By Paul Simister - Business Development...

By Paul Simister BA FCA MBA CGMC

Six Steps Profit Formula by Paul Simister of 42

Who Is Paul Simister?

I'm an independent business coach and consultant based in Birmingham in the UK.

My fascination with helping small business owners improve their profits goes back to my first few months as a trainee chartered accountant. I met alovely client called John who owned a struggling transport business.

Sadly his business didn't survive the early 1980s recession.

It was my first experience of business failure and the personal misery it causes. I've always wished that I could have done more to help John and the other business owners I saw struggle to survive when I was young and inexperienced.

It's why, after a successful career in employment, rising to be the Finance Director of an engineering company with around 250 employees, I started my own consultancy, training and coaching business in 1995. Looking back, it was one of the best decisions I ever made.

My main focus is helping you to solve two of the big symptoms:• Poor cash flow• Low profitability

And two of the main causes of business problems:• A lack of differentiation to create customer preference.• Insufficient focus on improving measurable results.

The Six Steps Profit Formula will help you and, if you want to take things further, you'll find that my main skills are in business strategy, marketing and finance.

You can find out more of my thoughts about business and business improvement at the following websites:

www.BusinessDevelopmentAdvice.com www.DifferentiateYourBusiness.co.uk


http://www.BusinessDevelopmentAdvice.com/

http://www.DifferentiateYourBusiness.co.uk/

What Is The Six Steps Profit Formula?

The Six Steps Profit Formula is my high level reminder of how you balance a top-down strategic approach to building your business with the tactics you need to use every day.

It can be used as:

• A guide if you are starting your business to make sure that you’ve covered the fundamental elements of business design.

• As a diagnostic tool for either a young business that is struggling or an established business that isn’t performing as well as the business owner wants.

I use a number of different frameworks for thinking about business including the 5 Pathways To Profit Or Loss and the 3 Big Business Risks Every Business Must Consider.

These frameworks allow me to “slice and dice” my clients' businesses in different ways to give new insights on strengths, weakness, opportunities and threats. I provide an overview of each in the appendices.

What Are The Individual Steps In The Six Steps Profit Formula

The six steps in the profit formula are:

• Finding your “starving crowd”.

• Creating an “irresistible promise” that will tempt members of the starving crowd to buy.

• Getting your irresistible promise in front of the eyes and ears of your starving crowd so that they know about you and what you offer.


• Delivering on your promise with a great customer experience.

• Selling your customers a second or more expensive item to increase the original transaction size and then selling subsequent transactions.

• Encouraging word of mouth referrals to reach deeper into your starving crowd. This will help make your irresistible promise even more irresistible to those potential customers who need social proof of customer recommendations.

The Six Steps Profit Formula In More Detail

Before I go into more detail, please go back and read the six steps again sothat you can see how the emphasis is on attracting, converting and keepingmore customers.

Your profit will be disappointing if you:

• Struggle to attract qualified leads to your business. .

• Fail to convert a good proportion of leads into paying customers.

• Don't continue the trading relationship after the hard work of winning the first sale has been done.

The Six Steps Profit Formula is a comprehensive model for your business that looks both outside at your customers and competitors and inside at your business systems and processes and how effectively your staff work as a team to bring value to your customers.

Step 1 Of The Profit Formula – Finding Your Starving Crowd

I’ve borrowed the “starving crowd” phrase from the late, great direct response copywriter and trainer, Gary Halbert.


He used to ask his students this simple question…

“If you and I both owned a hamburger stand and we are in a contest to see who could sell the most hamburgers, what advantages would you most liketo have on your side to help you win?”

He used to get lots of different answers:

• the best meat, • the tastiest burger recipe,• the best location, • the ability to charge the lowest prices etc.

The answer he was always looking for was “to find a starving crowd.”

If I was being picky, I'd amend it slightly as “to find a starving crowd with enough money to buy and buy again.”

If people aren't hungry, they won't buy hamburgers. If they are starving, then they might buy two.

It's the same for you.

Whatever your product or service, you need to be selling into a strong customer need, want or an impulsive urge to buy.

The Difference Between Needs, Wants & Impulses

A need is a “must have” for general well-being. Needs are usually based on logic. You understand bad things will happen if you don't take action.

Selling into a need can get urgent action. If a water pipe has sprung a leak in your house and drops of water start falling on you from a bubble in yourceiling, you need a plumber urgently. If you don't take immediate action, your house could be seriously damaged and be very costly to repair.

However meeting some needs might conflict with what you want.


This is why many people who need to lose weight or give up smoking cigarettes, don't take enough action, even when they are given a strong warning by their Doctors. They accept the logic that their health is at risk but they don't do what they know they should do.

Why?

Because the desire for the next cigarette, the next chocolate bar or slice of cake is stronger than any immediate pain from their health worsening. After all, they think they can cut back tomorrow. In fact the thought of giving up and missing out on immediate gratification causes them pain.

A want is a strong desire to possess or consume some product or service based in your emotions for how you strive to experience more pleasure or to avoid immediate pain and distress.

If you look at what you buy, you'll see that most purchases are driven by a want. That's especially true where you haven't bought the cheapest alternative.

“I need food because I'm hungry but I want a juicy fillet steak cooked medium rare because I expect to enjoy it so much.”

An impulsive urge to buy is a fleeting want. You see something, you want it, you buy and then you no longer want it. In fact you often wish you hadn't bought it because of the money lost or guilty feelings about what you've done. This regret is called buyer's remorse and happens when logic reasserts itself over the short term emotions involved in the buying decision.

Why Customers Buy What They Buy – The Hierarchy Of Needs & Wants

Customers may not know they want what you have to offer.

This is why an important purpose of your marketing is to educate them on why you provide the best solution for their particular situation. In effect


you are setting the buying criteria to help them get what they want.

