life time value

The Value of a Lead

B2B, follow-up, lead generation, life time value, Marketing, Risks, Trust

Have you analysed the time it takes for someone who enquires something that you offer and eventually buys. And what is the Life Time Value of a client.

Not all leads will buy anything at all, some will buy, but not buy from you. But those who do buy from you, do you have an estimate of the amount of time it could take at an extreme for a lead to close.

About 10 – 12 years back, there was an MNC , who was into selling CPU chips, had come to us. Their sales team had a clear mandate from their management, if a lead was not closed in 3 months, it had to be pulled out of the funnel and dropped. Like us, they were also dealing in B2B.

Since we deal in considerably large value deals, it sometimes takes us even 24 months of effort to keep the lead live, to eventually come to us.

The timeline is an important aspect in deciding when a lead needs to be stopped from being targeted. One argument is never. To a certain degree, I agree with this argument. At the other extreme is an argument that if someone doesn’t buy in 3-6 months, then they will not buy. With companies running their sales and revenue targets from one quarter to another following a lead for more than 6 months is tough, because after 6 months the sales person may change.

Generating a lead is tough enough and losing it because you have an ad-hoc timeline to decide when to dump a lead can be devastating for the business. Depending on the kind of offerings you have, the more expensive the offering, the more people take time to think through their decision because, in the B2B segment, people can’t afford to Not Have Things Work. And because they still don’t trust you or the technology, they don’t want to take a decision. That’s where all the inertia and indecision comes-up.

You need to patiently nurture leads by educating them and motivating them to try you out (if they are engaging you for the first time) by doing POCs ( if its a complex technology) and eliminate all the possible risk from the buyer.

Once you have analysed the timeline of closing leads, then they will become an asset which will I’ve you annuity kind of business.

Till next time then.

Carpe Diem!!!

Single Target Market and the Life Time Value

B2B, life time value, Marketing, Product Management, single target market

I came across the concept of the Life Time Value from Jay Abraham while reading his book, Getting All You Want from All You Have. It was a very intriguing book name and I couldn’t end up not buying it. Since then I have read it multiple times to find new ideas and ways of thinking.

The Single Target Market concept,  I have learnt primarily from Dean Jackson. The advantage of this concept is that you can get to focus all your energies on just one segment of the market at a time and then Dominate it, before moving forward to the next Market.

Each entrepreneur,  product manager, marketing manager has multiple markets, that they can focus on and it is counter intuitive to focus on only one.

The reason I keep coming back to discuss on the single target market time and again is because I  use it myself and find new applications for it when analyzing different businesses.

A good way to analyse the relative economic values of each market and then choose the one which is the most lucrative. So if you knew what’s the life time value of a  customer and you knew that you had the potential to pick up at least 30% of the market then you could take a call on how you could go about investing.

So let’s take a B2B example where the Life Time Value of a customer is say $100000/- at a Gross Margin of 30%. Now let’s  assume that there are a total of 1000 potential customers in the segment you have chosen. The bottom 20% will never buy from you.  That leaves about 800 prospects.  Out of these 800 some are in pain right now, some will get into the pain stages over the next 5 years.

So your potential market yield could be $80million over 5 years or a gross margin of $24million. If you can earn $24 million what would you be willing to spend to get these customers. If on the other hand the other market segment can only do $80000 LTV per customer at a GM of 25% then the potential yield of this market is $64 million at a GM of $16 million.  So how much can you now spend to get the $16 million.

So that is the combination to help you choose which is the most promising market for you to enter.

If you have any queries, please raise them in the comments section. I would love to hear them.

Till next time then.

Carpe Diem!!!

P.S: If you are interested in getting a free copy of my “7 point checklist for B2B markets”, you can ask for it, by filling in your details below.

Budgeting for marketing activities

budget, life time value, Marketing

If there’s something successful about your model to regularly get clients, why would you ever want to limit your spending in marketing. Budgeting is effectively putting limits on what you are allowed to spend.

In case you are an entrepreneur and have your business, then the above argument would hold.

However when you work in a corporate setup, then every department gets allocated money because there are a lot of interdependent activities involved.

So if you work in a corporate environment or advise people in a corporate environment then below is my quick and dirty method of calculating what you may want to demand for your activities.

It starts with identifying what is the average life time value of a client for you. Do you have clients who give you recurring revenue or one time. Do you have repeat business possibilities including up-sell, maintenance charges etc. Put all of this together.

You can do this on a simple calculator and napkin.

Let’s assume you realize that your average lifetime value in revenue is $100000 over a period of 5 years and you would make gross 25% margin, then any new client has a potential to averagely give you a gross margin of $25000/- over the life of the customer or $5000 per year over 5 years.

To keep things simple I have not accounted for the referrals some of the customers may give you or additional activities during the term of the order.

So now we look at the first year – gross margin as $5000. This is the figure we will need to work on.

So suppose you were to be willing to forsake $5000/- to get a customer, you would be assured of getting a profit of $20000 over the next four years. If you have capacity then any additional business will not increase costs substantially. If you don’t have capacity then, this is not necessarily a good idea.

But for argument let’s say you have capacity, but you may still incur incidental costs of $2500. You still have $2500 you can happily spend to earn $20000 over the next 4 years.

The next item to look at is – what is the available capacity in your factory/delivery. So if your factory can deliver 10 more projects over the next 5 years, then you have to get 10 new customers for the factory.

So now you have a simple budget $2500×10 customers equals $25000/- to get an additional revenue of $1 Million (10 customers *$100000/customer)

So you need to now plan how you will spend the $25000/- such that you can ensure 10 customers come your way to your finance.

Till next time then.

Carpe Diem!!!

Losing hurts more than the joy of winning – Product and Brand Management – 2

B2B, ego, Fear, Human Brain, life time value, losing, Marketing, Product Management, winning

In yesterday’s post I spoke about how the human brain’s resistance to lose, makes the job tougher for a product management person to get a new product into the market. Nobody wants to be seen as a fool in case something goes wrong. The hurt of losing is very acute.

On the other hand there’s a positive side for the marketing person to utilise. Since marketing is applied psychology, you need to use this same concept to your advantage. That’s how brands are built. They are the trust / the promise that a user feels, when buying something from a known name (brand) versus buying an unknown name.

In the B2B space, therefore once you have entered into an account and done an excellent job, you need to spread your tentacles and try to do as many things as possible. Since the customer trusts you, they will prefer to first come to you to check out before going out into the market to find a new vendor.

So while getting into a B2B customer is tough, once there and if you have done an excellent job, the possibility of doing long term business is very high. So when looking at a B2B customer, you need to look at the lifetime value of a customer before taking any decision of refusing an order. Especially if it is at the time of entry into the account, you have to keep this dynamic in mind. Even if you have to make loss on a one time deal, for the first time, you should pick up the deal, provided you are clear that they do a lot of buying where they will involve you. You can then make up for the money you lose, by getting a logo to brag about in your brand building as well as the long term revenue possibilities.

You will also sometimes come across customers who will always want you to lose. For those types of customers, you should be ready to leave them at the earliest.

But coming back, the same feature of the brain which causes us hurt can also be used to increase revenues by ensuring that the customer realises why they trust you versus trying a new vendor.

Till next time then.

Carpe Diem!!!