scale. In other words, ‘word of mouth’ is limiting your business to incremental (rather than exponential) growth.

So why is it that traditional marketing wisdom breaks down when products are expensive or complex – or, worse still, when products aren’t real products at all, but intangible ‘services’? And is it possible for an organisation that sells such products to develop a more proactive approach to business marketing than a reliance on ‘word of mouth’ business?

The answer to both of these questions lies in the discovery that there are actually two types of customer in this world!

Two types of customer

We like to say that there are two types of customer in the world.

One type of customer ‘buys’ a product. (She focuses primarily on product attributes and price.)

And the other type of customer ‘buys’ a relationship. (She is less focused on the transaction, and more interested in a longer-term relationship.)

A customer tends to be ‘product-focused’ when she’s purchasing a commodity. If she’s choosing between Qantas and Ansett, between Dell and Compaq or between Holden and Ford, she’s likely to make that decision based primarily upon product features and price.

However, if this same customer were choosing a new accounting firm, looking for a financial planner, or organising an African safari, she is more likely to be shopping for a relationship than for the very lowest price.

Now this observation is more than just a curiosity. The choice between product- and relationship-focused customers affects the very design of a business. The fact is, a business designed to serve product-focused customers will drive the relationship-focused variety away in droves! (And vise versa.)

A ‘product-centric’ business promotes features and price – where a ‘relationship-centric’ business promotes a total solution.

A product-centric business exploits the value in a transaction, where a relationship-centric business profits from the value in a relationship (lifetime value).

And a product-centric business grows primarily by expanding its share of market (more customers) – where a relationship-centric business grows primarily by expanding its share of customer (more services for each customer).

A natural advantage for small businesses

While small businesses do not generally have the scale required to compete on the basis of features and price, they do have a natural advantage when it comes to delivering ‘customer intimacy’ – a key requirement of relationship-focused customers.

Furthermore, relationship-focused customers are prepared to pay a premium for these relationships – insulating smaller businesses from the inevitable ‘margin shrinkage’ that efficient markets (read: their larger competitors) inflict upon them.

Smaller businesses tend to recognise this. But few have any idea how to attract, to service, or to profit from relationship-focused customers.

The solution is to turn traditional marketing methodology on its ear and build a relationship- rather than a product-centric marketing program.

Selling a relationship

If you’ve decided you’d rather be in the business of selling relationships than (keenly priced) products, here’s a three-step introduction to our ‘relationship-centric’ marketing model:

1. Take your focus off sales. If your customers aren’t transaction-focused – you certainly shouldn’t be.
2. Create an automated communications program. Because a key ingredient in any relationship is communication, this system should provide your customers with regular (and meaningful) points of contact with you. Your automated communications program should be designed to exploit the value resident in the relationships under your management. However, rather than designing this program to optimise the value of individual transactions, you should design it to maximise customers’ ‘lifetime value’. ‘Lifetime value’ is a measure of the gross profit earned over the life of a typical customer relationship.
3. Identify potential customers and introduce them to your automated communications program. Rather than establishing a relationship with people after they make their first purchase (as is normally the case) you should establish a relationship in advance.

If your potential customers are those who will buy on the basis of a relationship, doesn’t it make sense to deliver this relationship in advance? (You’ll discover, in a moment, just how inexpensive it can be to introduce potential customers to your automated communications program.)

Building an automated communications program

Once you’ve decided to become relationship- rather than product-focused, your first step is to create an automated communications program.

Begin by building a central database, containing the details of existing customers, prospects (potential customers) and centres of influence. (If your database is a little cumbersome, it might be worth considering an off-the-shelf contact management application like Maximizer, Act or Goldmine.)

Your next step is to design a program of communications that will build and nurture relationships with the people on your database.

We suggest that a newsletter should be the backbone of your communications program. This is because a good newsletter is both effective and scalable. (It takes little more effort to send a newsletter to 20,000 subscribers than it does to mail 2,000.) A newsletter can either be a magazine-quality publication or, if your budget won’t stretch that far, it can be a simple two- or three-page letter, laser printed on your corporate stationery.

Either way, your newsletter should be designed to dispense valuable information to your subscribers (not to boast about your organisation). The best newsletters have a do-it-yourself feel. The great thing about sharing your knowledge with your subscribers is that it positions you as an expert in your field – and empowers them to work with you.

If you publish your newsletter quarterly – and this is our suggested frequency – it’s worth supplementing your newsletter with a monthly e-mail bulletin. While e-mail communication doesn’t have the same impact as print, its cost effectiveness makes it invaluable. For this reason, it is essential to capture e-mail addresses at every point of contact with subscribers.

Acquiring new relationships

The best-kept secret when it comes to relationship-focused customers is that you don’t have to wait for them to buy from you before you build a relationship with them. In fact, if you build a relationship with relationship-focused prospects before they need to transact, you are almost guaranteed their future business.

But how do you acquire these new relationships?

Well, if you sell to businesses, it could be easier than you think. You might just find that the names and contact details of your prospects are available from a list broker. For example, if your target prospect is a ‘human resources manager working in a company with 100 or more employees’, this list is available from all good list brokers. Simply buy the list and add the records to your database.

If your prospects need to be better targeted than this, it might be worth commissioning some telephone research to filter these records. For example, if you want to identify those human resources managers who operate a particular software application, it’s still cheaper to have someone ring and ask, than it is to try and build the same list using advertising!

If you cannot purchase (or otherwise acquire) a list of suitably targeted prospects, you may have to resort to less direct forms of ‘lead-generation’.

Now, because you’re looking for relationship-focused prospects, the trick with lead-generation is to promote a relationship – rather than your product or service. The obvious way to do this is to offer prospects a free 12-month subscription to your newsletter. Remembering that your newsletter has been designed to be truly valuable to prospects – this is an offer that’s likely to be eagerly accepted. (About 100 people a month request free 12-month subscriptions to AdVerb via our Website.)