To be receptive to your marketing message, they must recognise their motivating drive to buy.

When you want to improve your sales and marketing, I find it's helpful to remember and analyse how you feel when you're thinking about buying something that appeals to similar wants and needs.

Let's look at the decision to buy a car.

There is usually a general need to be able to travel to work, to the shops and to see family and friends but you’re not going to buy a car if you don’thave a need for personalised transport. You can use trains, buses, taxis or even try car sharing or short term rental.

People who live in a major city like London may not need a car because the transport system is so convenient and frequent. In fact a car may be a major nuisance because of traffic congestion and the difficulty in finding a parking space.

Let's assume that you decide you will buy a car. The next questions are how much are you prepared spend, what are your criteria for choosing a car and what particular car will you buy?

Billionaire Sam Walton, the founder of Wal-Mart drove an old Ford Pickuptruck even though he could easily afford the finest Rolls Royce.

A car is bought to fill the transport need. An expensive car is bought because of the driving pleasure it gives or to display status and success to yourself and others.

It's Much Easier To Tap Into An Existing Demand Than To Create It From Scratch

It is a tough job to create demand for a product, but much easier to transferexisting demand that satisfies an existing want or need to your particular product or service.


This is why new technologies like fax machines took many years after invention to become a commercial success. Before it was invented, few people had a need to send paperwork to someone else and have it received immediately.

A subsequent innovation like email proved popular because it was a better solution to the same need to send documents quickly and it has virtually replaced the fax machine outside of specialist applications.

This is important.

Our basic needs and wants often remain the same – to travel, to be entertained, to feel good, to keep ourselves alive, to feel attractive, to care for our children.

How we prefer to satisfy those needs and wants change as products and services innovate to provide better, cheaper or different benefits.

People Don't Want The Product, They Buy What The Product Can DoFor Them

There's an old marketing adage that nobody buys a drill because they want a drill. They buy it because they want the ability to make holes.

It's well worth looking at your business from a high level to remind yourself exactly what your products and services do for your customers. When they buy from you, what are they really buying?

Then ask yourself some difficult questions.

• Will customers still want the basic want or need in 5 to 10 years?• Are technology developments likely to mean that there will be new

ways to meet those needs?• Can you innovate and lead the market with a product based on the

new technology or is your goal to copy and follow product innovations made by others quickly?


• How will you know what new ideas to back? What frustrates customers about the current solution most? What is currently stopping non-customers from buying?

Ideally you want to anticipate demand. To be there ready and able to supply the exciting new products when customers' desires are at their hottest rather than having to play a frantic game of catch-up.

We will delve deeper into why defining and understanding your market is so important in step two, your Irresistible Promise.

It's also why Demand Risk is the first of the three big strategic risks you need to keep monitoring to make sure you are moving in the same direction as the driving forces of your market.

Keeping Up To Date With Market Changes

You can monitor the changes in your market at the micro and the macro level and you should do both.

The micro level will gather information about changing priorities for meeting the basic wants, needs and desires of individual customers in different situations.

You do it by asking questions, listening carefully and keeping records of what is said by customers and then reflecting on what it all means.

Many markets keep fragmenting into smaller, more specific niches. It's nearly always possible to become more specialised although it's not alwayseconomically viable because the market (or starving crowd) can become too small.

Other markets do the opposite. They combine by bringing benefits from what may have previously been distinct product-markets. For example, look at how smartphones like the iPhone and tablets like the iPad have brought together telephones, laptop computers and cameras and taken demand away from each product-market.


You can also do it at the macro level by using popular strategy tools like PEST Analysis (the Political, Economic, Social and Technological forces that shape a market) and the Five Forces that determine market profitability.

Follow Demand Trends, Beware Of Demand Fads

It's usually better to be trading in a growing rather than declining market but you need to be aware of the difference between trends and fads.

A trend is expected to continue for the foreseeable future and is based on logical reasons for growing customer preference. The switches of demand from typewriters to dedicated word processors and then to word processingsoftware on a PC made sense.

A fad is a sharp growth in demand that is expected to be temporary and it will fall away again quickly. Fads are often built on the short term emotions involved with wanting to be one of the “in-crowd”. The fashion industry is a great example of how a style can be so right one year and so wrong two years later. Children's toys tied into a very popular film head for the bargain bins when the next big blockbuster appears.

Ideally you want to invest in building up your share of a market that is driven by a solid trend. You need to be very cautious about spending money that may never be recovered from chasing a demand fad.

Some times demand doesn't look sustainable and a fad is easily recognised as such. The rule for these situations is to get in early, make your money and then get out or don't bother being a late follower.

Other times what looked like a fad proves to be much more enduring. I remember having a meeting with a well respected insolvency practitioner in the late nineties. He thought that the coffee shops spreading into the UK high streets based on the popularity of the TV show Friends and their get-togethers in Central Perk were a fad. He predicted that a lot of money would be lost as the coffee shops closed and opportunistic owners were trapped with an expensive mistake because of long property leases.


http://www.differentiateyourbusiness.co.uk/five-forces-analysis

http://www.differentiateyourbusiness.co.uk/pest-analysis-the-way-to-understand-the-wider-environment

I agreed with him but we were both wrong. I went back to the town where I went to school as a child recently. There wasn't much there apart from various pubs, hairdressers and coffee shops. I still don't understand the particular appeal of Starbucks and its competitors but our culture has changed.

A more obvious trend that was perhaps hyped up, first as a trend and then as a fad was the growth of retailing on the Internet.

Plenty of dreams of getting rich quick disappeared when the dot-com bubble burst in 2000 but the commercial logic of ecommerce stores like Amazon is irresistible.

The UK electrical store Comet has recently gone in administration (an insolvency procedure that is likely to lead to mass closures of stores). One of the big reasons given is that it failed to invest in establishing a compelling presence on the Internet. It failed to follow the emerging trend.

