Linking Performance

In the previous section I talked about how crucially important it is to ensure employees understand the reason behind performing to achieve customer delight. Next, I’ll show you why you need to show them how they will be rewarded for their performance.

Pay-for-performance systems are nothing new. But it’s astonishing how many businesses don’t have such a system in place. When set up properly, it’s a win-win situation for all. The customers get better service. The employees feel good about making customers happy, and they’ll be rewarded for it. And, you, the owner, benefit from more loyal customers and a bigger bottom line.

You can reward employees with money or prizes or gifts. The actual ‘reward’ isn’t that critical. What’s important is that you give them an incentive to perform.

“But, not everyone in our business are salespeople,” you say? Wrong. Every employee whether they’ve studied ’sales’ or not, needs to understand that they are a sales person.

Sure, they don’t have to actively promote your product or service by calling customers and going on the road. Though, they should be genuinely interested in actively giving off the image you want for your business and the proper level of customer delight that goes with it. If they do this properly, they’ll be a part of your ’sales’ team and your sales will increase.

Whether a waitress, customer service rep, engineer or secretary…every employee needs to present a positive image of your business – and it must be genuine. And all must understand their duties and responsibilities for their jobs each and every day.

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Employees – What Makes You Or Breaks You

One of the biggest challenges I hear from business owners is that their ‘employees have a mind of their own’…or ‘I can’t pay them enough to act that way’…or ‘I’ve told them before, they are trying, and just need more time.’ Sound familiar?

A recurring theme in books and workshops is that business owners face a touch challenge with getting employees to be instigators in delighting customers and ensuring that employees are in high morale. Sure, it can be a challenge. But, it doesn’t have to be. Nor should it.

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Explaining Value

The first step to getting your employees to become citizens of customer delight is to talk to them. Explain to them why every team member of your business needs to act and perform in a certain way. Teach them what you’re learning. Give them examples they can relate to. Make sure they understand that invoking customer delight equals more sales and a healthier business.

Of course, that by itself won’t work. To see the light go on in their eyes, you may have to explain it this way:

“The happier our customers are, the more they buy. The more they buy the more tips (or commissions) you’ll make, the bigger the bonus you’ll get and the more company parties and events we will have.”

Listen, it’s not a bribe…it’s the truth and its business.

Granted, not all employees can be motivated by incentives, and that’s fine. For some, it’s the challenge and added responsibility that they want. These are the kinds of employees you want. They are gems in the rough. Share with them what you’re learning and don’t be afraid to gradually give them more responsibility.

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How Much Is A Customer Really Worth

This is a good time to introduce you to one of the most important concepts in business. One that I just touched on in the above example, and when you really understand this it opens up a whole new road where you can run circles around your competitors and gain access to huge profits.

The concept is called Lifetime Customer Value (LCV).

Let’s take a look at a basic model of how to figure out what a customer is worth to you…and then I’ll tell you why this is so incredibly important:

A Your Average Sale =
B Sales Per Year (#) =
C # of Years Customer Buys =

A is the amount of money a customer spends with you on average per transaction.

B is the amount of times a customer buys from you each year.

C is how long a customer stays buying from you in years.

Did you write those numbers down? Good.

Okay, next…
D Gross Sales Per Customer = A x B
E Gross Sales Over Life Of Customer = D x C

‘E’ gives you your LCV. When you plug in these numbers, what you’ll learn is how much you can spend to acquire each new customer.

Important for you to know? Oh, yes.

With this knowledge you can decide if you can spend a bit more to provide your customers with greater value. To keep things simple, let’s say that the LCV of your customers is $1,000. If you were only spending $150 on advertising to acquire new customers or pampering your current customers, you can easily spend more to increase your marketing activities. This will accomplish 2 things:

1) You will acquire many more customers than before because you know that you can spend more money to develop promotions for more targeted prospects and get a higher response (return on your investment).

2) You will be able to confidently spend more money pampering, and providing more value for your customers – keeping more of them as loyal long-term customers.

And you can do all of this because you now know how much each customer is worth to your business.

With this information you will know what you can and can’t do…when it is okay to spend more to take care of your customers…and how to bring in greater numbers of new customers.

Another important point related to LCV is to treat people right. Even if they don’t buy from you today, treat them right, be friendly and helpful…and at some point they’ll come back to you and make a purchase.

In the mean time, while they may not be buying, if you show them respect and a smile, when their friends or relatives need something that you offer, you’ll be at the top of their list…and they’ll recommend you.

Learn this information and incorporate it into your business…it will put you well on your way to success and riches.

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Why You Need To Know Your Customer Metrics

I hated math in school. However, this is fun math. At first you might rub your eyes, but once you see what it can do for you and your business, you’ll be happy. Why? Because this math shows you how rich you’re going to get.

