PreneurCast is a business podcast. Each week, author and marketer Pete Williams and digital media producer Dom Goucher discuss entrepreneurship, business, internet marketing and productivity.
This is the first in a semi-regular series where Pete and Dom provide tips and ideas to improve the profit a particular kind of business by following the 7 Levers of Business framework. This week, they use the example of a Retail Store.
Pete and Dom provide ideas on how to improve profit for your business
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Episode 085: If I Was A… Retail Store Owner
Dom Goucher: Hello, everyone, and welcome to this week’s edition of PreneurCast with me, Dom Goucher, and him, Pete Williams.
Pete Williams: Hey, buddy. How’s things?
Dom: Hey, fantastic. I’m fantastic. Do you want to get the weather discussion out of the way before we start?
Pete: Ah, well, it’s summer here. It’s been a nice couple of days, and I’m working from the ‘office’ office today, not the home office. So St Kilda Beach, and it’s quite nice outside.
Dom: So you’re finally, definitely, and fully unpacked from that house move, are you?
Pete: The garage has still got some boxes.
Pete: But we won’t mention that, and lucky that Fleur doesn’t listen to the podcast.
Dom: Yeah. Did you bury them? Did you hide them? Excellent.
Pete: Isn’t the theory, that if you don’t open the box for six months, then you throw it out?
Dom: It is indeed, it is indeed. I may just check up on you on that with the accountability stuff.
Pete: Yeah, make a calendar diary note.
Dom: Yeah. Cool. Okay, folks, we’re revving up for the New Year. We’re getting close to the end of the year, and one of the things that Pete and I have talked about for a while is to introduce some more thematic elements to the podcast. I like that word, thematic.
Pete: Ooh, there we go.
Dom: And last week, we talked to you about the 7 Levers of Business. It was a recap for our old — our regular listeners, not old listeners — a recap for our regular listeners, and an introduction to some of the new listeners that we got through our new partnership with Anthill Online. Thank you, James.
So, what we’d like to do is to continue in that vein. Because one of the things that Pete and I get asked quite a lot is: my business is X type of business, (insert your business here). It might be a bricks-and-mortar retail store, it might be a consultant, we’ve even had people who are artists, people from all walks of life that we meet at various events, or through our coaching.
Everybody always wants to know how we would help improve their business, what marketing strategy ideas we would put to them to help improve their business. Because everybody’s business is slightly different. Different types of business need a different approach.
So what we thought we would do is start a bit of a series — semi-regular, not just a run, but dotted through the regular podcast. What we want to do is introduce this series, and we’re going to call it the ‘If I Was’ series. For example, if I was the owner of a retail store, or if I was an artist, or if I was a consultant.
And just to keep things really, really easy to follow along with and easy to implement, all we want to do is to carry on the idea of the 7 Levers. It’s the core part of what Pete and I talk about. It’s been something that we’ve put across to our audience for quite some time now.
Because we really believe in it and, hopefully, if you’ve listened to last week’s show, you’ll understand why. And if you haven’t by the way, do pop back in and have a listen to that show, because it was a great example. Last week, we did a version of an If I Was.
We used an internet-marketing business as a business to demonstrate the framework. So what we want to do in our If I Was this week is use the framework, the 7 Levers of Business, and to walk through and give somebody an idea of how we would market that business. This week, I think we should, Pete.
We went all the way over to the intangible world of the internet business. So let’s, this week, go back down to the grassroots. Let’s talk about a retail bricks-and-mortar store. The reason I picked this, by the way — it’s a little bit of a cheat — because Pete, I know you have a bit of experience with retail stores, don’t you?
Pete: Yeah, my first job during university, I worked at [The] Athlete’s Foot for a number of years between the classroom and the bar, and then had the opportunity to go and work overseas. So I worked with Athlete’s Foot in America for a while, as well, and then back here in Australia again.
That last part of time working for Athlete’s Foot in Australia was just meant to kill time until I got back the US for the girl I was dating at the moment. The whole MCG venture started at an Athlete’s Foot store, funnily enough. I think I’ve told that story on the show before in previous episodes.
So, if you want to hear how I sold the MCG [Melbourne Cricket Ground], Australia’s version of Yankee Stadium, for under $500, go back to the archives and find the episode. PreneurMedia.tv or iTunes is where you can find those. So I had that experience as an employee and a ‘store manager’ to a certain extent.
Then, just recently, being back involved in that retail space with the Outdoor Gear Store, which is a new business in the portfolio of stuff that we work on, work with, involved with, and own, and all that jazz. So it’s coming full circle a little bit, which is cool.