If you're not sure whether a surge in demand is based on a fad or trend, myadvice would be to treat it as a fad while you investigate more deeply.

Step 2 Of The Profit Formula – Your Irresistible Promise

Once you’ve found your starving crowd, you need to make the audience anoffer that is distinctive and incredibly compelling.

Mark Joyner calls it an Irresistible Offer.

The Theory of Constraints consultants call it a Mafia Offer, that is an offer your customers can’t refuse.

Rosser Reeves called it your unique selling proposition (USP) that you should emphasise in all your marketing promotions.

I call it your Irresistible Promise:


Customers in your target market should find your offer so distinctive and so attractive that it is virtually irresistible (assuming they’ve got the money) because it appears to have been designed especially for them.

This is what I call bullseye marketing.

How Your Irresistible Promise Fits Into Bullseye Marketing

The closer your offer uniquely matches what your targeted customer wants, needs and sees as an urgent priority, the greater the probability of making the sale.

How Bullseye Marketing helps to explain why customers buy

If you sell a commodity product that is virtually identical to that available from every other competitor, then you’re trapped in the possibly buy sectoralong with all your other competitors. Any customer will struggle to make the choice between the competing alternatives and is likely to resort to making a decision on price. A few may believe that higher price somehow signals higher quality but many will look for the lowest price.


If you sell a differentiated product, then some potential customers will recognise that what you offer doesn’t fit what they want. For other possiblecustomers, you will step away from the competitors and move towards the centre of the bullseye and increase the probability of the lead or enquiry converting into a customer.

Some resist narrowing down their market (starving crowd), but I hope you can see that it's much better to be the first choice of a few customers than fourth choice for many.

The “promise” part of the Irresistible Promise is also important.

Do you remember when you were a child and your Mum asked you to do something? The easiest thing was to say “Yes Mum”, even if you didn't have any intention of doing it.

There was a big difference in my commitment between saying:

• Yes, I will do it; and• Yes, I promise I will do it.

When I was a kid, the first meant that I might do it. The second meant I'd given a firm commitment and I was prepared to be held accountable.

My Mum knew me too well and I found I did a lot of promising.

Customers are cynical and have been taught that they can't trust what manymarketers say most of the time.

Trust has to be earned and not automatically given. The truth is that it's hard to earn trust from a sceptical customer.

To make your marketing credible, you need to see your marketing as a firm commitment to deliver the intended benefits consistently and reliably.

The Irresistible Promise is not based on shallow differentiation of a hyped up marketing promise that doesn’t run through your business system or


value chain.

In the 20th century, marketers were told to sell the sizzle and not the steak. In the 21st century with customers and consumers empowered to make their critical opinions heard through social media, you can't afford to sell disappointing, tough steak because bad word of mouth comments will spread quickly.

These days, you need to sell the sizzle and the steak.

It's no longer good enough for the offer to sound good before the buying decision. It has to look good after the product or service has been bought and experienced.

How The Concept Of The Irresistible Promise Works

This idea of an irresistible promise works at two different levels:

The business level to create brand differentiation away from competitors.

Think about what the big brands that inspire great loyalty like Apple and Starbucks mean to you at an emotional level to understand the irresistible business promise. They help define how you see yourself.

The second level is the product offering level. This is the product or service you actually decide to buy.

People are attracted to brands but they choose between and buy product and service offerings.

They ask themselves “what do I get exactly for a particular price and do I believe that’s best value for money?”

When you’re buying a car, you’ll be attracted to a particular brand and model. However you won’t buy if the vehicles you are offered are the wrong colour, have the wrong specifications or if you can’t have the car delivered as quickly as you want.


Instead you may decide to wait until what you really want appears or you may decide to buy the next best alternative from a different supplier and perhaps even a different brand.

Your task when putting together your Irresistible Promise is to:

1. Create loyalty to your brand based on strengthening the emotional “know, like and trust” factors for your business: and to.

2. Create product preference at the offering level by providing better perceived value for money than competing alternatives (including substitutes that meet the same basic want or need).

The Language You Use In Your Irresistible Promise

I play a game called marketing bingo which is particularly well suited to the Internet and Yellow Pages where you and your competitors gather together in front of the eyes of possible customers.

Often you can go through the marketing promotions and if you hide the brand name, you will struggle to tell one business from another. You'll see phrase after phrase repeated because there is little effective differentiation.

On my Differentiate Your Business blog, I use the analogy of zebras. On its own, a zebra is a remarkably distinctive and beautiful animal with its black and white stripes.

The collective noun for zebras is a dazzle because evolution has given the stripes a clear purpose. The stripes confuse predators like lions when they see a herd because they are literally dazzled. They can't pick out individualmembers that stay with the herd because the stripes make it impossible to see where one zebra finishes and another starts.

It's the same with customers when they are faced with the “sea of sameness” in marketing. People want easy decisions but similar marketing messages makes decisions harder because customers know the companies are likely to be different under the surface but they can't tell which is more suited to their wants and needs.


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I recommend you try Marketing Bingo for yourself. Go to your main marketing pieces (perhaps your website or brochure) and write down all the reasons why a potential customer should buy from you. Then go to each of your main competitors marketing materials and tick off the reasonsthat are duplicated without any quantification.

Be especially aware of marketing platitudes like:• We offer great customer service.• We have a wide range of products.• We tailor our service to meet your precise needs.

Each sounds good on its own but not when all, most or many competitors are saying virtually the same thing.

Underneath these bland statements can be important reasons to buy.

See how quantification makes these phrases much more meaningful and distinctive:

• We offer great customer service. 97.2% of our customers surveyed say that they'd recommend us to their family and friends..

