Steve Mills – Online Marketing

One of the key concepts to learn if you want to successfully run a sustainable online business is the idea of lifetime customer value. I define LCV as how much the customer is worth over the lifetime of your relationship with your business.

HUNTERS & FARMERS

Some businesses can be seen as hunters, and some as farmers. The hunters are focused on a single sale, and will do everything the can to get a customer perform one specific action, buy their product. Once purchased, they don’t perform any specific actions to get that customer to purchase from them again. They are not interested in having to provide long term value or in retaining the customer.

Farmers however understand the importance of building long term relationships with clients. They want to nurture and grow relationships with their customers so that they can continue to provide more products and services with ever increasing value to them. The cost of retaining your existing customers if often far less then the cost of acquiring new “cold” ones via advertising and other marketing methods.

LCV is all about keeping customers as YOUR customers, stopping them being tempted to look at competing products, and when they do look elsewhere they retain a loyalty to your brand that makes them come back, based on the relationship that you have developed with them.

Real farmer businesses realise the LCV as so important that they will give their first sale away almost for free in order to get that customer into their sales funnel. I will leave the concept of sales funnels to another time, but in short a sales funnel is a range of different products that you can provide a customer after the initial purchase. In general, these products are a) more expensive and b) more closely tailored to the qualified customers needs. So by giving away the first sale profits to those that promote their business (affiliates, retailers) the very top of the sales funnel acquires a lot of customers that you can then promote other products too.

A REAL WORLD EXAMPLE

A real world example to consider would be the sale of inkjet printers. You can go and buy one from your local office supply mega warehouse for $100, which at the time seems to be a bargain. You use the printer for a few months, printing off photos, documents and CD labels, and all of this goes well until one day a flashing icon tells you that the ink has run out.
It is only when you go back to the store and look at the price of the ink cartridges that you realise that it is going to cost you $120 to refill the ink for your $100 printer.
The printer company now has extended your LCV with them by giving away the printers for near cost price, and now make all of their costs back on the ink.

While this example does not really do the sales funnel model justice (it only has one tier to the funnel, which is buy more ink), it does show you how lucrative it can be to develop a business model with LCV as a key factor.
WHY IT IS IMPORTANT

When you understand lifetime customer value the importance of mailing lists, social networking and making sure that everything you produce has real value to it becomes apparent.

This is why membership sites, online courses and mentoring are such great opportunities online. You are constantly in front of the customer, providing real value and a service which they would rather get from you then anyone else.

There are lot of terms and specific theory around Lifetime Customer Value such as churn rate, retention rate, retention cost, discount rate and a lot more which I will cover in some detail over the coming weeks.

The by-line of this site states that I am an Online Entrepreneur and Online Marketing Expert. Now I know that saying that a) I am an Entrepreneur and b) I am an expert can come across as a bit pretentious, but I think these terms accurately describe the way that I make a good living, working great hours and having time and energy to spend with my family.

For the past 11 years I have earned a living from the internet. I have been a web developer, an internet marketing consultant, a mailing list database manager, a search engine optimiser and an online strategy consultant for clients as diverse as large corporations all the way down to local bed and breakfasts. I have learned a lot over the years about what does and doesn’t work in the world of getting exposure and sales of your product using the medium of the internet.

If you look at the definition section for Entrepreneur in wikipedia, it says “An entrepreneur is someone who organizes resources in new and more valuable ways and accepts full responsibility for the outcome.”

An online entrepreneur is someone who can take the raw materials of the internet, sort through the noise and competing messages, and turn them into something meaningful that people are willing to part with their hard earned cash (or paypal credits) for. Anyone with any degree of knowledge, or insight that few possess can leverage this and turn it into a blog, an online course, or a physical book marketed via the web and make a success of it. Any potential online entrepreneur should be looking at the internet as a vast reserve of renewable resources that that are ready to be harvested. You can disseminate trends and turn them into e-books, you can turn traffic into forum sites, newsletter subscribers into affiliate sales.

The second part of the definition is also relevant. Accepting full responsibility for the outcome can sound like a bad thing. If an offline business (bricks and mortar they used to say in the dot com days) with a shopfront, stock , staff and suppliers becomes unviable, it is up to the entrepreneur to cover the debts. This has meant the loss of the family home and bankruptcy for many a well meaning and hard working business person who struck some bad luck or a change in consumer sentiment in the early days of their business. But starting and running an online venture, if the scale of the business is kept at a level appropriate to the demand for the product, has very little risk involved. You can test and measure new products, marketing strategies and sales pitches before you have to rely on them to bring money in from your customers. If you are selling downloadable products, or those with a low cost to manufacture then you dont have the risk of holding outdated stock. You can run the whole show as a one man operation, using contractors and outsourcing work when required, but keeping all of the profits for yourself. You accept full responsibility for the success of the business, and reap the rewards.

I also leaned a lot during my consulting days about running a business and being an entrepreneur. I would see so many small business owners who business had become more then just their life, it had become their prison. The worked 12 hour days, seven days a week and were always on the edge of complete burn out. These people had become business owners, but in reality the business owned them. They couldn’t afford to take holidays because they had made themselves such an indispensible part of the business that it would fail to function if they weren’t’ there. Not real smart when you think about it.

An online entrepreneur however sees business a little bit differently from the average business man.

An Online Entrepreneur is someone that has a diverse range of online interests that either

1. Run themselves

2. Are run by someone else

3. Are run by you with minimal effort and time investment.

Having a blog that relies solely on your writing and advertising from the big networks does not really cut it in the entrepreneur stakes. There is too much emphasis on you as the point of failure for the business. If you don’t write that week/day (whatever your posting schedule is) then the traffic, and therefore the dollars, quickly start to drop off. You can’t take a holiday because you are the business and the business is you. Sure, if you are using you blog to build up a profile that will allow you to sell 100,000 books then that is a different story, but just blogging for adsense is not going to make you rich (or even able to pay the rent in a bad month). It is possible to have a range of online assets working for you pretty much on autopilot. Membership sites, forums, online training, online stores. All of these can run themselves for periods of time without the owner even looking at them. This frees the owner to be able to work where they want, and when they want.

An online entrepreneur is always looking to grow, diversify and systemise their online business portfolio to generate more revenue streams with less time investment.

I think that there is a fourth key element to being an online entrepreneur, and that is the element of personality. Your personality has to shine through in what you do, to become a point of difference from the competition. This is important for offline entrepreneurs too. Take Richard Branson for example. Everything that the virgin company does has his personality all over it. Virgin is Branson and Branson is Virgin. No matter if its air travel, mobile phones or music, it all has the same carefree, fun attitude to it. Now have a look at some online entrepreneurs. Yaro over at Entrepreneurs Journey has done so well, in my opinion because his likeable, helpful and knowledgeable personality comes through in every post, newsletter and product that he delivers. The same for Darren over at problogger, or Steve Pavlina for that matter. The only thing different between your online business and that guy that reads your site and steals your ideas is that you have your personality.. Let is shine through and keep people coming back.

Till Next Time.

Steve Mills