Dom: Yeah. Started out as a guy on the ground on the shop front and now, to go all the way through that process, and you’re now the owner of the business. I think you have quite a good perspective on this, which is why I think it’s a great place to start. Let’s recap, first of all.
The 7 Levers, the 7 Levers of Business, the seven areas of your business that you should focus on, the areas of profit in your business. Pete, do you want to run through those first, and then we’ll go into if you were a retail store owner, which you now are, what things you could do?
Pete: Basically, to sum this up really quickly, because hopefully, people have listened to previous episodes and understand that this is a big framework of everything we do. We’ll try not to delve deep into this, the overall generics of the 7 Levers in every one of these If I Was series episodes.
But fundamentally, the whole idea of the 7 Levers is it gives you a framework to focus on. So when you sit down to work on your business every week — and everyone should have that on the business time, not in the business time — I focus on one of these seven things.
If you increase each area of the 7 Levers by just 10%, mathematically proven, unquestionably, scientifically justified, whatever the term should be, it should give you a double or two times increase in the profit of your business, which is huge. Let’s just run through each of these things and give people an idea that, if I was a retail store, the things we’re going to be implementing over the next seven weeks or so.
And more inside the Outdoor Gear Store, people can see what I’m going to do, and they can apply this too if they’re a retail store. The whole idea here is, even if you’re not a retail store owner, don’t switch off and go, “This isn’t me, this isn’t my business.”
Because the same principles apply no matter what you’re doing. You hone your skills and get your analytical thinking skills strengthened by listening to the shows like this where it’s not in your industry. By just figuring out and asking the question, how can I apply this to my world, to my business, to my projects?
Because the framework’s the same, the strategy’s the same, just the nuances and the tactic might be a little bit different. So just make sure you keep an open mind, like everything. If you’re a PreneurCast listener and a Preneur Community member, you are that way inclined anyway, so this is just a subtle reinforcement.
Dom: Cool. Before you go in any more detail, can we just list the 7 Levers, and then we’ll come back and say what you would do with each one?
Pete: Sure. There’s  traffic,  opt-ins,  conversions,  average dollar value of the items you sell,  number of items you sell per transaction,  number of transactions that customer does with you over a given period of time (which we’re talking through a month or year, or whatever it might be), and then finally the seventh lever that is the driver of your profit is  profit margin.
Basically, these are the seven things that all equate to profit. You can’t directly affect the profit of your business. All you can affect are the seven inputs that affect that. So you need to focus on the things that can change, and increase and adjust your profit, which are those seven things I just mentioned.
Dom: Cool. Right, so, let’s dive in. If you were a retail store owner, what would you do?
Pete: Sure. Well, in terms of traffic this is the first driver, or the first lever that affects, as we spoke about. Traffic, in the retail aspect and that context, is foot traffic. It’s the people who walk into your store. In terms of the Outdoor Gear Store, we have a very strong online play.
People know that’s my background, that’s what we have. People can check that out at OutdoorGearStore.com.au. That’s the online retail site we’ve just recently relaunched and are working on, and tweaking. We’ve also got a daily deal site, like a Groupon-style site just in the outdoor space, which is OutdoorDeals.com.au.
They’re the online plays. What I’m talking about is not those two plays because they’re online, e-commerce plays. We might do another episode in the future about what I would do, what are the 7 Levers of that e-commerce play? They’re completely different.
So, in the context of the retail store, I’m talking about the bricks-and-mortar side of things which we have. For that, for example, an A-frame is something that I would suggest and test as an increase in traffic. Now, it’s very, very bland. It’s very, very boring.
It’s nothing too cool or sexy. But at the end of the day, it’s a driver of traffic into a retail store. Recently, we had a 7 Levers Mastermind group where we had a range of five or six, I think, business owners from across Australia, work with us over a few months to work on these 7 Levers in their business.
We really worked with them one on one, and supported, and grew them, and helped them go. One of those mastermind members — and we should do another mastermind group in early 2013, Dom. We’ll keep that up our sleeves.
Dom: Yeah, because we both really enjoyed that. Some people got some fantastic results. We get great feedback from doing it. I guess that’s where you’re going with this.
Pete: Yeah, exactly. One of them was a retail children’s clothing store. On our advice and support, she put an A-frame outside her store, which was simply just advertising the store and what they did, and the benefits of buying the clothes from the store. It was something like a 240% increase in foot traffic that week or something? The number’s roughly right. I don’t remember exactly what it was, but it was significant.