We recommend the following promotional mediums for your relationship-acquisition campaign (listed in typical order of effectiveness):

• Strategic alliances. Your prospects are already other businesses’ clients. Identify businesses that serve your prospects, and convince them to offer a free 12-month subscription to your newsletter to their clients.
• Direct mail. If the lists that you can obtain from your list broker are not qualified enough to warrant the cost of telephone research, you can identify qualified prospects by offering a newsletter subscription to this list. Respondents are likely to have both an interest in your services, and a bias towards relationships.
• Advertising. A successful lead generation advertisement is little more than a good direct mail letter, reformatted for the media in which you’re advertising. Of course, your offer is still a free 12-month subscription to your newsletter.

A recipe for growth

The turning point in the development of any business is the creation of a turn-key marketing program. If you sell expensive (or complex) products and services, our Relationship-centric Marketing Model is such a program.

Once you have recognised that your ideal customers are those who are in the market for relationships (rather than low-margin commodities), the battle is half won.

Now you can take your focus off transactions and apply it to building and nurturing relationships with a growing army of customers who are prepared to pay a premium to work exclusively with you.

It’s easy, once you recognise that there are actually two types of customer in the world!

Over lunch, a CEO recently admitted to me that his financial controller was using his organisation’s profits to build quite a substantial commercial property portfolio.

When I asked if this was best use of his organisation’s free cashflow, he smiled, "How did I know you’d ask that question?

"The fact is," he continued, "the availability of capital is not currently a constraint on our growth."

"It might not be a constraint on your organic growth," I argued, "but I still think that money could be better invested in new client acquisition."

We spent the rest of that lunch scribbling on napkins. Together, we discovered that a dollar invested in promotional expenditure was actually providing this CEO’s organisation with a better-than 900% return on investment!

By the time coffee was served, we’d agreed that his organisation’s sales process could provide a much more favourable return on capital than even the bluest of blue-chip commercial property investments.

In our experience, this holds true for most organisations. Unfortunately, most are reluctant to invest in their sales processes because (unlike other business processes) it’s impossible to calculate a return on investment.

Science versus art

If you’re a follower of our Relationship-centric Marketing methodology, you’ll know that a sales process has inputs and outputs — just like any other business process.

You’ll know that a sales process (as the word process implies) consists of a sequence of simple, interrelated steps — just like any other business process.

And you’ll know, at least in theory, that each step in a sales process can be measured, managed and optimised — just like any other business process.

This article explains the science (and more importantly, the mathematics) behind sales process management. It will show you how to take control of your sales process and use it to fast-track the growth of your organisation.

If you didn’t pay much attention to mathematics at school, you may find this article tough-going at times. But please be sure to persevere.

I’m sure you’ll discover that your sales process is harbouring significant growth potential!

Management by numbers

If you think about it, the word management presupposes measurement. The fact is, if you can’t measure it, you simply can’t manage it.

So, to manage a sales process (or any process for that matter), we need to know what to measure. Generally speaking, we will measure inputs, outputs and time. Specifically, we’ll measure:

• Throughput (output/time)
• Productivity (output/inputs)

We’ll measure these key performance indicators (KPIs) for the process as a whole, and then we’ll break the sales process into its key components (sub-processes) and devise a set of KPIs for each component.

It’s worth remembering that your sales process is actually a component of a much larger system: your entire business. In the context of your business as a whole, revenue is a measure of throughput, and gross profit is a measure of productivity. The problem with these indicators is that they are trailing indicators: that is, they tell you more about what you have done in the past than they do about what you should do in the future.

Because your sales process is the first step in your entire organisational process, the information you collect from monitoring these performance indicators can be used to enable real-time process optimisation.

As we dissect and analyse the sales process, we’ll make references to a fictitious company we’ll call Correlex. Correlex is an engineering firm that consults to property developers. Correlex’s clients all pay a retainer of $450 a month to access its consulting services. References to Correlex will appear in indented sections, with a green sidebar, just like this one.

Measuring the process as a whole

The objective of your sales process is obviously to generate sales.

This process must be designed and managed to ensure that it delivers a sufficient volume of sales in exchange for a commercially realistic investment.

For simplicity’s sake, we’ll assume that the objective of our sales process is to acquire new clients. But don’t worry, we will be sure to take follow-on sales (and even referrals) into account.

Accordingly, the two global indicators in which we’re most interested are:

• Client acquisition rate (new clients per month).
• Client acquisition cost (cost per new client).

When we’re measuring client acquisition cost, we’re dividing the amount we invested in the acquisition of relationships by the number of clients acquired as a result of that expenditure.

When we calculate this figure, we only take into account the variable costs associated with the promotional campaign that acquired each particular client relationship. With a promotional campaign, variable costs are typically media costs. We do not factor in the fixed costs associated with that promotional campaign (the cost of creating the campaign). Nor do we include the fixed costs associated with the rest of the sales process (e.g. the cost of managing the relationship with the potential client).

We ignore fixed costs because these are the cost of operating your sales process, rather than process inputs.

Our client acquisition cost is most useful for monitoring the performance of our relationship acquisition campaigns. It’s important to remember that, unless you have a very short sales cycle, client acquisition cost tends to be longer-term performance indicator. (The term sales cycle refers to the average time span between the acquisition of a relationship and the consummation of a sale.) We’ll uncover a short-term indicator when we examine the relationship acquisition step of the sales process.

When the CEO of Correlex reviews his organisation’s sales process, he discovers that, averaged over the last 12 months, Correlex acquired two new clients each month.

To determine his average client acquisition cost, he divides his total variable promotional costs by the number of clients he acquired over this period.

In the last 12 months, Correlex had advertised in the Financial Review, and in a number of specialist publications. It had also run 4 direct mail campaigns. Accordingly, its variable promotional costs consisted of the cost of media for the advertising campaigns, and the cost of mail processing for the direct mail campaigns.

