As a small business advisor, you possess a wealth of knowledge and experience in compliance and financial record-keeping. While companies rely on you to keep them within the legal, financial and regulatory boundaries, it is a rare company that uses more stringent compliance to outmaneuver the competition.
Unleashing Your Potential as a CEO Whisperer
As we have noted in Part 1 of this series, businesses do not fail or underperform because they lack a product or service. They fail and underperform because they have not figured out how to identify, reach, and sell to profitable customers. No amount of compliance-based advisory services will transform a failing or underperforming business into a competitive one.
This is where the role of CEO Whisperer comes in.
A CEO Whisperer helps businesses answer three fundamental questions:
- How do I think about the business? This was covered in Part 2 of the series.
- How do I manage the business? The was covered in Part 3 of the article.
- How do I grow the business? This will be covered in Part 4 of the series.
These three fundamental questions, in our opinion, must be asked and answered by every business to build a sustainable competitive advantage and outperform their competition.
Part 4: How do I grow the business?
Of the three fundamental question, this one, “How do I grow the business”, is by far the most challenging. Depending on the industry, a company will typically spend between 7% and 20% of their revenue on sales and marketing in search of growth. For a company with $50m in revenue, that translates to between $3.5 million and $10 million of spend.
In our experience, companies focus their growth efforts almost entirely on what is “out there” (i.e., the total addressable market). While “out there” is vast, we believe the most immediate and easiest to capture growth opportunities are “right here,” within a company’s existing customer base.
Depending on the industry, various studies have indicated acquiring a new customer is anywhere from five to 25 times more expensive than keeping an existing customer. Furthermore, other research indicates that increasing customer retention rates by 5% increases profits by 25% to 80%.
At a high level, organic growth is generated three ways:
- Get new logos/customers – this is the primary focus of the sales and marketing spend (i.e., the “out there”).
- Keep more of the existing customers by increasing retention rates – filling the sales bucket is easier and faster when a company is able to plug the leaks caused by customer churn.
- Sell more to existing customers — This could be by selling additional products and/or pricing strategies.
CEO Whisperer’s help their clients understand and leverage each of the three ways to organic growth. While an in-depth analysis of each avenue to organic growth is beyond the scope of this series, key aspects each approach are presented to help the CEO Whisperer be a company’s growth muse.
1. Get new logos/customers
As noted, companies typically spend between 7% and 20% of their revenue on sales and marketing. An important metric every company should know and monitor is the Customer Acquisition Cost (CAC).
The formula for CAC is as follows:
Sales and marketing expenses include advertising spend, marketing and sales compensation and commissions, and overhead costs related to sales and marketing over the measurement period.
Number of new customers is the total number of acquired customers over the same measurement period.
Going one level deeper and calculating the CAC by channel, e.g., social media, sponsorships, direct mail, a company can determine the most cost-effective way to acquire customers. Of course, the company will need to gather data about the new customer to identify which channel brought them to the company.
Knowing a company’s CAC by channel helps to avoid the ineffective “spray and pray” method of sales and marketing and allows a company to concentrate on those channels that are the most cost-effective and efficient at acquiring customers.
2. Increase retention rates
A complementary and equally important metric is the Customer Lifetime Value (CLV). This metric measures the value of a customer to a company over the period of time they are a customer. The formula for calculating the CLV is: Intuitively, it is easy to see how customer retention drives organic sales and profit growth. The longer a customer remains a customer, the more products and services they purchase and newly acquired customers contribute to growth and not to filling the gap created by a churned customer.
CEO Whisperer’s can help companies increase retention rates by analyzing customer purchasing behaviors and identifying those customers that have a consistent purchasing history but that haven’t made a purchase in the last 30 to 60 days.
Research indicates that customers who are contacted by companies they have left and that have their issues listened to and addressed, are likely to return as a customer and be “stickier” than typical customers.
Join the "Catalyst For Growth: Offering Differentiated Advisory Services" webinar, June 14, 4 p.m.-5 p.m. (EST). CLICK HERE to sign up.
3. Sell more to existing customers
Of the three ways for a company to organically grow their business, the biggest opportunity for most small businesses to improve their sales and profits is to implement a pricing strategy. Pricing strategies are among the most impactful decisions that a company can make.
They are arguably one of the few decisions that affect a company’s revenue directly. When it comes to impacting the top and bottom line, pricing is by a wide margin the most impactful lever.
“I can’t raise my prices. If I do, I will lose all my customers.” We hear this all the time. Our response is “If you are not the low-cost leader in your industry, why do you have any customers in the first place?” Companies accept the “low cost” pricing model because it is easier than learning how to price strategically.
And they don’t understand that different customers buy different value propositions. Not every customer is out looking for the lowest price.
For a company to sell a product or service at a higher price than the competition, it must have a unique and distinct value proposition that justifies the higher price in the mind of the customer. Consider a bottle of soda in the check out aisle at a grocery store that costs $3. For about the same price, a customer can walk 25 yards or so to where the grocery store sells six packs of the same soda.
The difference? The $3 soda is a single bottle. The customer might not want 6 bottles. The soda is cold. The customer might not want a warm soda. The soda is convenient and available. The customer might not want to get out of line, walk the 25 yards or so and get back in line. You get the point.
Companies that adopt a low cost or one-price-fits-all pricing strategy instead of strategically pricing their products and services to reflect the value they deliver to customers suffer from lower profitability and languish.
CEO Whisperers help companies price their products and services that appropriately reflect the customer’s perceived value.
Peter Mares co-founded G76 in 2021, at the height of the pandemic, to help middle market companies not just survive, but to thrive. G76 brings Fortune 500 “big data” analytic capabilities tailored specifically to the middle market to help companies grow profits and sales from their existing customers. His career highlights include founding two practices as a partner at the global accounting firm KPMG, and holding executive and C-level positions in global, mid-market and small businesses. He is a CPA with an accounting degree from James Madison University and received his MBA from George Washington University. Peter and his wife, Kimberley, live in Pennsylvania and stay connected with their seven (yes, seven) children spread out across the country. Peter is also an advisor to businesses and start-ups through the Executive Leaders for Advisory Boards.
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