Dom: It was some crazy increase. And this is the thing, as you said, some things are really, really simple. The simplest things very often can make a huge difference and signage is one of those things for any retail store. It’s vital that your signage is good.
But just sticking the A-frame out in front of the store so that people walking along can — so that it’s sideways on to your store, they can see that there’s a store there and what it is. If you think about it, if you’ve walked through any shopping mall or a shopping street, if you see an A-frame, you do see it. It’s obvious, it’s far more obvious. And, yeah, that particular person from our mastermind, they had some fantastic returns on that.
Pete: I’m going to give you a glaring admission of guilt here, as well, is that I was down in the outdoor store last week, so spending a bit of time. Now, we’re quite involved in that regularly. I’m in the store doing a lot of stuff — from marketing and looking at the books, and all the usual stuff you do when you buy part of a business.
The phone rang. I didn’t answer it, the team did. There was a gentleman on the phone literally going, where are you? I can’t find you. I put my hand up and say, we’re not perfect at everything. The store is relatively new, and it hasn’t been sign-written yet.
That’s something else I would suggest you do and it’s on our to-do list, of course. But the team, for whatever reason, hadn’t put the A-frame out in front. And this guy had gone through the website, found the store, put the actual address in his iPhone, and still couldn’t find us.
Now I stayed calm, and breathed. That’s a glaring omission. People who have your address sometimes can’t find it. You look in the window, it’s clearly an outdoor retail store. There’s climbing gear and backpacks and stuff in the window. The A-frame is now absolutely out the front every single day.
That’s the type of example; some things, you may have the A-frame, like we did, but the team weren’t putting it out. That’s now a mandated thing. If it’s there, it goes out, no matter what. So if you have sign writing, it can help. Like in the instance of the clothing store we just gave in the example. But that’s the thing that does increase foot traffic. And it just helps people who are looking for you already find you.
Dom: Absolutely. This is, I think, a little bit of the focus that we have, is that it’s not about the elaborate place. It’s not about the complex things. It’s not about the latest, shiniest tactics. Very often, it’s just the tried and trusted methods that have been around for a very long time, that you just might not be doing, that are going to make that 10% difference. Just the cumulative 10% across the 7 Levers will, as we’ve said, mathematically double your profits.
Pete: That’s the thing. It’s only 10%. It’s nothing drastic. It’s not trying to triple or anything or quadruple anything. It’s just like a small 10% increase, which is so easily achievable, which is the really cool thing about this. So the question that we take away for anybody, whether you’re a retail store or not from this example, is to go, what are the things that are very, very obvious that you’re not doing?
Or the things that you decide to do six weeks, six months, six years ago that in fact, because of laziness or misdirected focus, you’re no longer doing such as an A-frame? Because the A-frame was built, it was already there. It was inside the front door of the store, it just wasn’t getting put out. So what things in your life, in your business, in your processes, are you getting a bit lax with, that you need to start revamping back up?
Dom: Cool. Because it’s retail, and I don’t know a lot about retail, I’m really intrigued to know what you’re going to say about improving opt-ins. Because one of the things with the 7 Levers is, first of all, understanding what each one of the 7 Levers means in your business. And then, how are you going to improve it? So what is it with opt-ins in retail?
Pete: Sure. Well, opt-ins in my breakdown from a 7 Levers perspective in the retail space, is people who engage in conversation, but more so try on and get involved in the buying process. Online, it’s people who opt in to your newsletter and things like that.
But in a retail store, you don’t have that ability. So coming from a footwear background, one of the big rules of Athlete’s Foot — and the beautiful thing with a franchise, is it’s very structured and formalized in their training and support. They’re one of the best at it, there’s no question about that.
They have this greet and seat rules, which is all about greet somebody, and get them seated to try on a pair of shoes. Once you get them seated, they’re in that somewhat forward-moving process of purchasing, not just looking passively to a wall of shoes or the climbing gear or the harnesses, or whatever it might be.
They are interacting with the product. So that’s the whole idea. In a retail store, it’s getting to opt in and getting involved actively in the process. In this example, what you’re doing is you’re trying to get the person to sit down and try a pair of shoes. How do you do that and interact and engage with the person to get him to take that step, or without standing idiotic or frustrated?
If you look at most retail stores and the experience you’ve probably had as a customer, if you go into a store, what’s the first question you get asked? You get asked, how can I help you? That’s the tried and true basic question that every retail assistant asks every customer or prospect who walks in the door.
The problem with that is everyone now has an automatic reaction. Their automatic reaction is, I’m just looking, I’m fine, don’t talk to me. Because they don’t want to be hassled by a salesperson. That is not breaking that pattern. You need a pattern interrupt. You need a better question to ask.