In total, Correlex invested $9,600 in order to acquire 24 new clients: an average client acquisition cost of $400.

$9,600 / 24 = $400

Optimisation

It’s obviously important to know how many sales your organisation is making. It’s also nice to know how much each sale is costing you in promotional expenditure.

But, in isolation, this information is not particularly useful.

What you need to be able to do, is compare your actual performance with your optimal performance.

A common mistake in process management is to establish absolutes as targets. For example, it would be tempting to assume that the objective of your sales process is to generate as many sales as possible, for the lowest possible promotional expenditure.

The reality is that sales and promotional expenditure are interrelated. (You can’t have one without the other.) A singular focus on either maximising sales or minimising promotional costs is likely to sub-optimise the performance of your sales process. The key is to determine the optimal relationship between promotional expenditure and sales.

Accordingly, you now need to determine the optimal figures for each of your global KPIs.

Client acquisition rate is easy. Obviously, your optimal figure is determined by the capacity of your production and distribution processes. (There’s little point generating sales that can’t possibly be fulfilled.)

However, your client acquisition cost requires a little more thought.

As the graph below illustrates, as your promotional expenditure increases, the number of clients you acquire should also increase. However, with the increased promotional expenditure, the profitability of each client relationship suffers.

In theory, your optimal client acquisition cost is the point where these two lines intersect.

In practice, it will take some experimentation (and careful measurement) to calculate your optimal acquisition cost.

The starting point for this calculation is the determination of the lifetime value of a client. (Your optimal client acquisition cost will be a percentage of this figure.)

It is difficult to overemphasise the importance of performing this calculation. Without an understanding of the dollar value of a client, it is simply impossible to effectively manage your sales process.

In our experience, because most organisations have no way to value a client relationship, most grossly underestimate the amount that they are prepared to invest in client acquisition.

This under-investment in client acquisition seriously retards the growth of many organisations.

The publishing industry is one industry that does understand the concept of lifetime value. Typically publishers of magazines and other periodicals are prepared to invest at least 100% of the first year’s subscription revenue in order to acquire a new subscriber!

Valuing a client relationship

In financial terms, a client relationship is simply an annuity income stream.

It follows that you can value a client relationship, just as you can value any other kind of annuity (income-producing investment).

You value an annuity using a net present value calculation. (Net present value is the sum of a series of future payments, discounted for the cost of capital.)

To calculate the lifetime value of a client, determine the gross profit you earn in an average year from an average client, then multiply this by the figure in the annuity table below that corresponds to the number of years you retain this average client.

This table shows how much a series of $1 payments, to be paid at the end of each year for a specified number of years into the future, is currently worth, with interest at different rates, compounded annually. In other words, the table shows what you should be willing to pay, today, in order to receive a certain series of future payments of $1 each.

As you already know, Correlex sells a consulting service for $450 a month.

To calculate the lifetime value of an average client, it must multiply the gross profit in a transaction by the number of times Correlex transacts with an average client over the lifetime of the client relationship.

On average, Correlex retains a client for three years. Its gross profit is 70% (or $315).

It chooses to account for cost of capital at its overdraft rate, 9%.

Correlex calculates the net present value of a client relationship by first calculating its annual gross profit, and then multiplying this figure by the appropriate multiplier from the table above:

Average annual gross profit: $450 x 12 x 70% = $3,780

Net present value: $3,780 x $2.53 = $9,563

The CEO of Correlex is surprised to see just how valuable a client relationship is.

Prior to performing this calculation, he was considering reducing his promotional expenditure ($400 per client seemed like a lot — especially for an engineering firm).

Now, however, he suspects that he has been underspending on client acquisition!

Accordingly, he decides to set his optimal client acquisition cost at a (conservative) $900. He also resolves to watch his KPIs carefully and review this figure in six months’ time.

As explained, your optimal client acquisition cost will be a percentage of the lifetime value of a client. The actual percentage will depend on the fixed costs associated with your sales process (and your sales volume). It will almost certainly be more than 10%. It may even be as high as 50%.

(While the idea of investing 50% of the lifetime value of a client in client acquisition may seem ludicrous, it’s important to remember that, once an organisation has passed its break-even point, it’s effectively enjoying a 100% return on this promotional expenditure. Try earning that in the bank!)

Before he can finalise his global performance indicators, the CEO of Correlex must determine his optimal client acquisition rate. A quick call to his operations manager confirms that Correlex is capable handling four new clients a month.

These indicators provide Correlex’s CEO with an overview of the relationship between his sales process’s inputs and outputs.

His suspicion that he is underspending on promotion is supported by the fact that Correlex is growing at 50% of its optimal rate.

Because your global KPIs are longer-term indicators, they do not enable you to manage your sales process on a day-to-day basis.

To do this, we need to divide your sales process into its key components, and then devise a set of performance indicators for each.

You’ll remember that a sales process consists of three components:

• Relationship acquisition
• Relationship management
• Opportunity management

Let’s start with the final component of the sales process and work backwards.

Opportunity management

The objective of your opportunity management process is to convert sales opportunities into sales (remember, we’re assuming that a sale is a new client). This process will generally involve salespeople, operating either in the field, or from a call centre (or both).

A sales opportunity is typically an expression of interest in a specific product or service, generated as a result of your opportunity management process. (Sales opportunities are often called leads.)

As with your sales process as a whole, we are primarily interested in the throughput and the productivity of your opportunity management process.

Accordingly, we will begin by measuring:

• Client acquisition rate (clients per month)
• Opportunity conversion rate (sales/opportunities x 100)

Of course, the throughput of the opportunity management process (client acquisition rate) will be identical to the throughput of your sales process as a whole.

Your conversion rate is the percentage of sales opportunities that convert into sales.

The CEO of Correlex already knows his client acquisition rate.

What he doesn’t know, is how many sales opportunities his consultants require in order to make each sale.