• We have a wide range of products including 37 different brands, an average of 16 styles in each brand and 11 sizes in each style giving you a choice of more than 6,512 products..

• We tailor our service to meet your precise needs by assessing your situation across 16 different service items and 5 different levels of service. You can order deluxe service where it matters to you most and basic service where you want to keep your costs low.

This brings me on to an important point.

Being different in the eyes of your customers can happen in three different ways – you must have an Advantage that is Better, Cheaper or Different. This is what I call the ABCD of Competitive Marketing.


Competitive Risk is the second of the big three business risks. Demand forthe product or service may be strong but if any of your competitors have a dominant competitive advantage that applies widely across the market, youhave a big problem unless your can better it in specific niches.

In his excellent book, Jump Start Your Business Brain, author Doug Hall outlines the Three Laws Of Marketing Physics:

• Overt Benefit - "customers maintain established behaviors until they come in contact with an overtly appealing alternative benefit force."

• Real Reason To Believe - "customers withhold their final commitment to purchase until they perceive a real reason to believe that you will deliver on your overt benefit promise."

• Dramatic Difference - "sales and profit explode when an overt benefit and real reason to believe pair is offered with a dramatic difference."

I think this is an excellent way to help you think through your marketing message and irresistible promise. It needs to give customers big benefits that are believable and which they can only get from you.

In my review of Hall's book, I made the point that these feel obvious but if you start looking in detail at the marketing examples you see in your normal life, you'll realise how rarely one let alone all three of the laws are met.

This is why buying can feel difficult and stressful.

Your marketing may have the same problems until you change to an Irresistible Promise.

Doug Hall emphasises the importance of having a marketing message that emphasises your underlying product and service differentiation from your competitors.


He even puts a number on it after some clever statistical analysis of many product promotions.

“Dramatic Difference levels increase probability of success from 15% to 53%! This means that you have a 353% greater chance of success when you have a high Dramatic Difference.”

I hope that helps you to appreciate how important it is to create a believable promise that brings big benefits to customers and which is very different from what your competitors are saying.

It is hard but that's where you reap the benefits. If a competitive advantage is easy to achieve, even if you're the first to offer it, your competitors can quickly copy it. On the other hand, if you have selected wisely and it is hard to do, your competitors will find it hard to copy.

A final point, the economics need to be in your favour. The new advantage must bring much more margin through increased prices, reduced costs and extra volume than the costs of creating the new advantage.

Step 3 In The Profit Formula – Get Your Promise To The Eyes & Ears of Your Market

Once you’ve created your Irresistible Promise, you need to get it in front of the eyes and ears of your target market.

This is your choice of marketing media and where you make the decisions about advertising, direct mail, social media marketing, how easily you can be found on the Internet and all the other marketing techniques that make potential customers aware of what you offer and why they should buy from you.

First you need to test the promise.

While you will have designed your Irresistible Promise based on your understanding of customer needs, wants and priorities and priced it at a


level that provides competitive value for money and a good profit margin for your business, the offer needs to be validated with customers.

Market research and feedback from customer focus groups and individual customers can be helpful for creating a valuable offer but the rubber hits the road only when money has to be exchanged.

Suddenly priorities alter and what seemed like “nice-to-haves” turn into unjustifiable luxuries that push up the price too much.

You only find out when you ask customers to buy.

Once your Irresistible Promise is proven, it needs to be rolled out and seen by as many members of your starving crowd as is possible.

And make sure the promise is seen as often as possible as well.

You should use direct response marketing that encourages an immediate action by an interested prospect rather than brand-building promotions. This way you can track what is working and make sensible decisions as well as continually trying to improve conversion rates.

Even the best crafted offer written by the finest copywriter is strengthened through multiple exposures with target customers. Familiarity makes it easier to make a buying decision because it builds confidence.

I recommend you split your marketing action in two ways:

• Search marketing – some of your target customers know they have the problem and are sufficiently motivated to look for a solution. Your main marketing task for these customers is to make sure that you are found where people look. This means ranking highly in the Internet search engines like Google or featuring on pages that rank highly.

• Outreach marketing – unfortunately relying on being found by customers who are ready to buy isn't enough to generate sufficient


demand for many businesses. I like clients to have three or four outreach marketing methods that are designed to interrupt and attract customers who are becoming aware that they have a problem that needs to be fixed but who haven't started searching for solutions.

These marketing media can be turned up when the business needs more new customers and turned down when you're close to capacity.

When people think about marketing, it's often about the media that is beingused and people come to dubious conclusions like:

• “Direct mail doesn't work in my type of business.”• “My customers hate to receive telemarketing.”• “A website is a waste of money and social media is a waste of time.”

This is wrong because marketing isn't this simple.

It relies on matching the message and the media to the target market and, where practical, measuring response rates so you can tell what is working .Measuring results also allows you to test alternative approaches as you continually improve your response rates or react to moves by competitors.

Let's just unpick two items.

• Who are you marketing too?• Where are you marketing?

The who and where are linked since you need to know “where” the “who” go to look.

There are many times when the user of the product and service is different from the person who starts the search, makes the buying decision and/or provides the money.

In different situations, the level of influence of each person may change and some may have the ability to say No but not Yes. Examples include children's toys where the child may be very clear on what he or she wants


or have a general request but the parents make the decisions and provide the money. In commercial organisations, buyers and user are often in different departments.

You also want to make sure that your marketing message reaches the people who need to see it. This means that when choosing between different media, it's not the total reach in terms of numbers that matters butthe reach in terms of your target market.

It's easiest to explain this in terms of extremely poor examples, even if in real life, mismatches are not this bad:

• Advertising in the (London) Evening Standard to attract people to a furniture store in Birmingham.

• A mailshot for an expensive women's clothes store to an area where the majority of houses are terrace houses or semi-detached (excluding London).