And the better question to ask, in a lot of cases, is have you been here before? Hi, have you been to our store before? That question is a huge pattern interrupt. They can’t turn around and go, “No, I’m just looking.” They’re going to have to turn around. They can’t just turn around and say, “I’m just looking,” because that’s not the question you asked.
They have to give you a yes or a no. If they give you a yes, you say, “Oh, fantastic! What do you do? Do you hike? Do you climb? Do you kayak? What is it that you do?” You engage in a conversation with them because they’ve been there before. They know your process and know what you do.
You now have had them verbalize, they’ve got a relationship with you. They’re going to subconsciously want to talk because they’ve been there before, they’re coming back again. That proves something that subconsciously says a lot. If they say no, well, it’s a huge opening for you explain how you operate.
“Oh, fantastic. Well, we do a whole bunch of different stuff. We do things a little bit different to a normal retail store. So tell me, what do you do? Do you kayak? Do you climb? Do you hike? Do you run? Do you,” blah blah blah blah blah?
That question of have you been in here before is a much better conversation starter than the typical how-can-I-help-you, with the automatic response of, “I’m just looking, thanks.” I was just going to say quickly, and also, it’s not a sales question. It’s not a direct how-can-I-help-you because you’re here to get help and spend money. It’s like, have you been in here before? It’s a conversation.
Dom: Yeah. And I think a lot of retail store owners can appreciate that. Anybody that’s in the moving of goods and that does have floor staff, or is involved in interacting with clients and sales directly. I imagine that’s really a difficult one to overcome if you’ve not had any training.
As you say, Athlete’s Foot is a huge franchise, and they’ve put a lot of money into this training. It’s almost like a scientific process that they go through. Which, a lot of franchises are. It is a huge and fascinating subject. I love looking into franchises for that, to learn about their processes from that point of view.
But back at the simple end of things, a lot of people, their reflex is to say, can I help you? And a lot of customers’ reflexes is to say, no, I’m just looking. So, yeah, breaking through that, jarring these people awake, with something that’s not, can I help you? Not a yes or no question, and that is more open, that is more friendly, less sales-y, is a great thing.
Pete: Another really quick example comes from Fleur and her work in the retail cosmetics space. Being a sales manager for a cosmetic company, for Benefit Cosmetics and things like that. They have the Magic Formula, which is their process. And this is an underlying theme. All these great businesses, they have a formula they teach their staff.
There’s the greet and seat rules at Athlete’s Foot, there’s the Magic Formula at Benefit Cosmetics. All these franchises have a formula for taking that foot traffic, making opt-ins, and making conversions. Anybody in the retail space needs to put that in place for their staff.
Their idea is to get people down to give them a free makeover. I think every female in the world understands how the cosmetics floor at major department stores work. The whole opt-in is to get them to sit down and try on the makeup. So, while they’re trying on the makeup, they can move the person to the next step, which is conversion. Once the person’s sitting down, trying on shoes, you now have them in that conversion process.
Dom: Cool. So, what are your tips for conversion in a retail space?
Pete: I think it’s fundamentally sales training. There’s a whole different thing, and we could do a whole series of shows. There’s a number of shows. The Advanced Selling Podcast is a great one, which I know listens to our show. Members of our communities listen to their show as well, which is really cool.
Those shows can teach you how to teach your team to sell. So it’s just sales conversion in general, by asking the right questions, future-pacing the sale. Things like, “Have you got any big events coming up,” if you’re in the makeup space, and go, “Oh, this would look brilliant with that dress.”
Or get them talking about things they’re coming up where they need makeup, and you can then help future-pace the idea of wearing this brand at that function, getting them to picture that. Maybe they’re a runner, and you’re saying, “Got any races coming up? Awesome. These shoes will be great. There’s no wearing time needed, and it’ll allow you to do this and enjoy the race better.”
Maybe someone comes into the outdoor retail store, or the gear store we’ve got. It’s all about, “When’s your next climb? What are you doing? Do you want make that climb more fun? When’s your next hike? Do you want to not get as wet and buy this jacket? Or do you want to not get lost and buy this compass?”
It’s those questions that understand where they’re going next. Once you’ve got them engaged from the opt-in, how do you then understand where they’re going next? You can position your products in a future-paced way, so they’re already picturing what we’re going to do with that product, so it’s much easier to sell.
Dom: Yeah. I remember the first time that you talked to me about future-pacing, and it was a bit of a revelation for me. As you say, there’s a whole series of podcasts about that. But fundamentally, I totally agree that, just in the same as we’ve talked before about paying attention to how the bigger franchises are doing things.
