How To Build A Pyramid Of Profitability During A Recession
Here are five areas to focus on if you would like to not only survive these turbulent times but scale your profits without a big budget.
Many small businesses and startups struggled to survive the pandemic, only to enter straight into an economic downturn that is causing consumer confidence to shrink right along with it. A recent survey of CEOs found that 81% of leaders expect a recession. How will businesses scale when clients and customers don't spend? Especially in today's climate, it takes more than just having a winning idea for a company to be successful.
As a fractional CMO working with startups in several industries, including fitness, fashion, health, CPG, law and non-profits, I support small companies struggling to scale without money or resources. Studies show it costs five times more to sell to a new customer than to sell to a returning customer. Instead of focusing on more leads and sales, the key to becoming truly profitable is to spend more energy on your current relationships and retention to increase customer lifetime value.
Regardless of business size, every business owner can accomplish this by flipping the marketing funnel on its head with a 5-part framework I like to call The Pyramid of Profitability, which centers around retention and advocacy.
Here are the five areas to focus on if you would like to not only survive these turbulent times but scale your profits without a big budget:
You can have the greatest and most innovative company in the world, but if you're not reaching your target market and getting in front of people, it doesn't matter.
It's easy to prescribe to the false narrative that if you build something amazing, the right people will find it, but this is an unhelpful mindset for entrepreneurs. Your brand is as good as non-existent if you don't have an audience. It's not the consumer's responsibility to find you — it's your job to find the consumers.
At the very top of every marketing funnel is the "awareness" stage, where founders will put their brand in front of their target market in various ways to try and capture their attention. This stage often takes most of a marketer's time as they try to reach new audiences through social media, influencer relationships and the like.
In The Pyramid of Profitability, brands working on a budget will put this stage on "auto-pilot" by using social media advertising or utilizing their brand advocates to spread the word about the business and, more importantly, give the potential customer a reason to share their contact information with the business.
While the average entrepreneur is focused on getting the sale, the successful entrepreneur is focused on getting the lead. Unlike many business leaders, I consider a conversion to be when you capture a lead's contact information—not when you make the sale. This is the most critical step in The Pyramid of Profitability because it allows you to build a relationship with your potential customer.
Once you have the consent and the information necessary to communicate directly with someone, you control the conversation and thus have an optimized potential to build the loyalty and rapport that yields a sale.
According to the Harvard Business Review, shared values drive 64% of brand relationships, and customers are even willing to pay more for brands they are connected with. Your brand must resonate with the target audience's values and convey those values in a way that forms connections between your company and customers.
This can be done in myriad ways, but the best ways are often ones that mimic personal communication between two people, like email, text, or online communities. For one of my direct-to-consumer clients, we increased sales by 256.15% year over year in Q1 by launching weekly email campaigns with content consumers cared about.
Just like with your friends and family, nurturing a relationship with your customers (or potential customers!) takes work. Two emails a year to announce sales won't cut it. Actively engaging with your customers keeps your brand top of mind (awareness), showcases shared values and builds trust.
Having and executing a smart plan for retention is essential for a business to become profitable. If your business generates $100,000 in revenue this month but costs $90,000 in marketing to get to that number, your business will struggle. Too many founders are too focused on that first sale and not doing much to ensure a second sale. If you're going to be profitable, you need them to be coming back for more, which means developing your business offering in a way that leads to a second sale—and a third, and a fourth, and so on.
Examples may include a recurring revenue model like most SaaS companies have, a subscription model where customers get a new or different product each month, or even a more comprehensive service tier from service businesses.
If all of your sales naturally lead to a second purchase, your business will enjoy a very healthy profit. With that profit, you can invest back into the business and scale.
Imagine if you could bring a new salesperson on your team, but you didn't have to pay them anything. Imagine that this person wants to pay you because they like your product so much! This is what it means to create brand advocates in your business.
Advocacy is the foundation of The Pyramid of Profitability, where business owners should spend most of their efforts. When you do it successfully, regular customers become your sales team. You have now built an organic marketing channel that feeds into your awareness stage.
Brand advocacy is built through a strong combination of exceptional products, top-notch customer service and a strong relationship with the customer. Those three things — done right — will always lead to raving fans and recurring sales.
To generate revenue, you need the entire marketing funnel. To scale, small business owners and startup founders will need to prioritize Retention and Advocacy to ensure they keep customer acquisition costs low and customer lifetime value high, increasing their profits and allowing them to scale during these turbulent economic times.
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