Sell to richer customers and rewrite what you measure

1. Where the tactics start

What follows is tactics. It starts with the customer you aim at (the avatar), what you say to them, and how your ads find them, taken together. The offer comes after, in section 10.

2. The small-agency trap

This is a core problem that many owners probably have. The most classic example is the social media marketing agency, one of the easiest kinds of business to set up. The pattern:

• Most such agencies are started by young people who have learned to buy ads on Facebook, on Google search or the like. They are told to pick a niche, and they sign clients they generate leads for, usually at $1,000 to $3,000 a month.
• At that price they can usually reach $1 million to $5 million, and there they stall, finding it very hard to grow past that.
• The cause is churn. The bigger they get, the more churn takes out, so they have to keep selling more and more new clients.
• Selling more and more is hard, because they have no reputation behind them. They have none because clients do not stay long, and clients do not stay long because small business owners are, in the view here, inherently volatile.
• A small client wants the agency to do everything, having no idea how to do any of it. A larger one already has proven offers, good metrics and a sales process that works.

Some games, in this view, are in a way unwinnable. You can grind your way to $1 million to $3 million a year, or $4 million, "whatever", and watch your margins shrink along the way.

What the owner does next. Stuck at that level, the owner puts the price up on clients who cannot afford it. That lifts churn but brings cash in sooner, and it is usually how it ends. The real point is missed: the agency has the wrong buyer. A small business that will stay is not matched to that price. Their swings become your swings. If your own business feels unsteady, that is because theirs does; they will cancel after a bad month, whatever you did for them.

Checking that the people with the problem can pay for the fix, before you choose a group at all, is one of the checks on SOP 1 — Pick the market before the offer, section 2. How a price change moves churn is taken up on SOP 138 — Keep value above price to hold customers, section 3.

3. The way out: a better customer, or a far lower price

Pick a better customer. To fix the business, if that is what you want, you must find a better customer.

Or cut the price a long way. The other route is a steep cut in price, down to roughly $300 to $400 monthly. That is reportedly around the level at which a small business will keep paying for something it feels it ought to do, and not cancel. For work like search engine optimization or map rankings, and the like, small businesses will usually tolerate $300 to $400 monthly, sometimes up to $500, and keep paying it for roughly 30 to 40 months.

So lifetime value at that price is sometimes very high; it simply takes longer to build. Sales velocity is usually high at that price as well, because referrals run higher and the sale is easy to make on the buyer's first decision. What sales velocity does to the revenue you can reach is the subject of SOP 223 — Read the revenue ceiling off sales velocity.

4. A few buyers at a high price, or everyone at no extra cost

The preference here is a business at one end or the other, not in between. At one end, a small number of wealthy buyers pay a great deal. At the other, what you sell scales completely, so it can go to many buyers who have little to spend. If something truly scales that far, by all means sell it to everyone.

Selling to fewer people keeps coming up because growth has operational limits: managing a large number of customers is a lot of work. Higher-end customers are easier to serve, and they pay you more for the same thing. That leaves more gross margin, and gross margin is what you use to grow the business.

Most of you have people doing the work because you sell services. Since technology cannot bring your costs down to nothing, you head in the opposite direction and compete on what each customer is worth to you. The contest over what a customer is worth, and why a business with people in delivery ends up in it, is laid out on SOP 225 — Pick your war and check lifetime value is the constraint, section 3.

5. What makes a business valuable

Selling to fewer people does not lower what the business is worth. Nothing makes a business valuable, or not, by its nature. What gives it value is three things, named together: revenue retention, growth and gross margin. A company whose customers stay, which earns plenty of gross margin and grows fast, is valuable, and whether it has 1,000 customers or 100 does not change that.

Key-customer risk. A qualification: having only three customers is not what you want. Given the choice between a customer you can charge 10 times as much and one you charge 1x, try to build the whole business around the first kind. Granted, you will not sell more of them in absolute numbers, but the business should rest on them. The goal is not two whales, the word here for such customers, but 20 or 50, so the business is not exposed to key-customer risk, which then adds risk to the business as a whole.

6. Speak only to the best group, and turn the rest away

With a better customer, a better avatar, in place, your messaging has to be clear. Find the group worth the most to you and speak to them alone.

Be willing to say no. Turn away bad customers, or you drive off the ones with the most money. This is called super real, and people, it is said, will not do it. Small businesses stay small, in the view here, because they will not give up money today to collect more tomorrow; their staying small, and staying poor, is put down to that.

An unnamed case. In one example, some capable owners said later that they had stayed out of something offered to them because it had no revenue requirement. Because nothing checked revenue, some strong candidates decided against joining. Willingness to say no is the point. Put another way, want 30 whales rather than 3,000 minnows.

Setting a bar that people must clear before they reach you, and why whoever lets them in shares the blame, is SOP 208 — Set prerequisites, raise lead quality and add friction, sections 2 to 4. Asking screening questions at intake is sections 6 and 7 of SOP 219 — Find the right customers, screen for them and capture data. The organic version of the same aim, content made for the buyers you want, is SOP 216, section 2.

Prices rise with the customer. If you sell to a pricier customer, every price rises.