A survey of his consultants’ sales figures indicates that, on average, his consultants convert one in every 2.9 sales opportunities into sales. (Accordingly, his conversion rate is 35%.)

But these sales figures also reveal an interesting phenomenon. Correlex’s CEO observes that conversion rates vary considerably from consultant to consultant. He also notices that there seems to be an inverse relationship between acquisition rate and conversion rate for individual consultants.

In other words, the consultants who acquire the most new clients tend not to have the highest conversion rates, and visa versa.

He wonders why …

Optimising conversion rates

Contrary to popular belief, the primary influencer of conversion rate is not the skill of salespeople.

Rather, it is the design of the opportunity management process.

In our experience, opportunity management processes are best designed with a view to minimising the time between the emergence of a sales opportunity and closure of that opportunity (a sales opportunity is closed when it is won, lost or abandoned).

Increasing the throughput of a sales process may result in lower conversion rates, but this is not necessarily a bad thing!

Sales managers typically manage their salespeople as if a conversion rate of 100% is achievable.

In reality, 100% is rarely an optimal conversion rate. The reason is that, as conversion rates go up, throughput goes down.

Ask yourself, which would you prefer: a salesperson who conducts 5 appointments a day, with a 40% conversion rate; or a salesperson who conducts 3 (highly qualified) appointments a week, with a 95% conversion rate? (Hint: salesperson A generates 10 sales a week, where salesperson B generates less than 3.)

You can take the following steps to increase the throughput of your sales process:

• Break the opportunity management process into a number of logical steps.
• Ensure all sales opportunities follow the same process.
• At each step in the opportunity management process, be sure to up-sell to the next step.
• Actively manage open opportunities.

You can manage individual (open) opportunities with a simple tabular report, like the one below. Normally, a sales team will work through this report in its weekly sales meeting. The key indicators to watch are the number of open opportunities and average days open. (If you sell a number of products with different price points, you may prefer to monitor the dollar value of opportunities).

Most CRM systems produce such a report; alternatively, you can create your own in Excel.

You can also use the weighted value and target close data from this report to produce sales forecasts.

Correlex’s CEO reviews his consultants’ differing opportunity management processes. He identifies the consultant with the most efficient process and resolves to benchmark this process and make it the organisational standard.

This new benchmark calls for a conversion rate of 25% and an average days open of 45 days.

From these figures, he calculates that, at any one point in time, his organisation should have one and a half months’ worth of open opportunities:

Optimal monthly sales: 4

Opportunities required to make 10 sales: 4 / 25% = 16

Average days open: 45 (5 months)

Optimal open opportunities: 16 x 5 = 24

Relationship management

The objective of your relationship management process is to generate a steady stream of sales opportunities from your relationships under management.

We do this by creating an automated communication program. This is a sequence of ongoing communications, where each communication is designed to add value to these relationships.

A typical communication program will consist of a monthly e-mail newsletter and bimonthly seminars or workshops.

We tend to take an indirect (longer-term) approach to the generation of sales opportunities. Our experience is that, if you can design the relationship management process to position your organisation as the leader in its particular field, sales opportunities will be forthcoming.

Events and other activities can be used to stimulate the flow of activities, but on many occasions, these activities will simply time-shift the emergence of opportunities — rather than creating opportunities you wouldn’t otherwise have received.

You need to balance your need for sales opportunities against the requirement to add value to the relationships under your custodianship. There is a danger that, if you design your communications specifically to maximise the flow of sales opportunities, you may compromise the integrity of these relationships.

As with our other processes, we are primarily interested in monitoring throughput and productivity. Accordingly, our KPIs are as follows:

• Opportunities per month.
• Opportunity realisation rate (monthly opportunities/relationships).

Opportunity realisation rate advises you of the correlation between the number of relationships you have under management (the size of your database) and the number of sales opportunities these relationships produce each month.

Correlex has 1,500 contacts on its database. Because all of these contacts are recipients of Correlex’s monthly e-mail newsletter, it referrs to them as subscribers.

On average, Correlex receives 12 sales opportunities a month from its subscriber database.

These 12 opportunities represent an opportunity realisation rate of 0.8%:

12 / 1,500 x 100 = 0.8%

In order to increase the flow of sales opportunities to the 16 per month required, Correlex’s CEO realises he must acquire an additional 500 subscribers:

16 / 0.8% = 2,000

Relationship acquisition

The objective of your relationship acquisition process is to acquire a steady stream of relationships with potential clients and centres of influence.

The input into this process is the investment in your relationship-acquisition campaigns (remember, we’re only tracking variable costs). The output is obviously the relationships (or subscribers) you add to your database.

The precise management of this process is critical for two reasons:

• The flow of inbound opportunities is the key determinate of the throughput of the process as a whole.
• In the absence of an objective performance measure, there is a high probability that you will either under- or over-spend on promotion.

Our performance indicators for this process are:

• Relationship acquisition rate (relationships per month).
• Relationship acquisition cost (cost per relationship).

Relationship acquisition cost is calculated by dividing the variable cost of promotional campaigns by the number of new relationships acquired by those campaigns.

As with our global KPIs, these indicators don’t mean much until we can compare actual and optimal figures.

Optimising your relationship acquisition process

The calculation of your optimal relationship acquisition rate is easy. This figure is determined by:

• Your target database size.
• Your availability of promotional funds.
• The capacity of your relationship acquisition process.

The calculation of your optimal relationship acquisition cost requires a little more thought.

The amount that you are prepared to spend in order to acquire a new relationship must obviously relate to the value of such a relationship.

But how can you value one more name on your database?

The solution is to value relationships using exactly the same methodology we used to value clients.

Your database of subscribers provides you with a flow of sales opportunities.

You can value a sales opportunity by discounting your optimal client acquisition cost for your conversion rate. (In other words, if your conversion rate is 10%, a sales opportunity is worth 10% of your optimal client acquisition cost.)