• A market stall selling whiskeys of the world oustide a Temperance Society meeting.

• Flyers for a gourmet meals service to areas with a high proportion of students.

The best people to advertise can be the people who have recently bought:• Investors who buy one investment newsletter are likely to be

interested in other investment newsletters.• Woman who love shoes are probably going to continue buying even

though they have 20 pairs or more. This drive for more applies to anything that is enthusiastically collected.

• People who buy business books and training are likely to buy more business books and training (I'm definitely in this category).

Other times, the people who are most likely to buy have just bought or done something that marks a big change in their lives.

People who have just moved into the area are obvious targets for property makeover services and dentists. Banks deliberately target new university students.


Step 4 Of The Profit Formula – Deliver A Great Customer Experience

The most successful businesses know that it is an expensive task to acquirea new customer and recognise the big money is made on subsequent sales.

This is what marketers call the “backend” and is often a source of overlooked profits as either businesses don't want to appear too pushy or they just don't consider locking in future business.

The most profitable companies work hard to both create new customers and sell to them again and again.

The principle that money is in the backend falls down if the first experience delivers much less than the customers expect and they decide that they no longer like or trust your business .

Customers bought because your business appeared to offer the best value for money on the key attributes they used to assess customer value or because you offered the easiest, most convenient service.

Research has revealed that dissatisfied customers don’t just stop buying from a business but even worse, spread negative word of mouth that can persuade other people not to buy. These irritated ex-customers have been given much more power by social media and the appearance of review websites on the Internet.

It's said that it takes between five and seven positive recommendations to overcome one negative review but it might be more than that. You can test this yourself if you study customer reviews at Amazon and TripAdvisor and see how any criticism that hits one of your emotional hot buttons, eliminates the business or product from consideration.

Unfortunately “satisfied” customers aren’t very loyal either.

Satisfied means that the business did what it said it would do but no more. The dealings didn't create any kind of positive emotional connection


between the business and the customer.

These satisfied customers are open to approaches from your competitors and may be actively looking for a closer fit to what they want. They know they haven't found the centre of their own buying bullseye.

The only loyal customers are those who are very satisfied, sometimes called “delighted”.

These people received a great customer experience and have formed an attachment or emotional bond with the business. To these very satisfied customers, moving away from you to a competitor represents a risk that things are more likely to be worse than better.

Again you should be able to see this in your own buying behaviours. Perhaps you always go back to the same hotel when you visit a favourite city on a short break. Or to the same restaurant or few favourite restaurants.

Great experiences create loyalty but satisfactory experiences don't.

I talked earlier about selling the sizzle and the steak. The sizzle was exciting enough to get the first buying decision, subsequent purchases depend on the steak being even more juicy and tasty than expected.

Deliver Great Customer Service At The Moments Of Truth

It's easy to talk about “great customer service” to both your customers and staff but it's such a general feel-good statement that it often has little meaning.

You need to be much clearer in what you mean by customer service by defining what is good and bad for specific situations.

You can break down the overall customer experience into a series of moments of truth where the customer makes contact with your business and staff and when he or she uses your product or service.


Each of these gives a chance to delight, meet expectations or disappoint the customer.

Imagine you want to take your husband, wife or partner to a nice restaurantto celebrate an anniversary and you've had one restaurant in particular recommended. You check TripAdvisor and it sounds great.

You search Google and click on their website.

• A good experience would be to immediately find the telephone number to make booking easy. It might be even better if there is the online facility to check whether there are tables available on the evening you want and a webpage which makes it immediately clear to you the location of the restaurant and parking..

• A bad experience would be to find the website and struggle to find a telephone number and other important information like where to park.

You then call the restaurant

• A good experience is to have the telephone answered in three rings by a friendly, polite person who listens to your request, confirms the booking and after hearing that it's a special celebration offers various personal touches to make the evening even more memorable..

• A bad experience would be to hear “this telephone number has been disconnected”, or to have it ring continuously with no answer at a time when you would expect it to be staffed, or to be answered by a rude person who clearly resents the interruption and doesn't want to help. You mention the meal if for a special occasion but there's no interest in you.

I'm sure you get the idea and you can see how each of these moments of truth can be defined for what is and isn't acceptable behaviour.

I want you to go one step further.


By focusing on three levels – delight, satisfactory and unsatisfactory behaviour – it helps make clear to your employees what you really want and what you will and won't accept when the pressure is on.

Excellent customer service is easy when there are few customers but it getsharder as your capacity is taken up so there has to be some give and take instandards.

I recommend you take the time to identify your moments of truth with customers and define what represents satisfactory and delightful service. You may also want to ask for feedback from customers on what they think is acceptable and exceptional. Then make sure your staff know what is expected and work with them to identify reasons why things might go wrong.

The third of the big three risks every business faces is Capability Risk. Canyour business consistently and reliably deliver on the promise made in your marketing that is needed to beat your competitors?

Your business can if it defines the moments of truth and puts in the systems, procedures, staff training and monitoring systems to make sure performance is consistently up to standard.

Whilst you can use your own judgement and internal measures to look at customer satisfaction, there is no substitute for asking the people who know best. It is their perceptions that really matter but sometimes you needto educate customers to appreciate what you do.

Step 5 Of The Profit Formula – Sell A Second Course And Then Another Meal

By step 5, you’ve found your starving crowd, you’ve presented your irresistible promise and your customers have bought. Then you’ve delivered a great first experience.

To stay with the food analogy, what would a restaurant do after a delicious


main course has been served and eaten?

The waiter or waitress would politely ask if you would like dessert and may start describing their lusciously tempting puddings. Perhaps the sweettrolley has been paraded past you several times and caught your attention with something that looks really yummy getting smaller as other diners take their pick.

