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The “Sales Hourglass” – The Most Important Concepts You Must Know and Embrace to Create a Profitable Business

Graphic of a "sales funnel" illustrating the importance of customer lifetime value

Gasp! But, Terry, it looks soooo complicated!

Take a deep breath. Walk with me, talk with me. I’m goint to make a video about this in a bit to drill deeper, but right now I just want to impress upon you some critical key concepts. Because if you understand the key concepts that this one little ole diagram conveys, you will be more savvy about how to make money than 98% of small business owners!

Key Concept #1: Few businesses can survive on one-time sales to customers, because the cost of acquiring a new customer is far greater than what it costs to keep and “grow” one. I’m going to say that again: Few businesses can surve on one-time sales to customers. So you have to gear your business to repeat sales.

The purple hourglass simply represents that acquiring, keeping and growing process: a) leads come in the top, b) you get a first-time sale with a certain percentage of those – that’s the neck of the funnel, then c) you work to sell more/other products and service to those first-time customers.

Key Concept #2 (the also pretty, baby-blue boxes down the left side): This will astonish you, but you will welcome it, because it makes simple what the world tries to make oh, so complicated.

There are only three basic ways to grow any business:

1. Get more customers.
2. Increase the average sale amount (of either or both of your first-time sales and repeat sales).
3. Increase the number of times that customers return and buy again from you. (Notice that repeat sales can be two types: if you sell consumables, repeat sales can be replenishing what customers “use up”. If not, it means selling them other usually related – but not necessarily – products and services. )

That’s it! Now, here’s another little secret that will put you head and shoulders above “the pack”:  Very close to 100% of all small businesses focus 100% of their marketing efforts on first-time sales only!!! Why? Because 95% of all marketing babble is about “acquiring customers.” And only 5% of the babbly addresses keeping and growing customers. (Those are my numbers – I have no idea what they really are, but it wouldn’t change my point.)

You know why it is that way? Because the vast majority of marketing babble is propagated by people trying to sell you customer-acquisition services. NOT customer acquisition and growing services.

Be smarter than the rest: put something like, say, 30% of your marketing emphasis on growing and retaining existing customers.

Key Concept #3: The lifeblood of your business will be understanding and increasing your average “customer lifetime value” (you’ll also see it expressed as “lifetime customer value”, but I have my reasons for my preference).

“Customer lifetime value” is the entire gross profit that you make, on average, from a customer over the life of their relationiship with you.

Manage your business so as to maximize that, my friend, and you will live in a rarified atmosphere.

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