Referrals done right, p.3
Referrals Done Right, page 3
3. Inadequate planning. When you don’t have enough time to create an in-depth marketing strategy, it’s easy to do what the Goliaths do and put everything you can into the traditional marketing model.
THE TRADITIONAL MARKETING MODEL
When you’re already overwhelmed by everything you’re doing on a daily basis, you don’t have the time to learn or plan a new strategy to get the results you want. It becomes easy to fall into the trap of continuing to default to the “tried and true” method of marketing. But when you rely too heavily on the traditional marketing model, you’ve unwittingly sentenced yourself to a life on the hamster wheel. Let me explain.
Traditional marketing ROI says that if I spend $5,000 on marketing, and my message reaches 3,000 people, then 150 will give me an opportunity to sell to them. Of those 150, 30 of those will convert into sales. So when you do the math, it costs $167 in marketing to close one sale. Now what if revenue goals required to cover monthly expenses require you to make 100 sales? You’d have to simply spend … $16,700. That’s triple your monthly marketing budget! (Assuming you can afford to do that.)
In simple terms, marketing ROI performance is based on the number of leads (or opportunities to sell your product or service) generated by the number of dollars spent to get those leads.
In the traditional marketing model, the two primary metrics a small business owner (SBO) will look at are sales volume (how many units sold) and gross revenue (how much money those sales generated for the operating account). Then they look at team performance (how many units each person sold and how much they got paid to do so). This allows the business owner to determine each employee’s return on investment. Then they look at marketing (how many leads or sales opportunities are generated by a specific marketing approach).
Gross revenue doesn’t always lead to profitability.
Gross revenue doesn’t always lead to profitability. If you’ve been around a while, you know that. The number of sales an employee makes isn’t always determined by the number of leads they have. While the number of leads created by a marketing approach can be high, they can also cause the business owner to be dramatically over budget.
Take Alex, a new insurance agency owner who was eager to attract new interest and build a solid client base. He decided to invest $1,000 in direct mail marketing to send 2,000 postcards, each emphasizing the importance of protecting one’s financial future through his offerings.
He was pretty pumped about the initial results when he received twenty inquiries from potential customers who wanted to learn more. When he did the math, his return on investment was only 2%.
Driven by the ambition to grow his client base even faster, Alex decided to aim for eighty inquiries a month. To achieve that new target, he decided to increase his monthly postcard budget to $4,000 per month. For a $60,000 annual marketing budget, $4,000 in one month for postcards is a ton of money. While this choice may seem logical under the old traditional marketing model, it marked the beginning of a cycle that would lead to diminishing returns over time.
DIMINISHING RETURNS
Brian is another insurance agent I know. He’s also a great example of how the traditional approach to marketing can lead to diminishing returns and other problems.
Brian reached out to me in my coaching business a few years ago. When I saw his name in my inbox, I thought, Why is he reaching out to me? It wasn’t his inquiry that was unusual. He asked me to help audit his business and give him suggestions on its inefficiencies and any areas of improvement. It was the person behind the inquiry that caught me by surprise.
I questioned whether I was confusing his name with someone else’s. The Brian I was thinking of was one of the top-performing agency owners in the country. Why would he be reaching out to me?
Brian provided me with revenue and expense reports, profit-and-loss statements, and itemized breakdowns of each marketing spend. As I was scrolling through his annual production numbers, I realized he was the same Brian, but by the time I reached the end of his numbers, my jaw was on the floor.
Brian’s business looked wildly successful from a production standpoint, but it suffered from a common problem—diminishing returns.
Diminishing returns are the bane of productivity enthusiasts, economists, and small business owners alike. They’re like getting an extra scoop of ice cream that is delightful and fun at first, but each subsequent bite brings less satisfaction as the long-term problems start stacking up. The law of diminishing returns is a constant reminder that too much of a good thing may not be so good after all.
Brian was blinded by high production numbers, awards, public recognition, and seeing his name at the top of the charts, but his profit-and-loss statement told the rest of the story. Yes, he was generating plenty of revenue, but he wasn’t keeping much of it.
In my work as a consultant, I see many small business owners fall into the trap of having tunnel vision or looking one-dimensionally at production numbers. When this happens, equally important expense numbers can become overlooked and unchecked over time.
This is a common mistake small business owners make.
In an effort to drive more production, which creates higher gross revenue, they inflate their marketing budgets and payroll. This is what Brian was doing. He was spending over $5,000 per month to purchase online leads, and then another $5,000 per month on employees to work those leads.
From a marketing standpoint, the return was solid: his team was receiving hundreds of new leads and converting at the industry’s average rate. However, the piece he wasn’t focusing on was profitability, a crucial metric indicating the financial health of a business. Profitability involves generating positive net income while also managing resources efficiently, ensuring a positive return on investment, and positioning the business for long-term growth and success.