Here’s a typical example: How much does it cost you to bring in one new customer? If you don’t have the answer, it’s time to figure that out right now.

Let’s say you get a graphic designer to design you a flyer, you then pay a printer for printing, and the post office for postage.

Maybe that costs you $2000 for 1000 flyers.

The average purchase at your business is $40.

That means you’d need 50 orders to break even (2000 / 40 = 50).

That’s a 5% response (50 / 1000 = .05 or 5%).

If you have a well written flyer and it is targeted to an ideal prospect you could hit that number. There is no magic number when it comes to the average percent, but mailings to current customers can easily reach double digits. Keep in mind that’s a big difference from what many consider to be the average direct mail success rate for acquiring customers – 2%.

Anyways, let’s say you send the flyer out and you only get 20 people to come in and they spend $40. For a total of $800.

So on the front-end of things you’ve lost $1200 (you spent $2,000).

But, you know that your customers stay with you for an average of 2 years and spend $240 with you.

So those 20 new customers will actually generate $4,800 in business ($240 x 20 = $4,800).

Giving you a $2,800 profit on mailing those flyers (4,800 – 2,000 = $2,800).

Knowing that, you would decide to mail the flyer out more often as each time you mail it, you will get $2.40 back for each $1 you spend (4,800 / 2,000 = 2.4).

This is a rough example, and doesn’t take the present/future value of money into consideration, but can you see how quickly you’d start making big money? That’s my kind of math.

I’ll get more into the front-end and back-end marketing stuff later.

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How Rich Are You Really?

I’m not going to ask you to answer that question. Let’s save that for another time. But what I’m getting to is the activity of measurement. Too many business owners (especially small business ones) have no measurement system in place. Do you? Let’s find out.

Can you answer these questions about your business?

  • How much does it cost to bring in each new customer?
  • How much are you spending currently to do so?
  • On average, how much does each customer spend with you?
  • How long do your customers stay with you?
  • What is your lifetime customer value?

There are several other important metrics that business owners should use, but let’s focus on the above four first.

Before we do that though, let me tell you why these metrics are so significant to your business. Without these, you’re business is like a boat in the middle of the ocean with no radar or compass. You will do what you can to survive, but you really have no idea which way to go, when to go, and how to best get there.

When you know these key metrics, the haze surrounding your business will clear. You’re business eyesight will sharpen and your profits will soar.

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Value vs. Price

A 4-star hotel in Thailand was charging $100 per room. Wanting to increase bookings they knew they needed a solution to make their customers more loyal. They raised their suite room price to $125.

What? Is that a typo you’re thinking…No. They raised their prices.

Why? Because they provided a lot of added value for those extra $25. Every day, in each suite room, they put a bottle of fresh squeezed tropical juice, fruit, a bouquet of assorted flowers, tickets for a free drink in the hotel bar, a pass for a free 30 min massage, and free nightly movie. Wow, all that for $25 (and it only cost the hotel $10). Definitely worth the value, right? That’s what the guests were also thinking – bookings went up. So did profits.

Think about that…that’s $15 in new profit from each booking. At 25 bookings a day, that’s $375 a day in extra profits…$136,875 extra into the owners pocket each year. Imagine this same strategy being used at a resort with 250 bookings a day. That would be about $1.3 Million in additional profit for the owner. Not too shabby!

The key here is that when customers perceive additional value, it doesn’t necessarily have to cost you more and take away from your profits. Done properly, like the above example, it will raise your profits on each transaction.

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How To Get Really Rich

An entrepreneur can have a great business idea, a strong business model, and even make some good sales on a day to day basis…but even with all this, many business owners aren’t making the kind of money they want to and know they should.

In the following sections you’ll learn information that is critical to take your business from giving you a decent income to giving you an amazing income.

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With Apologies

Over the last few years I’ve seen many restaurants and stores get better at dealing with making apologies to customers. That said, there are loads of businesses that don’t seem to give the concept a thought. Here’s how it works…

If you mix up an order. If you’re late delivering it. If what you deliver isn’t what it should be and what the customer expects, you have three choices: a) you can try to play it off like you did nothing wrong, b) you can apologize, or c) you can apologize and give the customer something of value for free to compensate them.

Well, (a) is plain stupid. Once a customer sees that you are insincere, they’ll take their business away from you and it won’t come back anytime soon. They’ll also tell others how much you stink.

Option (b) can work. If you provide a sincere apology, there is a fairly good chance that the customer will forgive you. You may get one more try.

Option (c) is the smartest choice you can make. What you give to the customer doesn’t have to cost you much. It can be a half-price coupon, a free dessert, pretty much anything that you think the customer will appreciate. How do you know if they will? Think, if you were in their situation, would you appreciate that?

If a painter was painting your house and finished the job late, wouldn’t you be satisfied or appreciate if he offered to paint an extra room for free or gave you 5-10% off the bill? I’m betting you would.