Accordingly, to value one new subscriber, all you have to do is calculate the odds of that subscriber becoming a client over the life of their relationship with you.

While you can easily calculate the life of a client relationship, it’s a little harder to calculate the life of a subscriber. In our experience, it’s rare for subscribers to unsubscribe from our automated communications program.

For this reason, we arbitrarily choose to value subscribers over the same lifespan as clients. Accordingly, if the life of an average client is three years, we value subscribers over this same period.

The CEO of Correlex is prepared to invest $900 to acquire a new client.

Because his optimal conversion rate is 25%, a sales opportunity is worth $225.

$900 x 25% = $225

He knows that his automated communication program provides him with an opportunity realisation rate of 0.8% per month. Or, to put it another way, for each subscriber on his database, he will receive 0.8% of a new sales opportunity each month.

Because he arbitrarily decides to value subscribers over a three-year period (36 months), Correlex’s CEO can calculate that there is a 28.8% likelihood of a new subscriber turning into a client over this period.

0.8% x 36 = 28.8%

If 28.8% of subscribers become clients, it follows that a new subscriber is worth $64.80:

$225 x 28.8% = $64.80

Therefore, this $64.80 is Correlex’s optimal relationship acquisition cost.

Correlex’s CEO decides to set his optimal relationships acquisition rate at 85 per month. This will allow him to easily hit his target of 2,000 subscribers within 12 months. (Even accounting for a particularly conservative unsubscribe rate of 42 a month.)

Today, however, he is particularly animated.

He’s relating the story of how, with the assistance of Justin Roff-Marsh Advertising (now Ballistix), he has shifted his business’s growth into overdrive.

"Consider this," he says – in an effort to justify his excitement – "it took me 22 years to build my business. Come June 2000, it will have taken Justin Roff-Marsh Advertising just 12 months to double it in size."

As Gavin’s story unfolds, it’s easy to understand his enthusiasm. The last six months have seen Gavin replace an unsuccessful advertising campaign with one that generates more new clients than he can possibly handle. He’s replaced an unstructured, labour-intensive sales process with one that operates virtually on autopilot. And he’s replaced a comfortably uncluttered diary with one that’s booked solid – two full months in advance!

An unconventional investment methodology

Gavin Ross is a portfolio manager.

His clients are high net-worth individuals (they must have a minimum of $500,000 to invest) who wish to enjoy the higher returns of direct share investment, without having to make buying and selling decisions themselves.

Gavin provides these clients with an alternative to a managed fund. Unlike a managed fund, Gavin manages the shares in his clients’ private accounts. His clients benefit from lower fees, as well as from a more personalised management service.

Gavin’s clients also benefit from his unconventional management methodology. Gavin classifies himself as a ‘value investor’. Value investing is a method that has been popularised by America’s hugely successful Warren Buffet (the world’s second-wealthiest man).

While many traditional fund managers would like to be regarded as value investors, the quarter-to-quarter reporting requirements (and, in many cases, the sheer size) of their funds makes this longer-term and (more selective) method of investment management impractical.

After a long history in the financial planning industry (he was one of the original founders of the Australian chapter of the International Association for Financial Planning), Gavin launched his portfolio management service 22 years ago.

His business grew steadily, fuelled by a steady stream of referrals from satisfied clients – as well as by regular media exposure. As his clientele grew, Gavin increased his minimum initial investment from $50,000 to its current level of $500,000.

Reluctant advertiser

When Gavin asked Justin Roff-Marsh Advertising to take a look at his newspaper advertisements, he had just about given up on advertising. "I was like most business people," Gavin explains, "I figured that advertising was something you did in expectation of some immeasurable longer-term benefit. I ran ads reluctantly, but I had never known an advertisement to generate more than one or two telephone calls.

"I spoke to Justin Roff-Marsh Advertising because I was intrigued by their editorial-style ads. I had no idea whether or not they worked – I just knew I liked reading them!

"What surprised me about Justin Roff-Marsh Advertising was that, unlike other advertising agencies I’d spoken with, they didn’t seem to place much importance in ads. Their attitude seemed to be ‘sure we’ll fix your ad, now let’s talk about your sales process’.

"I’ve got to admit, their seeming disinterest in advertising unnerved me at first. I couldn’t see much sense working on my sales process when I was coping quite comfortably with my current referral business. I simply had no idea of the level of activity their advertising was about to unleash."

A success story waiting to happen

Justin Roff-Marsh, from Justin Roff-Marsh Advertising, explains that Gavin Ross & Co. was a marketer’s dream come true.

"When we met Gavin, we met a man with a remarkable story to tell. He had an invaluable brand in Melbourne. (He had received regular media attention for years – including once being featured on the cover of Personal Investment magazine.)

"His unconventional investment methodology was exciting. (America has a number of popular value investors, including Warren Buffet and Peter Lynch – but no one has taken ownership of that category in Australia.)

"And his enthusiasm for share investment was infectious. (Invariably, when Gavin visits our office, our entire team gathers in the boardroom to ask his opinion on shares, and to marvel at his down-to-earth explanations of otherwise unfathomable economic principles.)

"Gavin was a success story waiting to happen. He’d already done all the hard work – all we had to do was press the ‘start’ button!

A whole new sales process

The Justin Roff-Marsh Advertising team proposed a three-step sales process. First, advertise to generate responses from qualified potential investors. Second, send respondents a comprehensive information pack to pre-sell Gavin’s service – and invite them to invest. And third, plug respondents into an ongoing communications program – to continue to nurture a relationship with those who don’t invest immediately.

Justin Roff-Marsh Advertising designed Gavin’s lead-generation advertisement to appeal to those Melbournians who already knew Gavin from his regular media exposure. The advertisement mentions his $500,000 minimum initial investment, to avoid generating information pack requests from those who cannot afford his services.