One of the things that they have done is they’ve studied. They’ve either studied the numbers or the science of doing this, and they’ve got it down to a fine art, but it’s about focusing and learning about how to do things. I was listening to something you recommended to me recently.
It was an info product by Brian Tracy about learning, his Accelerated Learning Techniques course. He says, in there, if you want to do better at something, the first thing you have to do is commit to learn about doing it. So few people think like that. So few people go, “Oh, I wish my conversions were better. I’d better learn about selling.” But it’s that fundamental, it really is.
Sales training for yourself, learning about selling, and the resources that you mentioned, the podcasts, there’s lots of information out there now for free or very low investment that people can do to either, for themselves, learn about selling, or to help train their own team. Because that’s the root of conversion, isn’t it? In a retail space, it’s an active participation sales cycle.
Pete: Yup, absolutely. So, once you’ve got the conversion stuff now, you’re increasing your net through these systems by 10% on a regular basis, you want to move on to the average item value. Now the prices you sell your products and items for is a very direct and obvious correlation to the profit that the business makes, so you want to be trying to increase your products by 10%.
One way is if you have better-trained salespeople that are doing better conversion engagement and better general conversion (opt-in engagement and conversion), you can most likely increase your prices by 10% with no real drop in anything. Just because of the increased skill level, the attempt to bring to the actual conversation an interaction.
I often suggest have that price point a little bit higher than what most of the people are. If you’re really a bit reluctant to do that, then it’s all about this actual sales process. During the conversion process when you’re telling them to buy a product, give them options.
Give them the option that they ask for, and then give them an option that’s 10% higher. There’s always going to be a premium product. There’s always going to be something at a higher price point which is a little bit better than you can sell them. They come in looking for a harness, and you say, “Here’s our option, but here’s the better option for you to consider.”
We went through this recently with the whole baby stuff, with the new little baby boy coming on in a couple of weeks’ time, which is so exciting. But these baby stuff shops, they have you by the short and curlies. You go in there; and we were looking for car seats recently.
Amongst everything else you have to buy when the baby comes along that they use for six weeks, and then they grow out of anything, anyway. With the baby seat, we were asking questions and what about this. She’s like, “Oh, that’s a wonderful model and it does this, this, and this.
But if you want the best for your child, I would go this way.” I just wanted to applaud this woman and go, that is the best sales line I ever heard. If you want the best for your child. Like, how can you say, “I love him but not that much.” As if you can say no to that.
It was a brilliant use of marketing, and they just have you. That’s just their standard line. I think that is their tattooed line that every staff member has to use: if you want the best for your child, if you want the best for your child. Because no parent in their right mind, unless it’s got a crazy budget restriction, is going to go, “Well, no, I don’t want the best for my child.”
So that’s something that you can use as part of mixing the conversion. It’s a sales technique, but it’s also using it in a way to increase the price of the items people are buying from you. You’re taking that person who wants to buy that Product A, and you’re taking them that little bit further, that 10% more, to Level B.
I think real estate agents know this. And so many industries that have a bit of a harder-edge sales approach know that 95% of people, when they come in and mention their budget, it’s 10% lower than they’re willing to go. That’s just human nature.
It’s just a fact of trial and studies, and examples that have been used in so many of the industries there. People just naturally try and save money, which is fine, and I completely understand it. As a consumer, that’s your goal, obviously. But as a retailer, what you’re trying to do is have them go up that little bit next to that next level, get a better product, get a better experience.
As you should know, by selling good-quality products, that next level up is always going to give that person a better result long term. Because with higher prices should come better results, better services, better products, longer-lasting products. Taking that to the next step is giving them the better result.
Which means, in the long run, they’ll remember that experience from using their product over and over again, the natural price they paid for in six months’ time when they want to purchase again, or repeat and buy something else.
Dom: Good point, good point. So the next one, if you were to ask anybody, whether they’re a retail store owner or just a customer of a retail store, I think most people could give an idea about how you would increase the average items per sale.
Pete: Oh, upsell? Would you like fries with that?
Dom: Yes. That is probably the most famous upsell in history of retail.
Pete: Yeah. The thing that I learned at Athlete’s Foot which wasn’t obvious to me, and I hadn’t really seen spoken about too much more, is the type of upsell you want to do. Most people, when I talk about upsell, it’s like another product. So I’m going to sell you a pair of running shoes, and I’m going to try and sell you a second pair of running shoes.