The expenses he allotted for traditional marketing and payroll to generate revenue far exceeded the revenue itself.
See the problem here?
Based on production reports, he was top of the rankings, but from a profitability standpoint, he was failing. Brian overspent on marketing because he was blindly focused on gross revenue.
Allow me to illustrate how this can happen in retail.
It’s easy to buy something wholesale for $1 and then spend another $0.50 to advertise that you’re selling for just above wholesale pricing $1.10. Then when you sell a thousand units, you’ve generated a lot of gross revenue, but each sale lost you $0.40.
Short-term solutions to long-term needs create an endless cycle of frustration.
From a marketing standpoint, the campaign worked. It generated thousands of leads. From a production standpoint, it worked because you sold thousands of units. From a revenue standpoint, it generated plenty. But from a profitability standpoint, you lost.
Small business owners can find ways to feel successful by focusing on the wrong numbers. That’s what Brian did.
While auditing his business, I realized his expensive, traditional marketing plan was a reactive approach designed to meet short-term goals. In an effort to increase production, he overspent on low-quality leads. Chasing these leads burned out the quality employees from the stressful task of trying to convert a high volume of bad leads into good customers.
Short-term solutions to long-term needs create an endless cycle of frustration. It truly is the hamster-on-a-wheel approach.
The business owner may see activity and sales happening. They may see their team keeping busy working leads and generating sales, but when the dust settles on the profit-and-loss report, there is barely enough remaining to keep the lights on.
The employees are doing their job well, and the customers are happy, but the business owner is working over fifty hours each week, spending time on team development, and focusing on customer service (add as many “hats” here as you’d like). They feel as if they’re doing everything right, but they grow frustrated at seeing positive top-line results not translating into bottom-line profits.
SUCCESS ISN’T ALWAYS A GOOD THING
Success, too, can be a problem.
Wait. What?
Yes, some small business owners can be fooled by their own successes. I see it pretty often. It can offset our focus on the negative effects of our daily business decisions and cause us to miss or even ignore the losses and only celebrate gross revenue without any further examination.
This is especially true if success is coming into your business at the expense of another element in your operations that is crucial to long-term sustainability. Goliath-sized companies can advertise with consistency, month after month and year after year, without any impact on the CEO. They have deep pockets and a marketing department and sales force, so it can work. The focus is on high numbers.
But for many small businesses, playing this game often contributes to their own failure. Thirty-eight percent of small businesses fail due to a lack of capital, and countless more fail from burnout.1
Success can also bring diminishing returns on your mental and emotional state. It is one thing to write a marketing strategy in a business plan and a whole other thing to have to produce results month after month from scratch. This grind will begin to edge out the people and priorities that led you to start your own business in the first place. It’s no easy feat to leave behind corporate jobs, security, and benefits to start out on your own. You undoubtedly did it with not only a great product or service in mind, but with people and your community in mind as well. You wanted to make a difference in your own life, the life of your family, and the lives of others in your area too. There is simply no time for impact like this when you’re logging miles on the hamster wheel.
NO PLAN B
I was nowhere near as “successful” as Brian when I realized something needed to change in my business or I was going to fail and take my family and team down with me.
Fortunately, the scrappy, hustling, resourceful mindset I developed growing up in a low-income household gave me some valuable insights that I’ve used while growing my small businesses.
Because of my own experience, I was keenly aware that the livelihoods and families of others depended on the success of my business. Knowing that my team members were doing the best they could to keep things afloat at home motivated me more than anything else.
There were only four of us early on, and my three employees were willingly working for less money than they could have earned elsewhere. They bought into our value-based mission to serve our customers differently than the competition. They stayed late and took appointments in the evening hours as needed. I promised them that if they bet on me early, I’d make it up to them once we were established and profitable. I wanted to do my best to ensure the business was healthy and sustainable to provide them with opportunity and security.
Growing up poor also taught me that you don’t always get the luxury of a Plan B. So being effective and resourceful in your Plan A is essential. It was resourcefulness that enabled me to work two jobs during high school, lead sports teams, and start a home-based business while I was in college. But for some reason, my resourcefulness took a back seat to the approach that everyone else was using. Instead of asking my typical questions, I grabbed onto the “tried and true” model and ran with it.
The major problem I had when I followed the traditional marketing model and what I’d learned from others was that all the initial ROI was negative.