If you manage to resist the sticky toffee pudding, the death by chocolate, the cherries jubilee and the peach cobbler, the waiter doesn't give up. You can expect to be offered the chance to have a coffee or even a brandy or liqueur.

This process happens for two reasons:

• It's good service to look after customers and to make sure that their complete needs and desires are met.

• It’s also done deliberately through effective business design and staff training to maximise the transaction value of your visit.

The same principle happens much further down the food chain. 17 year oldkids fresh from school are trained to ask “Do you want fries with that” when you order a burger and I've seen claims that these extra items are responsible for between 50% and 100% of McDonald's profit. No wonder it is such a strict part of their routines.

You can get your staff to do something similar.

This upsell (offering something more expensive) or cross-sell (offering something extra) should be part of your business system because it is an essential element in your profit formula.

There are two different issues at play here:• Sometimes the customer doesn't know what he or she really wants

and needs. With such a vague understanding, the customer can easily buy the wrong items and be disappointed..


• Sometimes the customer doesn't ask for what he or she really wants. Remember the difference between what people need and what peoplewant. Which of us haven't wanted a waiter to “talk us into” a delicious pudding, even if we are watching our weight?

Remember the profit is in the backend, so your relationship with the customer shouldn’t end with the first transaction.

Staying with the restaurant example, the waiter could tell you about the special theme evenings that are happening in the next couple of months or the events might have been advertised on posters in the bar to pique your interest. Hopefully the restaurant asks for your email address to keep you informed about events and special offers or encourages you to follow themon Twitter so that you're kept informed.

Other types of business can set up the next service immediately. For example a hairdresser could say “Shall we book you in again in four weekstime?” and get the booking made there and then. Their profits will jump if their regular customers switch from going on average every five weeks to every four and their customers will feel better because they look better.

If it’s appropriate, ask yourself what you can do to set the next purchase transaction into motion when the last one finishes. You can do it with the customers best interests at heart and without being pushy.

You also want to encourage customers to buy more of the range of items you sell, as well as buy more often. When the relationship starts, you might have told the customer everything you do or you might have focusedon their specific needs at the time.

If you explained your full range, they will forget.

One of the most frustrating things to hear from a good customer is “I didn'tknow you sold that. I've just bought it from your competitor.”

Not only have you missed out on revenue but you have allowed another business to start a relationship with your customer and it's only a matter of


time before your core products are threatened.

Step 6 Of The Profit Formula – Encourage Word Of Mouth Referrals

The final step in the profit formula is to encourage your happy customers to do your marketing for you.

Once again it starts by delivering a great customer experience, an experience so special that people want to brag about it to their friends and colleagues.

These great experiences rarely happen by accident but by carefully designing the customer moments of truth to deliver something really special.

You've got to check that customers are really happy and then you've got to encourage customers to recommend you to others.

The restaurant owner could let it be known that he really appreciates all the positive reviews on TripAdvisor. Others can ask for reviews on Amazon, Google, Facebook, Yell or Trustpilot. You should also add testimonials to your own marketing materials.

Remember overwhelming positive proof can counter any negative reviews from people who were disappointed.

Let your best customers know that you want more business and you love receiving referrals to people just like them.

Just be careful what you say because you may be discouraging referrals accidentally.

There have been times when I haven't given referrals to businesses that I have a good relationship with the owner and think the business provides anexcellent service.


That's happened when I've asked how things are going and heard back various versions of “Things are really busy and hectic.” What I hear is interpreted in my mind to mean “We're struggling to cope with the customers we have” and I don't want to risk my reputation on a business that may be too busy to give their normal good service.

What you should be saying if you want to be positive is “We're busy but we always appreciate even more opportunities to help people. We're committed to providing a great service and we'll do whatever is necessary to maintain our reputation.”

Marketing Shouldn't Stop At Referrals

If you’re getting a good proportion of your new business through referrals then that is great news.

Congratulations.

Perversely it can signal that there is a much bigger marketing opportunity you are not exploiting.

I have talked to accountants who boast they don’t need to do any other marketing because they get so many referrals. Accountant rarely love marketing – I'm an exception.

I've also talked to business owners who have looked for an accountant on the Internet and failed to find one with an irresistible promise. In desperation they have resorted to asking other business owners if they could recommend someone because they are so confused by the marketingbingo.

These referrals are often not as strong as you might expect and might sound something like...

“We use John Jones & Co. They're not cheap but they don't seem to be too expensive compared to others we talked to and we haven't had any major problems with them.”


It's hardly a ringing endorsement.

Such passive marketing is leaving the accountant's new client acquisition process to chance and there is little control over positioning or the type of clients that are attracted.

If an accounting firm is good enough to get plenty of referrals, it should beable to put together compelling search and outreach marketing campaigns with plenty of testimonials.

So should you!

The Six Steps Profit Formula In Perspective

There you have the six steps in the Profit Formula.

Steps 1 and 2 – the starving crowd and your irresistible promise are strategic because they answer three of the biggest questions:

• Who are you going to sell to? .

• What are you going to sell? .

• How can you beat your competition? What are they going to buy from you?

Step 3 is pure marketing as it looks at how your message is carried to your target customers.

Steps 4, 5 and 6 are about having the right business model in place with the right processes and staff training to deliver a great customer experienceand then to leverage the relationship and reputation into extra sales and profits from repeat purchases and referrals.


Assess Your Business Against The Six Steps Profit Formula

1 – Hungry Crowd

• Are you marketing into a strong need or want?• Do customers have to buy from you, your competitors or providers

of substitute products or can they do it themselves, delay a purchase or even do nothing?

• Are you clear on why customers buy? What do they really want?• Are you innovating to find better or cheaper ways to meet your

customers basic wants and needs?• Are you finding new and different ways to relieve any frustrations

customers have when dealing with your product or service or the frustrations imposed by your competitors?

