If You Want To Grow… Narrow Your Focus Part-2

Post date :

Aug 31, 2023

Do you have multiple loss leaders? Why?

It’s not uncommon for a business to offer a product at a poor margin (or even at a loss) in order to gain some other strategic advantage. These are usually referred to as “loss leaders”. Some of the reasons around this offering are listed below. 

  • It’s a high volume offering that gets you in front of lots of customers to upsell. 

  • Some products are ‘expected’ from the market, not offering these products puts you at a disadvantage b/c there are industry expectations.

  • The sale of this product will create a very sticky customer that will come back for more products later. 

  • This product or service has a big benefit to the client and you view it as a donation  or social investment in your community to offer this at as low of a price as you can. 

“We’re going to lose on each unit… but we’ll make it up in volume” - This is NOT a great business strategy! 

These listed reasons (or perhaps others) are reasonable justifications for offering a ‘loss leader’ product. But make sure you limit your loss leaders to as few products as possible. If you have multiple loss leaders, think about why that is the case. Perhaps you just need to revisit your costs and pricing. It’s also useful to look at the strategy on WHY you are offing this at a loss and if the benefit you are shotting for is actually being achieved. For example, if you are offering a very low cost subscription product (say for maintenance) in order to be the first call in an emergency, go back and look at how many of your subscribers call you a year with a larger, more urgent need. If the benefits don’t materialize, think about trying another model. 

Don’t say yes to every job.

When you started your business you may have had an approach to say yes to every business request. Perhaps you were doing the work and you wanted to get as many future ‘repeat customers’ as possible. The ‘business’ may have just been yourself, so saying yes was only limited by your own availability. Or maybe you were happy to take on any/every job to gain useful experience and work on your skills. 

Whatever the reasons were, are they still true? 

Not everything is an emergency. Sometimes a customer with a false perspective on ‘urgency’ is telling you that they are going to be difficult to work with. Yes if a pipe bursts in the ceiling or the power wont come on, ‘emergency’ is a reasonable description. But a lot of work just isn’t that urgent. By giving clients reasonable expectations, you are setting yourself up for a good outcome when you meet them. Customers who won’t accept reasonable time frames for non-emergency work, are also tell you that they are going to have unreasonable expectations of your time and work. They might not be the best buyers in the first place. 

This concept also ties back to the idea of ICP and defining WHO you want to work with. When you get opportunities to work with customers that don’t fit your definition of a ‘good buyer’, avoid the temptation to stretch the definition and just say “no”. It’s ok, tell them why you are not a good fit and if you can recommend someone else who would be a better fit for their needs. 

Where is your churn coming from?

If you have customers on recurring revenue products you should be tracking their churn. 

The basic equation for measuring churn is to take the full list of recurring customers and then compare how many of them are left one month, one quarter, one year later. You can also measure their overall revenue total in those time frames.

NRR vs Churn - Track your overall lost revenue and lost accounts to get a % of churn. But you can also track the Net Revenue Retention (NRR) of those groups. That figure takes the same churn view but then adds in any upsells or expanded revenue from the group. An example would be: you start on Jan. 1 with 100 clients each paying your $100/month. You have $10k in monthly revenue ($120k annual) from this group. When you look again a year later, that same group of buyers is down to 85 paying customers but you were able to increase the price by $30/month to $125. 

Your Churn is 15% annualized churn but that same group is now paying you $11,050/month. So you ‘expanded’ the revenue even though you lost customers. You have an NRR of 110.5% - meaning you are growing the value of your clients over time. 

It’s also important to track WHEN customers churn. Do they tend to leave quickly or in specific time frames? If you have annual contracts, you’d expect to see churn on an annual basis. By tracking time lines you can invest in customer outreach and retention strategies at or around these time frames. 

Are you working ON your business or IN your business?

As you grow and begin to hire a team, your role will transition from doing the work yourself to having a team of people delivering the services. 

As yourself if you are working on growing your business or focusing on working inside the business. This can be a difficult transition for some people who have spent years working directly with customers and are likely very strong in their specific field/trade. It can be difficult for some people to give up that feeling of control over the business by stepping back away from being on the front lines. 

  1. You don’t need to step all the way back - it’s a good idea to ‘spot check’ work from your team and talking to customers regularly. That will help you keep tabs on the market, hold your team accountable to high standards and understand the working conditions you have created for your team. 

  2. The CEO of GE isn’t the guy who makes the most light bulbs every day. Your job will change from DOING the work into RUNNING the business. That is a natural progression that you should plan and prepare for. Have you set a threshold where you want to start this change? Is that a revenue target for you or a headcount goal? 

  3. Why did you build your business? Most of the time we hear that people wanted to create financial independence, be their own boss or have more flexibility in their life. As you think about achieving these goals, you shouldn’t feel guilty about not having or needing to do the front line work. Remember, by trusting and enabling your team to provide the services, you are helping achieve YOUR goals and also providing someone with a job. There’s absolutely nothing wrong with either of those outcomes. 

As you define what your goals are for your company, think about how your efforts are helping to build to those goals. At some point you’ll likely need to work ON the business and not spend some much time working IN it.