morecheeselesswhiskers

Growing the business in a niche – Part III – Life Time Value

differentiation, Marketing, Positioning, Product Management, Sales

In my post yesterday I spoke about how you could go about partnering with inflencers and other merchants / companies who sell to the same niche.

There are 2 decisions to make the above successful.

First is the fact that you will need to hustle and connect with people. No one is going to find you. You have to make yourself found.

The second is the arithmetic behind the number of people you can partner with.

Which brings me to the concept of Life Time Value. This concept is explained very well by Jay Abraham and then Joe Polish and Dean Jackson

Most people, including people working in large companies don’t understand this concept, due to which they take short term decisions in accepting the first order.

Let’s say you have an average deal size of $100,000. In this you have a gross margin of $10000/-. This customer can buy from you the same product or service maybe 2 more times over the next 5 years. Which means over the next 5 years this one customer can give you a gross margin of $30000/-

Now if you have given this customer exceptional service then she may also refer one more customer like herself to you who could also give you another $ 30000/-

Which is a total of $60000/-. However you won’t make this if you don’t get the customer in the first place. The longer you can keep your customers to keep coming back for mere the higher this value becomes. As Joe Polish says, it also helps you to stop thinking in episodic nature and start thinking of very long term relationships with your customers.

Which brings us to the next point, how much are you willing to spend to get the customer first. This could be in terms of giving your partner all the first year margin or giving added value of $10000 to the customer. I am generally not in the favor of giving a discount because it becomes very difficult to raise prices once customers get used to one price point. Like I mentioned in my post yesterday, you could go on the ilovemarketing podcast or the morecheeselesswhiskers podcast and get a lot of examples how businesses of all sizes have used this.

The more you can afford to spend to get a client upfront and the longer you can be at it, the more successful you will be in getting your product or service to take over the market.

Till next time

Carpe Diem!!!

Selecting a niche…. create a differentiation

differentiation, Marketing, Positioning, Product Management

Whenever you try to create a differentiation –  it is always with respect to a market.

The red egg differentiation will not matter to a person who does not eat eggs.

I talk multiple times about Joe Polish and Dean Jackson. The reason I am so impressed with them and their podcasts on ilovemarketing and morecheeselesswhiskers is because they explore this concept in so much depth.

You will hear a lot of marketing people talk about identifying a niche in the market, but fail to say the immediate statement after that. Is there a market in that niche

This is the most critical aspect when you decide to segment the market for a niche.

When I started my career in selling process control equipment, we had an amazing product which was also very expensive. Indian industry at that time was still new to the idea of micro processor based process control equipment.

Our product was very good good for controlling complex processes. However there were very few companies who really had the need for such a powerful equipment. And we didn’t have a range of products.

While there was a niche in the market for controlling complex processes, there was no market in the niche…. because there were very few companies with a need for such a product.

Eventually this product could not take leadership even though we came out with this amazing product much before anyone else.

So while finding a niche in the market is important, to be able to differentiate and stand out. You should always see if there’s a market for you in the niche.

Till next time.

Carpe Diem!!!