Or I’m going to sell you a pair of running shoes, and try and sell you a pair of socks, which is a complementary product. I’m going to sell you a rock-climbing harness, I’m going to try to sell you some carabiners and some rope at the same time, for example.
But what we found at Athlete’s Foot that converted a lot better than upsell — because the issue is, if you’re trying to sell them something different, they didn’t come into the store to buy socks. They didn’t come into the store to buy a climbing rope.
They came into the store to buy a harness. They came into the store to buy a backpack, not a tent. So the whole idea is that you want try and sell something to maintain and get better value from the core product they purchased.
Dom: Ooh, I like it.
Pete: So what they’re doing is that they’re in there to buy a pair of shoes. Now if they’re going to be spending $150 on a pair of shoes, you want to make sure they get the most value from that pair of shoes.
By upselling them a cleaning product, like a shoe cleaner, or a second pair of insoles that they can swap over after every run, which helps the longevity of your pair of shoes, those things are much easier to sell because it’s helping them preserve the value of the initial sale or initial purchase.
It’s not something completely different that they’ll think about. Now cross-sells work. We sell them a pair of socks or whatever it might be. That definitely works. But something that does convert a little better is a maintenance-based product. So, if you’re selling (I don’t even know the actual space that well yet) climbing harnesses, maybe there’s a special cleaner that you can do.
We recently bought a barbecue for the new house because we’ve moved and things like that, so now I have a back yard. I’ve been living in beautiful apartments, now I’ve got a backyard, which is great. So I’m going to get a barbecue, and I can do the good old Aussie barbecue thing and throw a shrimp on it.
As part of that, we bought a barbecue. The guy, what he sold me was the maintenance stuff. He didn’t sell me, necessarily, like the wok burner on the side, or other bits and pieces like an outdoor seating. Barbeques Galore, where we purchased it from, have outdoor seating.
They have a whole bunch of other outdoor living stuff that relates to barbecues. What he sold me was the maintenance stuff — the cleaner, and the griddle that you put underneath the barbecue in the tray to catch all the dripping fat and stuff like that.
His argument was, “Don’t use kitty litter like most people do because it’s cheaper. Kitty litter now has paper in it, which is flammable. Buy this stuff because it’s going to be less flammable, and it’s going to preserve your barbecue longer.” So what do I do? I purchased the cross-sell, or the upsell.
Dom: It was the thing that won’t set fire to your barbecue.
Pete: Exactly. It’s going to maintain my barbecue. That’s a big thing when it comes to upsells. You’re much better off testing, and possibly getting much better results, by upselling and cross-selling a maintenance-based offer as opposed to a supplementary or similar or complementary product.
Dom: I really like that. The complementary product is the standard sell. Would you like fries with that? But yeah, in so many different trades and types of retail store and types of retail item, that the maintenance is available. The maintenance object, the maintenance-compatible sale is available.
Random thing off the top of my head: my coffee machine. I have an espresso machine. Because of the level of the machine, they give you a little sachet of descaler cleaner for it. But they just give you the one, which is a great little hidden message that you need to go and buy some more.
But that’s something you could easily drop in this. There’s lots of examples on that thing. And yes, it’s securing the longevity of the product you just invested in. So, as a purchaser of these items, it’s a much easier thing, as you see. A lot of people go out with a single item in their mind. I want this.
And if somebody says, do you want this, as well? And it’s socks with your running shoes, you’re going to go, “No, thanks, I’ve got socks at home.” It’s easy for people to say, no, I don’t want that thing because I may already have one of those. But when it’s a maintenance thing, and I love that thing [you just mentioned].
Clearly, I’m clueless about the footwear world because I had no idea about this idea of alternating the insoles. You, being the grand athlete that you are, it’s part of your lifestyle. But, yeah, even the novelty of that, in a way, coming to somebody and saying, “Hey, you bought these shoes.”
Coming to the client and saying, “Did you know, for an extra few dollars, you can extend the life of your surprisingly more expensive shoe quite significantly.” Well, that’s a no-brainer. Sure, I’ll buy that. I’ll take that. Great. So that’s a great tip.
Pete: Cool. So let’s jump on to the sixth lever. So the sixth lever, the sixth thing you want to be focusing on in your business — and, hopefully, people by now are seeing that we typically talk about implementing these 7 Levers over a seven-month or a seven-week process; but if you are diligent and efficient, you could go and put all these things in place in about two days that we’ve spoken about so far.
Obviously, it takes time to imagine, maintain and ensure your team do all this stuff. But to go about putting these processes in place that will obviously instigate this 10% increase is not that hard to do. As you do this the seventh time around or the eighth time around; I did the math the other day, I think it was eight or nine times.