2 – Irresistible Promise

• Are you clear on what differentiates you from your competition? It's not just a case of being different but being different in ways that matter to the customers.

• Do you believe that you effectively communicate these differences? Would customers and people who decide not to buy from you agree?

• Are you hitting the marketing bullseye for customers with particular needs or is your marketing falling into one of the outer rings?

• Is your marketing believable? Does it include enough proof which reduces the risk of buying or trying your product or service?

• Are you committed to delivering on your marketing promises?

3 – Eyes & Ears Of Your Market

• Do you get your message in front of enough of your target market?• Are you targeting the users, the initiators, the decision makers or the

people who provide the money?• Do they see and hear your message often enough?


4 – A Great Customer Experience

• Do you believe that you, your regular customers and your employeeswould describe the same great customer experience that you're striving to deliver?

• Do you all think you deliver it consistently?

5 – Another Course & Another Meal

• Do you have procedures in place to encourage customers to increase their purchase value based on meeting their real needs and wants?

• Do you encourage repeat purchases regularly?

6 – Referrals

• Are you satisfied with the number of referrals and recommendations that you get?

• If not, do you ask for them and make sure your customers know that you value referrals?

• If yes, do you use these high number of referrals in your other marketing?


The External – Internal Split Of Business Development And Improvement

The Six Steps Profit Formula is very customer / market focused.

It's a summary of what I think of as the “heart of a marketer”.

Each step is about doing right by your customers and using it to grow yourbusiness.

You can always make customers happier by reducing prices and giving more value. It doesn't help your profits unless you do very careful calculations on the benefits of extra volume.

There has to be a counter-balance.

Long term success comes from managing your business for customers and for the owners of the business who need profit and cash flow.

This is what I call “the mind of the finance director”.

It's about making sure that there is a good return to the business owners.

Business management is about pushing hard for improvements where the two driving forces align and managing the compromises when they clash.

A business can be hugely popular with customers but it will collapse if it doesn't generate enough profit and cash flow to cover financing requirements. It's counter intuitive at first sight but a business that is growing very quickly can have a higher risk of failure than one that has much more modest ambitions.

A business run purely to maximise short term profit can trade away its long term future by exploiting customers so that it doesn't get the repeat business and referrals.

You need the heart of a marketer and the mind of a finance director.


The Role Of Performance Measurement In Your Business Improvement

There are several clichés about performance measurement that are often said but remain very true because measures set the agenda and focus for work.

• What gets measured, gets done.

• If you can’t measure it, you can't manage it or improve it.

• If you can’t recognize success, you can’t learn from it; if you can’t recognize failure, you can’t learn from it or correct it.

It's worth reading through those statements again to recognise how important an effective performance measurement system is to you and to everyone else with the responsibility for improving the results and performance of your business and the individual parts of it.

I believe that every business needs to create a results based, performance improvement culture.

If you're good, you still need to get better.

If you're not good, you need to get better FAST.

The right performance measures or key performance indicators (KPI) help you to manage based on facts rather than gut feel.

It's both a mistake to have too many KPI – they confuse and can be expensive to calculate – and to have so few that you don't know what is happening in your business.

Your KPI need to be linked to your business strategy and situation.

If you have a cash crisis, you need to know your bank balance, customer overdues and supplier overdues on a daily basis to keep careful track of


whether things are getting better or worse.

The Six Steps Profit Formula provide a framework for you to develop critical KPI that tell you what is happening in the customer side of your business.

Measuring isn't enough. You also need to set targets to encourage improvement and to identify priorities.

Improving your choice of marketing media (Step 3, getting eyes and ears on your offer and promise) is much easier when you are tracking a measure like the cost per customer acquired by the source of the lead.

If it's costing you £20 to create a customer with direct mail and £90 with telemarketing and the customers are of similar long term value, it's obviouswhere to spend your money to get the biggest bang for your marketing buck.

But without the KPI in place, you will only have a general feel that both are creating some leads. It's much less clear which is the better method.

It stops you challenging whether your telemarketing process and message are ineffective in some way. Perhaps the person or people doing it miss outkey elements of the points of difference, benefits and proof.

Or perhaps the telemarketer isn't as carefully targeted as direct mail. Or theperson doesn't qualify early so wastes a lot of time with customers who want your solution but can't afford it.

This is the mind of the finance director at work. Questioning. Challenging. Asking “is there a better way?”

But performance measures on their own won't improve your business. They need to be reviewed, issues raised and ultimately you need to act differently than you would without the KPI.


Appendix 1 – The 5 Pathways To Profit

In my report, The Profit Tipping Point, I talk about the five pathways to success or failure.

The first four were based on academic research into why businesses fail and the fifth is an overriding cause from my own experience.

The academics looks at businesses that failed and looked to see whether their sales were increasing or decreasing and whether the market was growing or declining.

1. Decreasing sales in a declining market – the market deterioration pathway. This is the normal course of events when firms are trapped in a shrinking market. Success can come from growing within a growing market..

2. Decreasing sales in a growing market – the competitive disadvantage pathway. These companies were comprehensively beaten by competitors. Success comes from having a strong competitive advantage..

3. Increasing sales in a declining market – the fight for market share pathway. Suicidal competition destroys margins by driving down selling prices and forcing up costs. Success comes from trading in a market where competitive rivalry is weak because each competitor has a distinct position that makes it unique..

4. Increasing sales in a growing market – the loss of control pathway. Business failure in this favourable situation happens when management planning and control is weak and the managers don't anticipate the cash crisis that often accompanies growth. Success happens when the right financial controls and systems and


processes are in place to manage the strains of growth..

5. The fifth pathway to success or failure is the inner game of the owner. A weak inner game with little vision of the future causes inconsistent decisions and ineffectual action. A strong inner game haspurposeful action based around clear priorities to reach a powerful vision.