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Justin Roff-Marsh Advertising then created a high-quality, eight-page booklet to replace Gavin’s existing ‘corporate’ brochure. Justin explains why. "Gavin’s existing brochure wasn’t a bad looking document. The problem was, its four pages of unemotive bullet points really undersold Gavin’s unique service offering. We wanted to sell Gavin by empowering the reader with a rudimentary understanding of his unconventional investment methodology.

"Furthermore, we wanted to make Gavin’s sales process less labour-intensive by ‘institutionalising’ much of the information he was disseminating to potential clients in face-to-face meetings."

The resulting document explains the shortcomings of traditional managed funds, and then teaches the reader Gavin’s ‘five laws of value investing’. It details Gavin’s investment management service and helps the reader to determine whether or not Gavin’s service will be appropriate for his or her situation. The document also contains a detailed biography of Gavin Ross.

To facilitate ongoing communication with those respondents who don’t invest immediately, Justin Roff-Marsh Advertising converted Gavin’s existing quarterly report into an ‘open letter to high-net worth investors’. Like his new brochure, this open letter adds value to Gavin’s relationship with potential clients by continuing to teach them about his investment methodology.

The results

At time of writing, Gavin’s new sales process has been operating for around five months.

But Gavin is still having trouble coming to grips with the results it is generating.

He winces a little as he relates the numbers – almost as if he suspects he’s dreaming, and he’s terrified this introspection will jolt him awake!

"The first time the ad appeared in the Melbourne Age, it generated 186 information pack requests. I just couldn’t believe it. I’ve never seen the phone ring like that before!

"When I sent respondents their information packages, I was confident that we would get one or two new clients – just one new client would have more than paid for the ad.

"Nothing happened for about a week, and then the phone started ringing again – with people requesting appointments. In total, I got five new clients from that first advertisement. Between them, these new clients placed just over $3 million dollars under my management.

"The amazing thing is that subsequent advertisements have yielded similar – if not better results."

Gavin currently has a queue of potential clients, waiting up to two months to meet with him. He’s employed additional staff and had his computer network rebuilt – but, for the moment, he just can’t grow any faster.

Gavin concludes, "The future looks exciting. By June next year, I will have easily doubled my funds under management. Once I’ve done that, I’m going to close-off my service to new clients, so I can concentrate on looking after my existing clients – and my new project, of course."

Gavin is reluctant to reveal details of his new project just yet, although he admits it will be in the financial services industry. And, like his portfolio management service, he claims he will be pioneering an investment concept never before seen in Australia.

He is less reserved, however, in his praise of Justin Roff-Marsh Advertising. "You guys took a good business and you transformed it into an absolutely outstanding one. I just can’t thank you enough."

America Online (AOL) is the Internet service provider that recently acquired Time Warner – the world’s biggest media company – in a $US165 billion deal.

And Body Express is a boutique gymnasium, in Sydney’s Bondi Beach.

Look behind the scenes, however, and you’ll discover that these businesses share one common feature – their promotional strategy!

In 1993, AOL embarked on a promotional strategy that was to see its subscriber base grow from 300,000 to the 24 million subscribers it has today.

This promotional strategy was deceptively simple. AOL gave away free computer disks containing start-up software and free time on the AOL service. (Our own OzEmail has subsequently emulated this strategy.)

Initially, these start-up disks were given to readers of computer magazines, but the response was so favourable that AOL began distributing them in all kinds of magazines, and even inserting them in cereal boxes and frozen steaks. Between 1993 and today, AOL ‘carpet-bombed’ the United States with a total of 250 million start-up disks!

Our own Justin Roff-Marsh had just returned from a US trip when he met with Jamie Hayes to discuss the promotion of his gym. As the two talked, it dawned on Justin that there were similarities between Body Express and AOL.

Gyms had, in recent years, become a commodity item – as had Internet service provision. Body Express was selling an 18-month membership, with fees debited monthly to members’ credit cards – as was AOL. And Body Express was in a position to provide valuable added services to lock-in members once they utilised them – as does AOL. (AOL uses services such as e-mail and it’s instant messaging and calendar services to provide member lock-in.)

Considering the similarities, it made sense for Justin to suggest that we borrow AOL’s promotional strategy.

A free 30-day membership

Fortunately for us, Jamie Hayes is a contrarian. He hadn’t survived 22 years and seven gym start-ups by playing by the rules! Accordingly, when Justin suggested that we might promote his gym by ‘carpet bombing’ Bondi Beach (the suburb, not the strip of sand) with offers of free 30-day memberships, he just managed to retain his composure.

We proposed a classic sampling campaign, with a twist. While we would give away free 30-day memberships, we would ask respondents to join as permanent members – and register for Body Express’s monthly billing program ($49 a month for a minimum of 18 months). However, we would not charge them for their first month’s membership – and we would allow them to opt-out of their membership at any stage during that month without penalty. (This is exactly how the AOL offer is structured.)

Jamie quickly got excited about this strategy. He could see that the offer of 30-days’ free membership was an irresistible one. But he could also see that the offer was structured in such a way that it would attract only those people who were prepared to at least seriously consider Body Express membership.

He also quickly realised that, if he could compel new members to visit regularly over their first month of membership, they would be highly likely to stay on as members. And, while those new members who didn’t make use of the gym were unlikely to stay on, they would incur minimal service costs during the 30-day trial period.

Gym visits: about as enjoyable as body piercing!

Gyms have been trying to make sampling campaigns work for years. In fact, prospective gym members expect to be given a handful of free visit vouchers prior to joining.

Unfortunately, as Jamie had already discovered, traditional sampling campaigns do a very poor job of signing-up those members who haven’t already made up their minds to join!

The reason why is deceptively simple. A sampling campaign will fail if the people who trial the product on offer have an unsatisfying experience.

The nature of the gym industry is that one visit (or even a handful of visits) to a gym seldom constitutes a ‘satisfying experience’ for anyone other than a committed exercise buff.

The fact is that a first-time gym goer will tend to notice results only after two or three weeks’ worth of gym visits. And, until these positive results become noticeable, gym visits are about as enjoyable as body piercing.

