How Many Products Should I Have Ep 369

Summary Notes


In this episode, the host discusses strategies to maximize revenue per customer, emphasizing the importance of simplifying product offerings and utilizing flexible payment terms to accommodate different customer budgets. They recommend selling one product or service initially and expanding to a second as the business grows from one to ten million dollars. The host suggests that focusing on fewer products with clear value propositions and varied payment plans can increase customer conversion and retention, as it reduces confusion for both sales teams and customers. They also provide a tip on increasing customer stickiness through higher upfront payments, which can also help cover initial costs.

Summary Notes

Goal of Maximizing Revenue per Customer

  • The primary objective for businesses is to increase revenue per customer.
  • Businesses aim to serve customers across different wealth brackets with an accommodating buying curve.
  • Wealthier customers should spend more, while less wealthy customers still engage at lower price points.
  • Offering a wide range of products and services can lead to operational complexity.

"One of the goals of any business is to maximize the amount of revenue per customer you generate, right?"

This quote emphasizes the fundamental business goal of maximizing revenue generated from each customer, which is a common focus in business strategy.

"And so what that basically means is at every rug, right? If someone is wealthier, you want them to buy more and spend more money with you. And if someone has less money, you want them to still buy from you, but potentially buy for less, right?"

Here, the speaker is explaining the concept of an accommodating buying curve, which is a strategy to tailor product offerings to customers' financial capabilities, ensuring all customer segments are catered to.

Simplifying Product Offerings

  • Companies often expand their product and service listings to serve a broad customer base.
  • A vast array of offerings can create confusion and operational challenges.
  • Employees and customers may struggle to understand all available options.
  • Simplification of product offerings and adjusting payment terms can be more effective.

"The thing is that most times that will create so much operational complexity and create so many little appendages, right?"

This quote points out the complications that arise from having too many products and services, which can lead to operational inefficiencies and distractions for employees.

"And here's a funny one, is that most times, if your employees don't understand all the different types of things you sell and the price points you sell them at your customers for sure don't, right?"

The speaker is highlighting the issue that if employees are confused by the company's offerings, customers will likely be even more perplexed, which can negatively impact sales and customer satisfaction.

Challenges in Small Business Operations

  • Small business owners often struggle with organization and efficient operations.
  • Frequent changes and lack of direction lead to inefficiencies.
  • Simplification and process improvements are key to overcoming operational challenges.

"But we don't live in that theoretical world most of the time. And most small business owners are not that good at operating."

This quote acknowledges the gap between theoretical business practices and the reality of small business operations, where owners may lack the skills to manage a complex array of products and services effectively.

"Their team completely has no idea which way they're going, they change things all the time, et cetera."

The speaker describes the common issue of disorganization within small businesses, where teams are often unclear about the company's direction, leading to constant changes and confusion.

Business Growth Strategies

  • Discusses strategic approach to scaling a business from one to ten million dollars.
  • Emphasizes the simplicity of the approach during the initial phase (zero to one million) by focusing on a single product, service, and customer avatar.
  • Introduces the concept of adding a second product line to scale from one to three million and beyond.
  • Differentiates between front end and back end products or services.
  • Highlights the importance of payment terms and how they impact customer buying decisions.

We sell two things, all right? And I've done this in virtually every business that I've ever owned. We sell two things, two products or two services. And this is once we're going from one to 10 million, all right, zero to 1 million. You sell one product to one service, one avatar, all right? That's it. One channel, one product, one avatar, that's it, right? But once you're going from one to three ish million and you're trying to go to ten, you introduce the second product line, all right?

The quote explains the speaker's strategy of initially focusing on a single product or service to reach the first million in revenue and then introducing a second product line to further scale the business up to ten million.

Understanding Customer Perception of Payment

  • Discusses the customer's tendency to focus on monthly costs rather than the total contract value.
  • Offers a "wealth hack" that takes advantage of this customer behavior to increase the perceived affordability of a product or service.
  • Suggests that customers are not adept at managing their finances, which influences their decision-making process.

People do not look at the length or the total contract they are signing. They will only pay attention to what is it going to cost me every month because no one is good with their money.

This quote highlights the insight that customers prioritize their immediate cash flow (monthly expenses) over the total cost of a contract, which can be leveraged in structuring payment terms.

Increasing Customer Retention and Contract Value

  • Introduces the concept "the bigger the head, the longer the tail," which relates to the structure of upfront and recurring payments.
  • Explains that higher upfront payments can lead to lower recurring payments and increased customer retention ("stickiness").
  • Describes how upfront payments can be used to offset initial costs such as advertising, sales commissions, and onboarding.

The bigger the head, the longer the tail. All right? And so what that means is the more you can get someone to pay up front, and relative to the upfront cost of signing up or what they paid down, the lower their contractual recurring payment is, the stickier it will be.

The quote introduces a strategy where a larger initial payment can result in a longer and more secure customer relationship, with lower recurring payments enhancing the retention rate.

Financial Strategy for Business Owners

  • Emphasizes the importance of the total contract value to the business owner.
  • Suggests a method to enhance the total contract value through strategic payment structuring.
  • Discusses the benefits of an upfront payment model for covering various business costs and ensuring high gross margins.

