The only way to get to know how to scale a business quickly is to make sure that you have a business that is scalable! Well, that seems to be pretty obvious, right? However, most businesses never really get to that point where they experience real scale because they’ve never attained true Product-Market Fit and it’s Product-Market Fit that is needed in order to scale.
Product-Market Fit
So what is Product-Market Fit? It’s effectively when we have tested our product or service relentlessly with our ideal customers and they have confirmed that we have accurately satisfied their needs within the marketplace and in return, compensate us.
To the degree that we reach a higher level of Product-Market fit, the more sales we make and more customers that we acquire. Essentially we have reached that point where our offer, our pricing and delivery mechanism are fully meeting our customer’s expectations.
We have gone from getting the right product or service sorted out to distributing and delivering the right product or service to a growing customer demand.
The Telltale Signs of Scale
So when is scale possible? There are some telltale signs for when we are on the verge of having a scalable business. The first are signs of what is referred to as Customer Dependency.
It might sound a bit far fetched but a business that has customers who identify as having a dependency on that businesses’ product or service are the epitome of a scalable business. The most obvious example of this would be a company such as Apple.
User Engagement with a product or service is another sign. This is best described as the allure of a company where their customer’s interaction with the businesses product or service becomes a central part of that customers life and daily routine. This is certainly the observation of FaceBook’s customer base.
Another sign of potential scalability is somewhat of a cross-industry standard. It is Net Promoter Score (NPS). Net Promoter Score is an indicator that identifies how much your customer base connects with your product and service from the perspective as to whether they would refer a friend or not to your business.
Using a scale from 0 to 10, essentially a 9 or a 10 denotes that a customer is one of your raving fans and would be inclined to tell a friend about how much they think your business is doing a fantastic job. The NPS is a very high threshold and a score of 8 or lower is not considered optimal of helping your business grow. In fact, in the lower ranges of the NPS scale there is concern that customers become detractors and would actually spread negative reviews of your company to friends and upon social media platforms.
Obviously one of the more highly monitored indicators of Product-Market Fit is your businesses Conversion Rate. This essentially is the number of customers who have made it all the way through your sales funnel and have actually completed the sale and transferred renumeration over to your side of the ledger.
Above all else, your business’ conversion rate is the indicator as to how many customers were attracted to your offer and made it to the very end of the process. A high conversion rate signals that marketing dollars are more efficiently used and that it takes less of them to get a customer to do ultimately what you want them to do.
Customer Acquisition Cost
Now that we understand what the indicators of scale are, we need to more fully understand a few aspects of how we put scale into motion. The very first consideration is to understand what our Customer Acquisition Cost (CAC) is in comparison to what our Life Time Customer Value (referred to as LTV or LTCV) is.
The CAC is literally what it costs your business to attract a customer to the point of converting them into a sale. This is the cost that then in turn, you must as an entrepreneur and business owner recuperate plus profit on each transaction with your customer.
The simple math is as follows: If it takes you $10 dollars to attract each customer, you must be able to recoup that original $10 dollars PLUS what you identify as your needed profit…say for this example 25% or $2.50 more for a total of $12.50 in order to stay in business.
As a business owner you can NOT be in the business of spending $10 dollars on each customer and recuperating $5 dollars. The old business joke that you’re losing money on each transaction but making up for it in volume started somewhere for a reason!
Life-Time Customer Value
So with us now knowing what it costs for us to acquire a customer what else should we know? Well the other ratio or bit of information that is vital for us to know is what we referred to earlier as LTV. So the Life-Time Customer Value or LTV is the ratio that indicates how much that customer is worth to us in revenue over the course of their engagement with us.
Let’s assume that unfortunately we are not as successful in keeping our customers and that they turn over or ‘churn’ on us every 12 months or each year. Let’s also assume for this example that our LTV is $50 dollars.
So what does this tell us if we know that it costs us $10 dollars to acquire a customer and that our customer LTV is $50 dollars?
Let me put this in another way. What if you were able to give me $10 dollars and for every $10 dollars that you gave me, I gave you back $50 dollars?
Wouldn’t you do EVERYTHING you could to find as many $10 dollar bills and as many customers as possible so that you could make this exchange?
Unless I don’t understand the calculus myself, I think that EVERYONE would bite at that offer if they could give someone $10 dollars and always get $50 dollars back in exchange!
This is SUCH an important element to understand and a lot of the entrepreneurs that I counsel when they first come to me do not get this concept. The point being is that we need to be in a situation where we have full control on how much it costs us to deliver our product and service and we have the same level of command of the numbers so that we also know how much we stand to get back from a customer over a reasonable amount of time.