My first year looked like this:
Send direct mail ($.18 in return for each dollar)
Purchase online leads ($.63 in return for each dollar)
Hire a telemarketer (factored in with online leads)
Run ads in newspapers and on radio ($.07 in return for each dollar)
Rent billboard space ($.12 in return for each dollar)
Ask people I knew to connect me to people they knew ($26 in return for each dollar)
Pray that people noticed or cared (unlimited anxiety with no dollars left to spend)
My marketing plan would only be successful if I could last long enough to turn new customers into repeat customers, increase my budget, and expand my team. Eventually, the repeat business would generate enough revenue to offset the negative return on investment from advertising and marketing.
My problem? I wasn’t going to last that long.
After one year in business, I’d spent over $60,000 on advertising and marketing. My wife and I were talking about foreclosure, and my whole dream was on the ropes.
When expensive, traditional marketing plans missed the mark for my business, I took it personally. Not only did it hurt the business, but it also had a negative impact on my team. The profits I’d promised them for sticking with me weren’t there. I knew I needed to be creative and resourceful, which would help me keep my house, pay my team, and build my dream.
The traditional marketing method I followed was not just hurting our bottom line. Worse still, this model definitely wasn’t bringing value to anyone—not me, not my team, not my community.
After digging into my marketing numbers, I could identify only one single source of positive ROI in my whole marketing strategy—referrals.
Not only were referrals the lone positive ROI in my plan, but they were thirty times more lucrative than the next best performer! I did not receive an MBA from The Wharton School, but I did learn “greater than” and “less than” in elementary school. It often cost me nothing to receive a referral, and the conversion rate (turning a prospect into a customer) on referrals was the highest of any category.
In his book, The One Thing, Gary Keller encourages readers to ask themselves the focusing question: “What’s the ONE thing I can do such that by doing it, everything else will be easier or unnecessary?”2
So I began to ask myself, “What’s the one thing I can personally do at such a high level that by doing so, everything else falls into place and almost nothing else matters?”
My answer was to consistently provide sufficient, sustainable sales opportunities for my team. To do that, I needed a laserlike focus on providing a consistent and potentially endless flow of opportunities, and those opportunities looked like referrals.
So I rallied the troops to further discuss the changes that were about to transpire.
I was at a financial crossroads. I told my team that we’d be “burning the boats,” meaning we were going to move away from only using traditional marketing and focus all our energy on relationship optimization. We were either going to win or die trying, but retreating back to the boat (of traditional marketing) wasn’t going to be an option. I simply couldn’t afford it.
From that moment on, I stopped being the VP of seven different departments and locked in on just two: (1) recruitment and development of quality employees and (2) efficient relationship-based marketing to ensure those star people have endless opportunities to shine.
But, Scott …
Nope! Stop right there.
I know what you’re thinking. You can’t take off any of your hats because you don’t have the right people in place and the finances available to outsource things. Are you afraid of losing revenue by ditching or scaling back on your traditional marketing? Have you “tried it all before” and didn’t see the success you wanted and stopped? Or if you’re honest, do you have some major hang-ups when you think about referrals, relationships, and networking?
Before you shut the book, let me tell you what I told my team all those years ago:
Keep an open mind, and stick with me.
If you’re interested in creating a sustainable business and authentic, engaging relationships that increase your profitability, this is the book for you.
Once I made the decision to part ways with old-school, traditional marketing, our balance sheet became healthier than ever. Wherever you are right now, what I am going to teach you will help you make changes so yours can too.
GET OFF THE HAMSTER WHEEL
Traditional marketing will leave most small business owners either spinning their wheels or drowning in negative returns. With it, your business is not better off, and your community isn’t either.
But when you amplify your relationships, you operate from a position of service, strength, and control of your future. Instead of giving your power over to the “spray and pray” approach to marketing and then waiting to see who responds, you will own your impact, your influence, and your income.
Your relationships will allow you to generate consistent referrals without even asking.
How do you know?
Because in my own business, and the businesses of those I coach, it would currently take us much more time and effort for us to stop getting referrals than to get more of them.
When executed with consistency, this value-driven system positions you as trustworthy, respectable, and ultimately, incredibly referable.
I’m excited to share with you my approach to establishing the kind of cringe-free relationships that help everyone involved. I won’t lie to you and say you’ll become an overnight success. This method takes time, but as someone who remained consistent and patient as I was building my own business this way, I can tell you, it’s worth the time and effort.
And no, you don’t have to be an altruist or an extrovert or give up on earning the income and having the freedom you dreamed about.
All it takes is a willingness to learn something new, a little patience, and a lot of consistency.
But first, let me tell you a little bit more about how I broke free from the hamster wheel that was dragging me down and closed the distance between my reality and my dreams.
CHAPTER 3
FROM ONE UNDERDOG TO ANOTHER
On the first day of December 2009, a Tuesday, I made the 1.1-mile drive from my home to the first insurance agency I would open. Gray clouds clogged the Central New York skies. My rubber wipers squeaked as they dragged across the glass, clearing the cold drizzle from my view.
