Tag: optimization

The 3 Marketing Channels That Work

How do businesses like yours get customers?

It’s not a complex question, but it’s one that most business owners couldn’t confidently answer.

I’ve asked other agency owners an even easier question: how do you get clients?  A significant number don’t even know this.  They say, “Huh… I don’t know.  People contact us.”

I have an operating theory that acquisition channels follow the 80/20 rule. 80/20, Pareto’s Law, or the Law of Imbalance states that most sets are not evenly distributed, but concentrated.  For channels, that would mean that customers are generated through just a couple of mechanisms in each market.

Last month, I decided to gather some data on this theory while improving my knowledge about businesses like mine.  As part of this effort, I hired a virtual assistant to scrape data off a publicly available services directory.  

The pie chart below, shows the initial 50 results:

Pie chart showing agency lead generation channels

75% of all customers reported finding the service company in one of three channels: referrals, directories, or Google search.  6% were in RFP’s and then little slices of everything else. (80/20 imbalance expressed as 75/25)

A few caveats with this data:

  • It’s distorted because it’s scraping from a service directory.  Because of this, directories are likely overstated by a significant margin.  Referrals are probably much higher and directories at least half of what’s counted.
  • It’s just a small, initial, sample – 50 purchases (the aim is for 500.)

If your business was a web development agency, and this held true for the larger market, the best return on your effort would be to focus on Google search, service directories, or referrals.

And that’s why this question of, “how do businesses like yours get customers,” matters.  There are thousands of marketing strategies that you could employ, but if they don’t align with customer behavior, they won’t work.

See also “Narrow Your Options

Featured image is of Cinderella, barefoot, by the kitchen fire painted by Valentine Cameron Prinsep (1880) used under public domain.

Growth Lessons From a Hotel Kitchen

A couple of weeks ago, the hotel where my Rotary Club meets switched out plate lunches for buffet lunches. It’s a seemingly unremarkable change. Rotarians went from being delivered a plate with food on it to serving themselves from a buffet.

However, the hotel grew their profitability by making this change.

Consider that:

  • Food takes less labor to prepare as it’s no longer being plated for guests.
  • Rather than having two or three staff members ferry meals to every person in the conference room, there’s just one person who monitors the buffet tables for when a container needs to be replaced.
  • There’s less food waste, because guests serve themselves the amount and type of food they want.

No one in the Rotary cared. In fact, you could make a case that the hotel made the meal more valuable for Rotarians by increasing the speed with which they were able to get their meal and customize it to their preferences.

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Optimizing the Margin

I was on a call with a client yesterday and asked them what impacts their revenue the most?

They have a new website that they’re feeding over 1.5 million visitors to a month and monetizing that traffic through advertising. There are a bunch of technical levers that we could pull to increase ad impressions: improve site speed, optimize the mobile ad display, work on pages per visit, and etc. But while we were going through these, they mentioned that they’re sourcing advertisers through a reseller that takes a 30% cut.

30% is a huge bite of revenue.

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$4k More a Month in 5 Minutes

“Within three months, I created an additional $10,000 a month of income.”

This was the featured testimonial for a business coach I came across yesterday. The page was full of similar quotes of happy clients who had experienced fast growth.

Any good testimonial speaks to what is possible. What was listed on this business coach’s website was a collection of best case scenarios. Which is normal and as it should be.

But it’s still worth asking the question: what is going on here?

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Mastery Through Reduction

What if you succeeded despite your best efforts?

Imagine a post apocalyptic setting where hundreds of years in the future someone discovered a functioning microwave. They do a dance of excitement, button smash the microwave, and accidentally start it up. Going forward, they believe they have to dance before splaying their hand in a certain pattern to start the microwave.

We all experience some form of this where an activity delivers what we want even though we’re not actually doing it very well.

As it relates to growth, what is effective is rarely improved to an excellent standard of function. We get something working well enough and then we just move on. And most of the time what we move on to doesn’t work at all.

This implies a huge opportunity to increase productivity in your business system. If you’re a coffee shop that gets customers through sidewalk traffic, rather than advertise in the local paper, you would be better served to figure out if you’re getting as many pedestrians as is possible.

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Hidden Revenue Opportunities

I spoke with an agency owner a couple of months ago who revealed that he had recently acquired a small web development business. As a part of integrating that business, he had grown his team by two developers. It was stressful because it meant that he had to figure out how to raise revenue. He said, “I have to find $70,000 before the end of the year.”

He had expanded capacity, but he didn’t have the pipeline to support it. To address this, he was doing what a lot of businesses do, beating the brush and looking for more customers.

For most contexts, marketing is a long term game with lots of challenges for any channel you develop. It’s an investment over time.

I asked him, “Are you taking full advantage of your past customers? When was the last time you had a meeting about their goals?”

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Antifragile Crypto Cats

Nassim Nicholas Taleb’s book, Antifragile, proposed a new idea- that there are certain things that improve from disorder. To give a short example of how this concept works: if you dropped a vase on the floor and it shattered, it would be fragile. If you dropped a vase on the floor and it didn’t shatter, it would be robust. If you dropped a vase on the floor and the impact caused the vase’s walls to become more durable, we would consider it to be antifragile. The disorder made the vase better.

In the book, Taleb lays out an antifragile investment strategy that he dubs, “the barbell strategy.” You put 90-95% of your investment in safe vehicles in predictable environments. The other 5-10% you invest in chaotic environments that contain the possibility of dramatic positive swings. In this way, you avoid ruin, but still gain from the occasional upward spike of fortune.

I’ve often wondered how you might employ this strategy in a business. This past year, I benefited from a front row seat on an application.

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Only Work With Winners

A bulletin board in a coffee shop I frequent is covered in business cards and flyers. It’s a wonderful organic mess, a kaleidoscope of unique rectangular designs. I doubt that it’s created much business for any of the people who posted their card.

There are hundreds of channels your business could get customers through- including a bulletin board in a coffee shop near you. However, most of them won’t do a thing for you.

Instead, there are likely less than five effective channels. And of those five only one or two will be the primary means your industry gets customers.

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The Hank Hill Problem

I’ve observed an interesting pattern when it comes to small business teams. There are several poor or mid skill level employees and one high performer that the business owner relies heavily on. This person is the business’s “Hank Hill.”

If you don’t know who Hank is, he’s the protagonist of a cartoon series titled, “King of the Hill.” Hank lives in Arlen, Texas and works at a propane reseller. He takes great pride in selling “propane and propane accessories.” He’s extremely conscientious and extremely conventional.

Hank’s boss on the other hand is a ne’re-do-well named Buck Strickland. He’s lazy, cheats on his wife, gambles at work, and is the opposite of high integrity Hank.

And Buck’s propane business is completely dependent on Hank.

I first noticed this pattern in my own business and then began to notice it in other entrepreneurs’ businesses.

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The Inherent Power in Basics

I watched a webinar on the financial management of agencies last week. Over the course of an hour, a consultant took us through a byzantine spreadsheet that forecast profit based on how your agency was configured. It was filled with numbers, tables, highlighting and took up every millimeter of screen real estate.

Using the spreadsheet you could model changes to your business. What if you hired a new developer? What if you changed your pricing? What if you decreased time off? This impressive spreadsheet could tell you what the result would be.

At the end of the call, he asked for questions.

I asked, “What are the top changes that your clients come back to again and again?”

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