If you go through the 7 Levers and increase every lever by 10% eight times in a row, you end up going from a $12-a-day profit to a one-million-dollar-a-year profit. It’s just insane, the growth you can get. So when you get to the nth degree, it’s harder to find things that can increase 10%.
But for most people, there’s at least five or six things you can do very, very easily, very quickly, for each one of these levers. But when it comes to the sixth lever, this is the transactions per customer per period. Now, if we’re doing this math over an annual period or a monthly period, then it’s all about how many times that person buys inside that period.
You’re in a retail store in the footwear world. Unless you’re looking at families to buy for their kids, you might look at the quarterly basis or a monthly basis. You will generally look at this over an annualized area because people only buy a pair of running shoes maybe twice a year if they’re diligent.
But in the outdoor world where we sell outdoors, one of the appealing things about this space is that we’re going to be doing rock climbing. There’s harnesses, and carabiners, and ropes, and blah blah blah. There’s a lot of different stuff to buy on a regular basis. It’s not a consumption thing like a supermarket.
But like golf and triathlon, there’s a lot of different things people continually purchase because there are so many other areas of the sport or the activity that needs or has options to spend money on. The whole idea here is to get people to come back more regularly and buy more stuff from us. Pretty obvious.
I think the easiest thing is to give people the option to go on your VIP membership list. Maybe you can say, if you’re in a particular sport; let’s say you have a makeup store, that’s your retail store. What you can do is you can say, we’ve got a seven-part course on how to do your makeup, how to do smokey eyes, and how to do good blushes, and how to highlight your cheekbones.
You can say, “Do you want to join our VIP club, and we can send you those seven videos via e-mail?” It’s a great offer. This is how you can use information-based marketing in retail stores. So you’re now getting that person’s e-mail address in exchange for this seven-video series.
Now that point means you have their contact details. You can market to them with additional offers, and upsells, and back-end purchases. You can remind people to, say, have something similar in a footwear world to, “You bought your running shoes 180 days ago.
By now, most of you are probably getting to the stage where the shoe is starting to wear out. You may not feel it, but it’s sending shock up your leg and it’s causing issues for your knees and your hips. You might want to come back in and have a chat about getting another pair of shoes. And if you do, we’ll give you a bonus, or an incentive, or an offer to come back in.”
You’ve got to figure out some way that you can grab those customers’ details so you have a chance to market to them again. You can’t just rely on your advertising for them to see you again and get reminded. You have to, once that you’ve got that person in your ‘web,’ have a system in place to catch their details, and then communicate with them to get them to come back.
Dom: Absolutely. It’s one of those silly little things, but people see marketing messages all day, every day. And if they don’t see yours, they’re going to see someone else’s. So getting them to come back to transact with you is not a passive thing, in my mind. It’s something you should take an active part in.
Getting them on your VIP list, getting their permission to speak to them again, just to remind them. And, again, it’s like with the insole thing. You are educating them that that spare insole will extend the life of the shoe. Going back to something after 180 days and saying, “There’s going to be some deterioration.”
Or, this might have happened, or that might have happened. “Do you want to come in and get a checkup?” You’re educating the client again in one way or another. You’re building that relationship with them. It’s not just a push. It’s not, “You can buy my stuff.”
Pete: Exactly, exactly.
Dom: Cool. Well, let’s go for the big number seven, the big one, which is margins.
Pete: Margins. It’s a very big driver of profit. Your direct costs, your overheads play a big part, and what is left at the end of the day in your back pocket. Now negotiating with your supplier; and this is something that I find very strange, is that so many people take the price and the prices for granted.
They don’t think about the volume discounts or anything like that, when you start hitting certain volumes of revenue, that you should be negotiating better prices. And I think, most people, if you do just ask the question firmly and use your sales skills that you learned when you’re learning how to convert your sales prospects into this margin play, you could start dropping your prices based on margin.
Now the first six levers are designed to increase your revenue and your turnover. The more sales you do, the easier it is to decrease your prices, decrease your cost prices. So, funnily enough, if you do the first six right, the seventh one, increasing your margins, is relatively easy by just asking a question off the back of your increased revenue.
Dom: Okay. I think the asking for discount, isn’t that a little bit icky? Don’t you find that a bit icky?
Pete: No, I don’t think so. If you’re going to the supermarket and trying to save two dollars on your loaf of bread, that’s a bit icky. But when you have a relationship with a wholesaler and all they literally do for you is put items in a box and ship them to you, wholesalers are one of the best businesses.