This is immensely important in scaling a business. If we know we have a very favorable LTV to CAC ratio, we can much more easily scale a business by bringing on investment to fuel customer acquisition, PROVIDED that we can balance out the cash flow issues before we get paid back from that customer.
We Still Have To Pay The Bills – Cash Flow
Remember, even if we payout $10 dollars to get $50 dollars back we still have to have enough funds in the meantime to pay the bills. In fact, we need each of those $10 dollars that it takes to acquire a customer, along with the other costs that it takes to operate our business, immediately and in hand. However, the $50 that we anticipate getting from each one of our customers will come back to us at a later point in time.
The last element of scaling a business, and perhaps the most obvious, is that customers need to be able to find us. That’s no surprise to any of us of course but what is surprising is how hard this has become to do. It’s not as easy as the advice given in the early Internet days of “just throw up a webpage and they’ll find you”.
The truth of the matter is that you not only have to have a highly functioning webpage but you also need to have somewhat of a sophisticated strategy of bringing ‘traffic’ to it. This is what we call a ‘sales funnel’.
Search Engine Optimization (SEO) – Reeling ‘Em In
I advise entrepreneurs that the first thing that needs to be done is that we have to design our web presence around the approach that it has to be a traffic generating machine.
To that end, it must be able to draw potential customers in based on their interest in what we are doing or selling. As a result, we need to be exceedingly mindful as to how search engines work, like Google, and cater our website content with this in mind. Therefore, we are ALWAYS doing everything that we do within our website for ‘Search Engine Optimization’ or SEO.
SEO is the ranking of our website in comparison with other websites that are talking about or selling the same things that we are. It essentially is judging how relevant our content is in comparison with everyone else’s. For example, if my website is about antique dolls search engines are trying to discern how relevant my website is as it relates to this subject matter and how many visitors I get to this site in comparison to other sites with the same information.
Furthermore, these search engines want to know whether search words or phrases that are entered into the search bar best match up with my content or someone else’s. This is called ‘keyword search’.
As SEO has become more pronounced keyword search ranking has as well. The game of keyword search basically comes down to two things; short tail keywords and long tail keywords. A shorttail keyword is usually just one word if that fits the content of your website. For an example, if you make custom baseball bats wouldn’t you be thrilled that anytime someone entered the word ‘bat’ in Google’s search bar they all came to your site? Of course you would!
However, it’s obviously more complicated than that. Right off the bat…no pun intended…you are competing against businesses that are selling aluminum bats, wooden bats, hand turned bats, etc. Therefore, what tends to be in play here is that the more you are able to compete for important long tail keywords that are more relevant to your content, the better you will rank for those which are a more specific match.
For example, let’s assume you actually make your baseball bats out of hickory. You would then want to become very competitive for ‘hickory baseball bats’. This would probably be the most exact match for what your content is on your website in comparison for what someone looking for this type of product would enter into Google’s search bar.
Long and Short Tail Keywords
As you rank higher for this long tail keyword chances are you’d also start ranking higher for ‘custom hickory baseball bats’ or ‘hand turned hickory baseball bats’ simply because your site was being acknowledged for attracting traffic to your site from the initial long tail keyword of ‘hickory baseball bats’.
Although this has become an absolute art and a science onto itself, it is absolutely imperative you understand how critical it is to attract search traffic to your site. As part of this effort, you will also need to include social media in your strategy as well.
Suffice it to say that this too is an art and a science onto itself. However, the easiest approach to leverage all potential customers looking for your content is to make sure you have a strategic presence on the right social media platforms.
Social Media as a Strategy to Attract Potential Customers
As a starting place, you would probably want to make sure that you have a ‘fan page’ on Facebook, a YouTube channel and an Instagram presence.
Now of course what social media channels you choose should match up to your potential audience and customer base. A great example of this is that if you have a highly visible product for women of the ages between 45 and 60 years old chances are you might think of being on Pinterest because that’s where that customer demographic is. Being on Twitter would probably be a waste of your time.
Now that you have social media presence you need to use that presence differently than perhaps you use your website. On your social media sites you are not trying to ‘sell’ anyone. You’re merely adding to the conversation about that particular topic and hopefully becoming a trusted authority in that area on that platform. The more trust and rapport and authority you establish on social media, the easier it will become for those individuals to drift over onto your web page and see what you are up to professionally.
Conclusion
Scaling a business is hard. In fact, it is the hardest thing about a business. What I find interesting about entrepreneurship is that most every entrepreneurs I meet think that coming up with the idea and commercializing it is the hardest part about the journey. However, I always tell them that it’s a whole lot easier to come up with something that you can sell to your Mother versus being able to sell that same thing to a million people.
Scale is the brass ring!