Why should he do that? Because, if he is smart he wants…no, needs to do everything he can to keep you a delighted customer. If he falls short of your expectations at any level…there is a good chance you will shop around for another painter next time you need some work done.

On the other hand…if you’re elated with his service and work…there really is no need for you to shop around – even if he costs a bit more – in your mind, you already have the best painter and will tell all your friends.

Makes sense, doesn’t it?

Here’s another example: A business associate was buying a new video camera. He ordered the camera and was going in to the store to pick it up on Friday at 3pm. The time the salesman told him it would be ready. Just after 3pm he arrived and went to the customer service counter to pick it up and gave them his name. After a bit of moving around the customer rep came back and told him they were sorry, but it wouldn’t be ready until 5pm.

My friend is a busy guy and hates to be kept waiting. He smiled at the rep and said “I’d like to see the store manager right now.” A minute or so later the manager appeared and asked how he could help my friend. After explaining the problem, the manager replied “I’m very sorry Mr. Johnson, what I’d like to do for you is have the camera delivered to your house or office so it will arrive first thing tomorrow morning. And I’ll also give you a carrying bag for your camera, free. Would that be okay?” My friend told the manager that would be great and went off to his next meeting. He also told me about the how shocked and pleased he was with the experience at this store. Do you think I was the only one he told? Highly unlikely.

Which approach do you take in your business?

If the situation would have been left at the stage of the first customer rep, my friend would have likely never have purchased from that store again. Probably, he’d also have nothing good to say about them either.

On the other hand, the manager turned the situation from almost losing a customer to maintaining a happy customer. How much did it cost the store? With their delivery network and the cost on the bag, maybe $25. For a repeat customer that spends $1200 on a camera, that’s nothing to keep them happy. Happy, and coming back to buy more…and not to mention telling his friends about how great his experience at the store was.

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Hot And Fresh

This one gets to me almost as much as employees that are cold and half asleep. I’m talking about orders that take a long time to arrive, and when they do, they’re not what they should be.

If you’re all about providing a very slow experience, that’s fine, but be consistent in doing it. And, make sure people expect that. Have a sign inside that let’s them know that orders take long here, but it’s because you make everything fresh or because you take more time with each customer, etc. Now back to what really bothers me.

Here’s an example that I still think about years later…

I was living in Asia at the time and came back to Vancouver, Canada to visit my family. I went out with two of my cousins and a friend to a well-known burger joint. The food is great. The view of the mountains is amazing (especially from the patio).

But when we ordered our drinks they took about 10 minutes to bring them to us (that might not sound like a long time, but when you want something to quench your thirst, it sure is). I thought maybe they were just really busy. I looked around and saw our hostess standing and talking to another hostess. Was the bartender busy? Nope, the drinks were sitting at the bar…When she finally brought our beers over, the foam was nearly gone. No “sorry for the delay”, no nothing. This was her approach to treating her customers ‘well’.

Now, the above example may seem like nothing to fuss about. But I’m not the only one that enjoys a fresh beer. It’s the same with food or having to wait to get a box from the back of the warehouse or at the dentist’s or doctors…nobody likes to be kept waiting.

Customers want to see that your employees are doing their best to get their order to them as quickly as possible. If you really are totally swamped, fine, but let your customers know…don’t disappoint them.

From a sales perspective, if I would have been brought my first drink more quickly, maybe I would have ordered a second. Maybe all of us would have. That’s an extra $5 to $20 sale.

A $20 increase per sale multiplied by just 25% (or 50 customers) out of a modest 200 customers a day…and they would make an extra $1,000 a day. That’s $365,000 dollars or so a year. Just like that.

No extra workers or wages needed. That’s pure profit.

The drink example was due to a weak system. Maybe there was only one bartender you say? Then teach servers how to pour a drink, or get another bartender. But don’t allow your staff to stand around while your customers are waiting for what they want…that doesn’t make your customers happy.

The result was an unhappy customer. One that would likely tell many others about the poor experience (hey, I’m doing that right now).

Look around at your business. Are there certain areas that can be made more efficient? The best way to do this is to make a list of each point of contact you have with your customer and check to see if any areas are weak. If they are, figure out why they are and how you can strengthen them.

Let’s take the example of a Dry-Cleaning business:

  • Customer walks in off the street to inquire about prices
  • Customer calls to inquire about prices
  • Customer drops off clothes for dry cleaning
  • Look over clothes
  • Explain services and provide suggestions
  • Take order and customer information
  • Call customer to announce pick-up is ready
  • Customer comes for pick-up
  • Customer provides their order stub
  • Find customer clothing
  • Give customer clothing article
  • Charge for payment
  • Thank customer
  • Follow up with customer

To work through the above example you would sit down with your employees and go through each point of contact you have with your customer and look for ways to improve service and efficiency in each.

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