I'd like you to think of each of these pathways as a set of weighing scales that are linked together. A strong weighting in one can counteract a weak rating in another.

If your market is declining and you can't find a niche that has the opposite long term trend, then you need to strive for a competitive advantage in the stronger niches, excel at managing your business and have a strong inner game.

If your market is favourable, then you can enjoy an easier ride to profitability although, if you take things too easy, you won't maximise your profits and you're vulnerable to strong competitors when market growth levels out and a shake-out occurs.


Appendix 2 - The 3 Big Risks Every Business Faces

This next way of looking at your business is to look at the big things that could go wrong. I always use it if I am talking to someone who is thinking about starting a business or is finding it tough to get established.

Risk 1 – Demand Risk

The first big issue any business faces is whether enough customers and clients are prepared to pay a “fair price” for a solution to the problem or for help to realise an opportunity.

I admire people who are prepared to think differently from the norm and toinnovate. However when I watch the Dragons' Den television programme, I am astonished by some of the strange products people want the Dragons to invest in. If you watch (and I believe there are similar programmes in other countries) you'll see that the Dragons are very keen to establish what evidence there is that there is genuine demand.

I put “fair price” in inverted commas because it's a dangerous concept to get too buried in your head. I've used it as a compromise price between thecosts of producing and supplying the product or service and the value the customer receives from the product.

If value > price, the customers should be prepared to buy it, subject to issues from risk 2.

If price > cost, the supplier should be prepared to supply. If cost > price, supply shouldn't be made unless there is a loss leader strategy in place and profit is made from selling other items.

The problem with thinking in terms of fair pricing is that the average customer isn't fair. He or she doesn't give any thought towards your costs and profit and sees a discount off any price as good news.

Risk 2 – Competitive Risk

If you have a really innovative product, you may not have competitors at


the start but as your great idea gets better known, there will be imitators.

Much more often, you already have competitors who provide a similar product or service in terms of what it can do for the customers. Sometimes the product is identical although the service issues around it can usually bedifferentiated.

The second risk is the problem that you can't win customers away from your competitors or keep them away.

I delved into this topic when I talked about Step 2 of the Six Steps Profit Formula, creating your own Irresistible Promise.

Please remember the ABCD of Competitive Marketing.You need an Advantage that is Better, Cheaper or Different.

You'll know from your own experience as a buyer how frustrating it is when you have particular requirements and all the suppliers you contact offer very similar products that don't give you what you need.

Sometimes giving customers a different choice is enough. It pulls you into the centre of the bullseye for some and pushes you towards the outer rings for others.

One choice is to find a different position on the market value for money line. You expect to pay a low price for low quality items but a much higherprice for high quality items.

It's easy to think about cars in the different price ranges. In general Hyundai cost less than Fords which cost less than BMWs which cost less than Rolls-Royces. All will do the basic need of personalised transportation but as you spend more, you get more luxury and more status.

Businesses choose their competitors by choosing where to compete along the value for money line. Volkswagen compete against Ford, Audi, Mercedes and Lexus compete against BMW.


Another choice is to offer something different in the attributes that make up the assessment of value for customers.

The above customer value attribute map compares luxury saloons from Rolls-Royce and Mercedes. The price of the Rolls-Royce is more expensive but that's a bad thing from the customer's perspective. The valuemap shows The Rolls-Royce will appeal more to the person who wants to be chauffeured around, the Mercedes appeals more to a wealthy driver.

The truth is that unless the demand for your product far exceeds the supplyavailable from you and your competitors, your business has to survive competition and the inevitable downward pressure on price that comes from products that don't have enough differentiation.

Risk 3 – Capability Risk

The third and final big risk is whether you can deliver on your promise thatwins customers and creates both repeat business and referrals.

Again you'll know from your own experience of buying how many things sound good when you're making the buying decision but are disappointing when you use or experience them.

This is the problem of “over-promising and under-delivering” and is the topic for the last three stages of the Six Steps Profit Formula.


How To Get From Where You Are To Where You Want To Be

I hope the Six Steps Profit Formula report has helped you to think about your business in different ways.

Perhaps you haven't found your starving crowd.Or your promise isn't as irresistible as it could be.Or you're not getting enough of the right eyes and ears on your offer.Or your business is weak in one of the other three areas of the Profit Formula.

The key questions are...

1. What Are You Going To Change?2. And How Are You Going To Do It?

I Want To Help You

I know it can be a bit scary to talk to a business coach or advisor for a variety of reasons so I'd like ease you into the experience with a chance to see what it's like to work with me.

If you're based in the UK and you feel that your business is stuck and you need help, I'd like to offer you a Business SOS (Second Opinion Session).This is a paid for service but I've made it affordable to everyone.

We will look at the symptoms of your problem, talk about the diagnosis and the treatment. Just like getting a second opinion for a medical issue, I may disagree about the diagnosis or the corrective action.

You can find out more at this page on my website:

http://businessdevelopmentadvice.com/blog/my-services/business-sos/


http://businessdevelopmentadvice.com/blog/my-services/business-sos/

Your Feedback

It's said that “feedback is the breakfast of champions”.

I'd like to know what you think about the Six Steps Profit Formula.

Has it made you think about your business in a different way?

Has it highlight gaps in the way your Profit Formula works?

In particular, what do you think you will change after reading it?

Let me know please by emailing me at [email protected].

Best wishes

Paul SimisterImproving profit and cash flow with “the heart of a marketer and the mind of a finance director”

www.BusinessDevelopmentAdvice.com www.DifferentiateYourBusiness.co.ukhttp://BusinessCoaching.Typepad.com


http://BusinessCoaching.Typepad.com/

http://www.DifferentiateYourBusiness.co.uk/

http://www.BusinessDevelopmentAdvice.com/

mailto://[email protected]

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