Gyms have developed two techniques for coping with the problem of ‘delayed gratification’. Some gyms ignore the less committed, and focus on serving only hard-core exercisers (body builders). Others provide distractions to ease the short-term pain (cafes, audio-visual entertainment, child-minding services and a calendar full of social events).

Each of these techniques has its own shortcomings. The body builder niche is a very small market. And, non-core services tend to distract gym goers from the activities that will ultimately yield results – which further delays the positive reinforcement that these health results provide.

Adding (relevant) value – and creating lock-in

Jamie had already developed his own theory on the best way to handle the problem of ‘delayed gratification’.

We suggested that our sampling campaign might be an acid test for this theory.

Jamie explained that, in the main, people join gyms to lose weight. (Not to pack-on muscle or expand their social networks.) "Exercise is an essential component of an ongoing weight-loss program, but it’s easier to get quick results from dietary modification."

"Unfortunately, most gyms don’t bother to give their members dietary advice. In fact, most gyms simply don’t recognise that they are in the weight-loss business."

Jamie’s suggestion was to provide new members with a personal coach during those all-important first 30 days of membership. This coach would have two areas of responsibility. The first would be to provide new members with dietary assistance. And the second would be to provide the training and the motivation required to ensure that new members commit to regular exercise regimes.

We agreed that the combination of the 30-day trial period and the personal coaching program would provide the lock-in that this sampling campaign needed.

We also acknowledged that personal coaching sessions and a free eating program would make Jamie’s offer all the more compelling!

Spreading the news

Justin suggested that we promote the Body Express sampling campaign with a simple three-fold, envelope-size brochure.

He insisted that this brochure should feature a punch-out membership card. He explains, "A free 30-day membership is one hell of an offer. I felt that a punch-out membership card would provide believability and a sense of immediacy."

And, to our delight, Jamie asked if we could emulate the bright, high-energy feel of the AOL campaign.

As well as a punch-out membership card and a lime and orange colour scheme, the resulting brochure featured a detailed description of Body Express’s five-step weight-loss program and clear explanation of the conditions of the offer. (We wanted to be sure that prospective members understood that they would need to provide their credit card details to qualify for their free month’s membership.)

The results

In April 1999, 10,000 of these brochures were distributed into Bondi Beach letterboxes.

Jamie remembers, "We had eleven new members join that very day. Within seven days, your campaign had provided us with exactly 68 new [trial] members!"

"Of those, half survived that critical 30-day period – providing us with exactly 34 paying members."

He explains that this result was remarkable for a number of reasons. "For a start, I’ve done a lot of letterbox drops – some more successful than others – but I’ve never experienced a response like this before. I doubt many gym owners would believe that it is remotely possible for any kind of campaign to provide an established club with 68 [trial] members in one week. Furthermore, to have 50% of trial memberships convert into paid members is just incomprehensible!"

A glimpse at the numbers behind Jamie’s campaign provides an insight into his happiness. It cost Jamie $1,694 to print and distribute 10,000 of these brochures. If we amortise 25% of our creative costs on this first distribution, that provides us with a campaign cost of $2,432.

Because this investment yielded 34 new members, Jamie’s cost per new member was $72. Each new member committed to a minimum of 18 months’ membership at $49 a month (debited to his or her credit card). This means that each member provides Body Express with a minimum of $882 revenue. (This does not include income from personal training, drinks and accessories, or future membership renewal fees.)

Dissecting success

Jamie makes it clear that there was a lot more to the success of this campaign than simply distributing 10,000 brochures and waiting for the new members. "I worked closely with the JRMA team throughout the creative process. In fact, when Monique provided me with a mock-up of the finished brochure, I took a trip to the local shopping centre – clipboard in hand – and asked shoppers for their feedback.

"I also resolved to treat new trial members as we would all other members. We exchanged their temporary membership cards for real ones on their first visit, and we even banned the use of the ‘T’ [trial] word!"

The future

Jamie is committed to rolling out his new campaign as fast as his internal systems (and his cashflow) will allow. Our next step will be to test his offer in other media –starting with newspapers and broadcast fax.

He’s also committed to his relationship with JRMA. In addition to regular strategy sessions with Justin, he’s already had Monique Lewis redesign his corporate identity.

Jamie now keeps a close eye on America Online’s promotional activities. After his success with their subscriber-acquisition program, he’s keen to see what clever ideas they come up with next!

He rarely gets out of bed before 11:00 a.m.

He seldom visits his office — and when he does, his only brush with any activity that even resembles work is a noisy tour of his troops, exchanging high-fives and boasting of market victories to come.

He’s loud, opinionated and confrontational — with the attention span of an agitated gnat.

And he leads a lifestyle so decadent that few rock stars would be capable of keeping up!

But Peter isn’t in the market for a job.

The fact is, he’s preoccupied with Naturopathica, a $20 million a year pharmaceutical business he’s built from the ashes of a previous venture!

If the fact that a man with Peter’s unusual work ethic can build a $20 million business surprises you, what you’re likely to find all the more remarkable is that Peter Nicolas only launched Naturopathica two years ago!

Peter’s wild lifestyle has been surpassed only by his business career’s wild ride from poverty to success and back again, followed by his recent meteoric rise to riches.

At JRMA, we’re proud to have shared this eventful journey with Peter, his long-suffering business partner, Sonia, and their team.

Along the way, we’ve learned business lessons we could never have learned elsewhere — and we like to think we’ve made at least some contribution to Peter’s success.

Down but not out

When Justin Roff-Marsh first met Peter, he had only two valued possessions — his telephone account (both the electricity and the gas had been disconnected from his dilapidated Surrey Hills terrace house), and his sizeable library of direct mail books and magazines.

Peter and Sonia had acquired a taste for direct mail from their first business venture. They had been selling ‘little black dresses’ from full-page advertisements in a popular women’s magazine. When the magazine decided they wanted to dissolve their joint-venture arrangement and take the business in-house, Peter and Sonia were left looking for another business opportunity.