If you know that the thing that you are selling has very high gross margins, the...

This incomplete quote suggests that when selling a product with high gross margins, the strategy of requiring an upfront payment followed by recurring payments can be particularly beneficial for the business.

Structuring Pricing for Customer Retention

  • Utilize pricing strategies to encourage longer customer commitment.
  • Structured pricing can lead to lower overall costs if customers stay for extended periods.

"You can still have a lower cost as long as you know that the person is going to stay for a long time."

This quote explains that lower costs can be maintained when there is an assurance of long-term customer retention, emphasizing the importance of pricing strategies that incentivize longer commitments.

Sales Strategy: Single Product Focus vs. Multiple Product Tiers

  • A portfolio company had to decide between offering three product tiers or a single product.
  • A mentor suggested offering low, medium, and high-tier products.
  • The salesperson often struggles to decide which product tier to sell.
  • It is more effective to sell one comprehensive product that addresses the customer's needs.
  • Tailor payment structures to the customer's budget rather than product complexity.

"And so rather than having a diet, a medium, and a great, simply having one thing that solves all the problems, and then based on the customer's budget, we can decrease how they pay."

This quote emphasizes the strategy of offering a single, all-encompassing product and adjusting the payment plan to fit the customer's budget, which simplifies the sales process and focuses on solving the customer's problem.

Payment Flexibility and Conversion Rates

  • Offering multiple payment options can significantly increase conversion rates.
  • More payment options cater to a wider range of customer budgets.
  • While multiple payment options do not guarantee increased cash flow, they make the product more accessible.
  • Salespeople might default to offering lower payment options, which could affect immediate cash flow.

"The more payment options you provide, the higher your conversions are. That's proven."

This quote asserts that a variety of payment options is directly correlated with higher conversion rates, indicating that flexibility in payment is a key factor in securing more sales.

Implementation Duration and Payment Plans

  • Suggests a six-month implementation for the product or solution being sold.
  • Payment can be full upfront for those with the highest budget.
  • Offers a split pay or multiple payments with a slight premium.
  • The duration of the payment plan can be aligned with the implementation period.

"So let's say that we want to do this is a six-month implementation of whatever kind of solution you sell, right? If you have a six-month duration, you can have the person pay the entire thing upfront."

This quote introduces the concept of aligning the payment plan duration with the implementation period, providing a clear structure for customers to understand the payment process in relation to the service they are receiving.

Simplifying Sales Strategy

  • Focus on identifying the true problem that the business solves for a specific customer avatar.
  • Maintain a single core offering to prevent confusion during the sales process.
  • Sales discussions should pivot from "which product" to "how would you like to pay."
  • Offers should be structured with high gross margins to ensure profitability regardless of payment terms.
  • High-value customers can prepay, leading to quicker ascension to subsequent offerings.

If you have too many options, the salesman won't know what to sell and the prospect won't know what to buy.

This quote emphasizes the importance of simplicity in sales strategy to avoid overwhelming both the salesperson and the customer with choices.

And so the question becomes no longer which of these things are you going to buy, but once you are buying, how would you like to pay?

This quote illustrates the shift in sales conversation from choosing a product to selecting a payment plan, which simplifies the decision-making process for the customer.

Once they say yes, we can accommodate their wealth and their budget based on the payment terms that we provide.

The quote suggests that after a customer agrees to buy, the focus should be on accommodating their financial situation through flexible payment options.

And if we have structured our offer properly, the offer in and of itself should already be very high gross margins, which means whether or not the person pays $1,000 a month or $100 a month, it's still almost all margin for us because of how we structure the thing that we are selling.

This quote highlights the importance of structuring offers to have high gross margins, ensuring profitability at various price points and payment plans.

Business Growth and Customer Ascension

  • Structuring offers to accommodate different levels of wealth and budget allows for capturing higher lifetime values (LTVs) from customers.
  • Customers who can afford to prepay can be moved to the next level of the sales funnel more quickly.
  • The approach is particularly beneficial for entrepreneurs who are not skilled in operations and are running businesses below $3 million a year.

That is how we do it. And with those people, you'll be able to ascend into the second thing faster because they've already prepaid that thing.

This quote explains how prepayment by wealthier customers can expedite their progression to the next offer or product in the sales sequence.

This is just for everyone. Again, a broad brushstroke of statements for most entrepreneurs who are not very good at operating their businesses, who are operations is not their strong suit, and are below $3 million a year.

The quote addresses the broader audience of entrepreneurs, particularly those who may struggle with operations and are managing smaller-scale businesses.

Encouraging Entrepreneurial Success

  • The speaker aims to help entrepreneurs avoid financial struggle through effective sales strategies.
  • The advice is meant to empower entrepreneurs to improve their business operations and profitability.

there's a lot of people who are broke. I don't want you to be one of them, which is why I make these videos.

This quote expresses the speaker's motivation to help entrepreneurs succeed financially by sharing sales strategies and business advice.

Keep being awesome. I love you, and I'll see you guys in the next bit. Bye.

The closing quote is an affirmation of support and encouragement for the entrepreneurial community, indicating the speaker's ongoing commitment to providing guidance.

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