6.1 Flag: a prospect you would rather not take

• This page: turn bad customers away, or the richest ones are driven off.
• SOP 98, section 4: as long as a person has the problem you solve, try to close them.

They give different instructions for a prospect who has the problem but is not the customer you want. Turning them away gives up money today to keep the richest customers; closing them gives reps practice and some sales now. This page does not settle which reading is right.

7. Aim the targeting at the same people

Targeting has to mirror the avatar. If you know which buyer you are going after, and the messaging fits that buyer, the targeting should go and find people like them. Part of that is the offer: some offers bring in higher-quality customers than others, absolutely.

In one case, campaigns optimized for purchases were run against campaigns optimized for opt-ins, with a gap in return on ad spend between the two. Which side came out ahead: Not established on this page. Campaigns split that way are on SOP 213 — Fix ad targeting and bid for return, not cheap leads, section 8.

8. Going up market means new metrics

Say you decide you have been stuck at one level and want to make more money. In the example, 20 percent of your customers are worth far more, and you want a business built entirely from customers like them. Good, but here is what it takes: moving up market means being prepared to rewrite every metric you track and, in a way, retrain how you think.

An illustration. You are used to leads at $5 for a $100 product. Now you start selling a $1,000 or a $5,000 product, run your ads, and find each lead costs $10, and the reaction is alarm. You cannot simply expect the old numbers to hold: every metric needs rewriting. It was never about cost per click, cost per lead or cost per call. It is about return on ad spend and lifetime value against acquisition cost.

Many people love the idea. Some of you will set out to sell more expensive things to richer people because you see that customers are fractal, and that, as put here, 4 percent of your customers could bring in 50 percent of your profit. Most people love the idea, then watch their lead cost double, and quit. So optimize for return on ad spend, or for lifetime value against acquisition cost, and not for what a click, a lead or a call costs.

Rebuilding a customer base around the part of it worth the most is SOP 219, section 2. For tiers built on that fractal pattern, turn to SOP 224 — Set fractal price tiers and read price off the close rate. Rules of thumb on paying more per lead for a better return, with a table, are SOP 213, section 6, and a cost-against-return table for moving up to a better avatar is SOP 197 — Solve a leads, sales or profit-per-customer problem, section 2.3.

9. Score the leads you already hold

A tip. If you ever gather home addresses from people, scoring your leads becomes possible: look each address up on Zillow to see what the home is worth. It is a neat way to go back through leads you already have if you did not gather complete data at the time, and it works especially well for e-commerce.

One use is to upload those lists of buyers again as look-alike audiences, for better targeting. The other is to move them up in your own lead scoring, if you have an in-house system that scores and sorts leads.

The look-alike ladder, rung by rung, is on SOP 213, section 5. Scoring leads and sending the best to your best closers is SOP 84 — Score and route inbound leads.

10. The offer, and the lead magnet, decide the lead

With the customer, the messaging and the targeting settled, next comes the offer. The offer affects everything: what you sell, the leads, lifetime value. It is, arguably, the most important part of building lifetime value.

A new magnet, a new lead. Right now you might be giving away a lead magnet or some other free thing. Changing the lead magnet commonly changes the lead. Think of fishing: go after bigger fish and the bait has to change. You cannot keep your marketing as it is and then sell only to the richer group; how you market, and what you market, both have to change.

Judge a high-friction magnet by lead quality. A lead magnet with a lot of friction, made for one kind of avatar, should be expected to bring a higher cost per lead, and that should make sense. What should tell you it is a good lead magnet is a high share of marketing-qualified leads.

Choosing and building a lead magnet is SOP 13 — Choose and build a lead magnet. The lead magnet as one bucket among the ways of getting leads is SOP 209, section 4. Adding friction when it pushes the cost of each lead up is SOP 208, section 8.

11. What this page does not decide for you

• A low price for other buyers. The $300 to $400 range, and sometimes up to $500, is given for small businesses paying for something they feel they ought to do, such as ranking work. This page gives no figure for other buyers.
• How many large customers are enough. 20 or 50 are named. Whether either is a threshold: Not established on this page.
• The 4 percent and 50 percent pair. Said here, with "could". How it is reached: Not established on this page.
• A high share of marketing-qualified leads. This page gives no figure for the share.

12. The checklist

Step	What to do
1	If churn is eating your growth, ask whether you are selling to the wrong customer
2	Choose a better customer, or cut the price far enough that small buyers keep paying (the range given for small businesses: roughly $300 to $400 a month)
3	Aim to build the business around the customers you can charge most, with enough of them to avoid key-customer risk
4	Speak only to the group worth the most, and be willing to say no to the rest
5	Point the targeting at the same people the messaging speaks to
6	Going up market, judge by return on ad spend and lifetime value against acquisition cost, not by what a click, lead or call costs
7	If you hold addresses, score leads by home value; use the buyers for look-alike audiences or in your lead scoring
8	Swap the lead magnet when you want a different lead; judge a high-friction magnet by its share of marketing-qualified leads

13. What this page does not cover

Loss leaders, bonuses and the other parts of an offer are not covered on this page.