Peter was spending his afternoons devouring every direct mail publication he could find, and every night he would sit on the phone to the United States speaking to anyone who was anyone in the direct mail industry.

It wasn’t long before Peter approached Justin with details of a product he claimed was destined to reverse his fortunes. Justin was more than a little concerned when he discovered that Peter was planning on risking money he didn’t have on an advertisement for, of all things, grass seed!

Grass seed grows into multi-million dollar mail order business

Despite Peter’s assurances that CanadaGreen was no ordinary grass seed, Justin remained unconvinced. He could understand why CanadaGreen was popular in Canada (where much of the country is buried under snow for months each year), but he just wasn’t convinced that Australians would be prepared to purchase any kind of grass seed by mail order — particularly at $39 a bag!

Peter’s convictions couldn’t be swayed. Justin agreed to let our team create a mail order advertisement for him, as Peter went about convincing Sydney’s Sun Herald to extend him $11,000 credit for a half-page advertisement in its television supplement.

Fortunately, this first advertisement exceeded even Peter’s wildest expectations. By lunchtime on the Sunday that first advertisement appeared, Peter had sold $47,000 worth of grass seed. He was now officially in business!

Peter wasted no time purchasing space in television supplements and women’s magazines around Australia. And he immediately converted our print advertisement into a two-minute television ‘infomercial’.

Within four months, Peter and Sonia had turned their half-page grass advertisement into a $150,000 a month mail order business. Peter followed the success of CanadaGreen with a bevy of similarly innovative garden, household and personal products, and in the process built his annualised sales to above $5 million.

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Success bites!

The mail order business can be a bit like the property development business. If you want to grow fast (and in order to survive, you need to) you invariably gamble your entire business on each project.

When Peter ‘rolled the dice’ on an electronic pest eliminator it looked as though he was destined to win big. This product seemed to hit a nerve with frustrated consumers who were eager to rid their homes of rats, mice, cockroaches and other crawling nasties.

His initial advertising campaign set his phones ringing as they’d never rung before. Peter had limited stock, but he knew that if he didn’t keep advertising, there was a danger that a competitor would buy-up the limited media and mine the rich vein he’d exposed.

Peter’s US suppliers promised to airlift product to him as it rolled off the assembly line — but it never arrived. Still, the orders tumbled in and customers became outraged when their orders failed to materialise.

Peter held off requests for refunds for as long as possible by offering customers credit vouchers as compensation for their late orders. But when it became clear that the product that Peter had ordered (and paid for) was never going to arrive, he had to begin writing refund cheques.

After issuing tens of thousands of dollars’ worth of refund cheques each day for almost three months, Peter’s business was insolvent. He narrowly escaped bankruptcy by convincing his largest creditors to excuse his debts in return for an assurance that he would place his business with them when he bounced back. By this stage, none of Peter’s creditors (ourselves included) had any doubt that Peter would rise from the ashes of his failed business.

New paradigm: new business model

Peter’s new business combined his talent for picking winning products, with his direct marketing expertise, along with a new ingredient — retail distribution.

A post-mortem of Peter’s failed business revealed that his most profitable products could be characterised as ‘ailment-specific skincare and nutricutical products’.

Products like VeinAway, HairNoMore and ProSlim had been consistent performers. Even with no advertisements on television, Peter was receiving a constant stream of telephone calls from customers, asking if they could re-order.

Peter was also receiving hundreds of telephone calls each month from pharmacists, asking if they could stock his products.

These telephone calls helped to crystallise Peter’s thinking. He resolved to start a pharmaceutical company, specialising in ailment-specific natural remedies. He would use mail order to ‘make a market’ for his products and then extend the life of these products by distributing them through pharmacies.

Onwards and upwards

This year, as mentioned previously, Peter and Sonia’s new business, Naturopathica, will do $20 million dollars in sales.

But as well as a strong cashflow, Naturopathica has a strong balance sheet. Its assets include its brands (it has more than 20 brands — including the best-selling Menoeze, which is endorsed by Rowena Wallace), and its distribution network (Naturopathica’s products are now available from almost every pharmacy in Australia and New Zealand).

Peter’s new business model is as effective as it’s unique.

Most pharmaceutical companies wouldn’t dare to sell direct for fear of disenfranchising their reseller network. However, Peter’s pharmacy clients understand that his direct sales activity finances the enormous cost involved in ‘making the market’ for new products.

And rather than providing pharmacists with line-extension after line-extension (each of which consumes valuable retail space and diminishes the return on originally successful brands), Peter delights pharmacists with best-selling brand after best-selling brand.

Furthermore, all of Peter’s products are supported by powerful point-of-sale campaigns — and, of course, with the spin-off benefit of his newspaper, magazine and television advertising.

Recently, we suggested to Peter that we build an ecommerce-enabled Website to complement both his mail order and his retail distribution channels.

Within weeks of its launch, this site (www.naturopathica.com.au) was generating over $50,000 a month in sales. Naturopathica’s online presence is styled after Amazon.com — with strong emphasis on cross-selling between related products.

Australia’s largest ‘nutricuticals’ company

For a man who has long resisted traditional business practices, his business is now looking surprisingly business-like!

Naturopathica now has a staff of 45. It has its own warehouse (although Peter recently admitted that he has no idea where it is!) And it even has a General Manager (thank goodness).

Peter is obsessed about building Naturopathica into Australia’s largest ‘nutricuticals’ company. He conceptualises new products daily, he motivates his UK- and South African-based employees with telephone calls from outside Kings Cross nightspots, and he argues regularly (and noisily) with Justin about the intricacies of his business model.

Peter might not have what it takes to get a job with any of his competitors, but he does have what it takes to build a serious business. He is driven. He has an uncanny understanding of what makes people tick. And he has absolutely no fear of failure.