They’re selling their shovels to the miners, they’re not really having to do a lot. They’re making money time and time again because it’s like — think about it from their perspective. They’re getting repeat business on a monthly basis. Every time you do a new order, you are a repeat client.
You are giving them more transactions per period. So for them, they’re not having to even market to you. They’re not having to come to you, approach you and say, “Hey, come over to our store and buy this other thing.” You need them to facilitate your clients’ wishes and your clients’ orders.
So, the more you do through them, the less their cost is per sale because they’re not having to worry about marketing and sales, and getting reps out there. You’re just ordering regularly based on the volume you’re doing. There’s huge economies of scale for them, so why should they get all that love? Why don’t you share in that economy of scale, as well?
Dom: I see now. That’s a good perspective. That’s one of the things that I like about when you get involved in these discussions, is that you have some touch of a perspective that helps people understand. Because a lot of people don’t see it that way. They go, “Oh, but they’re the supplier. They gave me a price, that’s what I need to pay.”
And yet, if you understand it, as you say, flip it around. Their cost of sale — every time you go back to them, they’re not marketing to you, they’re not paying to market to you. They’ve got you as a client. They’re not investing in you as a client, investing in more marketing, or anything like that.
If you are, just as you say, growing your order each time because you’ve applied these six other levers, and you’re selling more, you’re ordering more from them, then they are literally directly benefiting.
Pete: Their stock’s turning over quicker in their warehouse, which is much more cost-effective and profitable for them. Their staff is packing more items per box, which is more profitable for them. There’s so many economies of scale for the supplier. Why should they benefit in that?
Dom: Yeah, why should they be the only people to benefit? There’s definitely some wiggle room, or some negotiation that you can do. The reason why I brought it up, and the reason why — because I think so many people have this issue in negotiation.
And maybe, again, we probably could come up with five or six different episode ideas here, but I do think negotiation is an interesting one, if you’d have any input on that for a future episode.
Dom: Cool. Go ahead.
Pete: Absolutely, we’ll definitely do something about negotiation at one point, even get some guests on that we can talk to who are much better negotiators than I am, and they can share their examples.
Dom: Even better, even better. So, folks, that’s ‘if was a retail store owner,’ or in the case of Pete, Pete is a retail store owner, and some examples following the 7 Levers of Business of how you can apply some very, very simple techniques to improve each one of the 7 Levers by 10%, and therefore improve your profit 10% at a time.
So that cumulatively, if you get the 10% on each one of those over, say, a seven-week period where you try one at a time, one week at a time, you’ll double the profit in your business. It’s not about hitting the 10%, or you failed. A small percentage is still an improvement, and you will still go cumulatively through this list.
You can still see great returns. You may not see double in your profit, but you’ll see a great return just by applying a small amount of effort and letting that cumulative nature kick in. So, Pete, that was great. As always, I learned something. And, folks at home, I hope you learned something.
We would appreciate your feedback, especially on this new theme that we’ve brought up, this If I Was theme. We got a lot of great feedback about the 7 Levers, as we always do. Everybody that comes across that always gives us some great feedback.
The 7 Levers Calculator too that one of our listeners put together has got a bit of traffic since the last episode. So if you want to give us some feedback, there’s lots of different ways that you can reach us. Our favorite is always an iTunes Store comment.
We do like our iTunes Store comments, if you’re a subscriber through iTunes to the podcast. But you may come to the podcast through lots of channels. We’ve got the PreneurMedia.tv site, which is where all the podcasts live. All the episodes are there, plus all the show notes, and the transcripts, and even little videos to go along with them are there.
You can even comment about each episode if you want to reach us there. There’s also a feedback, generic feedback mechanism, on PreneurMedia.tv. You can just leave us a general comment. And we’re now published as part of Anthill Magazine and Anthill Online. So if you’re listening to us on the Anthill site, please leave a comment there.
Let us and James know about what you think about the show. You can also follow us on Twitter. Pete is @preneur and I am currently @dgoucher. We do love your comments, however they get to us. We love your feedback, and we take it on board, so thank you if you wouldn’t mind.
Pete: Awesome, guys, another good show, and news, coming after Christmas. Is it Christmas, or I’ve given the cat out of the bag? Long-term listeners know we do record this a couple of weeks in advance to make sure we get this all done. Not quite Christmas yet, is it, in this case?
Dom: You’re just wishing the weeks away, Pete. You’re just wishing the weeks away.
Pete: I want Santa to come.
Dom: Yeah. No, it’s not quite Christmas yet. We have a few episodes left, folks. So we’ll see you next week.
Pete: See you, guys.
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