15. Back End. The Value Grid. | $100M Lost Chapters Audiobook
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What is the value grid in business?
Back end, the value grid. The business owner who makes his customer more valuable to his business than to that of his competition wins. This is my rephrasing of Dan Kennedy's quote, Hugh can spend the most to acquire a customer, wins. Lost chapter, author note. This chapter felt too conceptual. I like it a lot. It's how I actually think about increasing LTV, which is so important for getting customers. But alas, I didn't think people needed to understand it, so I cut it from the $100 million offers book.
Winter of 2019. Wait, so you sell twice as many people as I do every month, but you make 56 times more profit than me. Yeah, seems like it. Holy cow. So I just need to focus on making more per customer.
I don't need to get more clients at all. Correct. This exchange happened on a $50,000 consulting day that I had with someone in my space. They were on pace for $3 million per year in their business.
How can a business owner increase customer lifetime value?
It was profitable and they were making money, but they were having trouble scaling. When they came out to my office, they expected the conversation was going to be about marketing and ads. But after quickly reviewing their numbers, I saw that they were doing fine on that front. The issue was, they just didn't make enough per customer. They had one offer that wasn't irresistible and had no upsell or continuity. So it cost them about 50% more to acquire other customers than it cost me. On top of that, I made 10 times more than they did on the same customer, literally. And how we did it is the process I'm going to share with you right now. LTGP, like I've said earlier, is the arms race of business. The higher you can get that number, the more untouchable you become.
The higher that number is, the more damage you can inflict on your competition. You can eventually starve them out of the marketplace. This is why becoming a world-class marketer is so important. You can make a product as good as you want, but if you can't outspend your competition, your competition will steal your product and your potential customers. Let me give you an example. If you can pay 10 times more to a car customer than your competition can, you can decide to increase your spending budget such that you compete against yourself until you raise the bar so that no one else can buy ads in your niche. What this means. If you can claim the throne, you can make yourself virtually unbeatable. You can suck up the entire marketplace and make it very difficult for new people to enter.
This is similar to a monopoly, except it's legal. It's the opposite of predatory pricing, where people lower their price to force people to operate unprofitably. We're actually taking the opposite strategy of providing more value and raising our prices to make so much money that we can afford to be less efficient. As you do this, you continue to increase your market share, increase how much you make, and add more upsells to increase your lifetime value. When someone new comes in, they would either need to have capital to burn to try to catch up with you or an entirely new way to monetize the customers to beat you. I'm not going to get into the many, many, many, many, many ways to increase lifetime value.
What lessons can be learned from a $50,000 consulting day?
That will be the subject of a future book that I haven't written yet. What I am going to do, however, is simply focus on one of the simplest ways to multiply your lifetime value, aka stacking offers. Many people think of increasing a customer's lifetime value in sequence or stair steps. A customer comes in at the bottom or halfway, then ascends up. I think this is a very good way of getting people to think about their business in terms of how to increase the value you provide. Although it's a useful visual aid, a sequence or stair step fails to take into account a key point. Not all customers follow it. So I think of it more as a grid for two primary reasons. First, with a stair-step, the visual depiction makes your brain think that all customers must buy the first in order to buy the second.
It depicts the relationship as linear. This has not been my experience.
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