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Your Business is a Layer Cake

Posted by David Thiemecke on 6/14/17 7:03 AM

What's the difference between one-time customers, repeat customers, and recurring customers? If you say, "None, I'd take all three," are you really thinking about where you spend your time? 

Mmmmmm, your business is like a layer cake. You bake one every month.

Imagine your customer base as a layer-cake. Each layer has money you earn from customers by how they make buying-decisions with you.

  • Bottom Layer: Contains all the money you earn from customers with recurring business, like service agreements. This is predictable, repeatable business secured by a contract of some kind. The customer agrees to buy from you over time.
  • Middle Layer: Made of money from customers who've called you repeatedly over time. They could have bought several furnaces from you for the same property, for different properties, or bought a mix of installs, services, and maintanence. The point is that they could have chosen a different contractor every time, but they chose you. You probably have a relationship.
  • Top Layer: Revenue from customers who've called you just once. They might be brand new and haven't had time yet to buy again from anyone. They might go with you next time, or they might not.

 

The layers stay the same no matter how often your customer buys. Home cleaning, landscaping, pet-walking, and multi-tenant contractors probably visit their bottom and middle-layer customers weekly. For HVAC and plumbing contractors, you may visit quarterly and annually. If you're a septic system contractor, it might be every 3 to 5 years. You still have a portion of your customers who buy more than once, and they have reasons why.

How tall is your cake?

Now, let's say that you bake a cake every month -- that's all the money your firm earns. You take out a pan that holds enough cake to (money) to cover your overhead and the direct costs worked. How much of the cake fits in the pan? If the whole bottom layer of recurring customers is taller than the sides of the pan, then you can be pretty confident even before the month starts that you'll be in business at the end of the month.

Recurring and repeat business is fantastic because your shop doesn't have to make any more sales to stay afloat. You've got dependable for cashflow, perfectable execution, and sources of strong recommendations and reviews from those customers who like you enough to say yes into the future. 

By the way, don't confuse recurring and repeat business with seasonal work, which often comes from new customers. With recurring and repeat business you can predict demand in advance. This seasonal stuff just seems crammed and exhausting because you couldn't plan for it, so it must come from new customers.

Is a cake just a recipe?

Ideally, bake the bottom layer first. It's the bedrock on which you build your business. Gather all of the recurring jobs that you can fit in your sales efforts every day.

Next, go after the middle layer by treating customers well and staying top-of-mind when they're likely to buy again. If you don't know who's likely to buy again, you'll have to advertise to all your existing customers. But with a little record-keeping, you can tell whose equipment is at end-of-life, who doesn't use your routine maintenance, who probably could buy something that complements what you did for them, and so on. In fact, a service like Customer Lobby can mine your invoices to figure out who's likely to buy every month.

Now let's talk about the top layer, a party made of new customers. Early on, you'll probably take jobs from new customers that barely make sense, just to cover your overhead. With a sharp eye and hard work, you'll move the right ones down into the middle and bottom layers. When your bottom and middle layers cover your overhead and all their direct costs (with a tidy profit ideally), then you can do something magical for the top layer: take business from your competition.

How? You can price jobs just on direct materials, labor, and profit, ignoring overhead since you already covered that this month. You'll still give quality service, but now you can offer discounts for first-timers safely. Your good reputation, developed with a partner like RevuKangaroo, plus good entry pricing makes a potent offer.

But I don't have time to bake!

When you have an hour to spend on selling and you have three kinds of customers to sell to, work them in this order:

  1. Bottom-Layer Recurring Customers
  2. Middle-Layer Repeat Customers
  3. Top-Layer New Customer

 

When you first start, you may not have the luxury of choosing which opportunities to work -- they're all top-layer new customers. When you're at the customer's home, look for ways to turn them into middle-layer repeat customers. Ask the homeowner about what you see after you solve the problem-at-hand, honoring them by making the decision theirs. Mark that "other stuff" down in your work order management software like Field Nimble so you can quickly bring up call lists later. Bring service agreements too, and you can move them right to the bottom-layer worry-free.

Who's eating my cake?

What's that munching sound? Someone else is eating your cake -- your competitors. They'll pick-off a lot of your top-layer customers, who are starting from scratch every time they buy. They'll get fewer of your middle-layer repeat customers: the ones who had a bad experience or forgot about you. Your bottom-layer recurring customers will probably depart at the lowest rate, because you see them on a routine basis and have a chance to resolve problems as you go.

The layer cake is really about building a defendable business bottom-up. A firm like LeadsNearby can help you unpack a strategy for each layer, tell you where to start in bite-size pieces, and fit other marketing partners in the right spot.

By the way, Field Nimble already tracks top- and middle-layer customers so your marketing partners know who to target. We're adding recurring jobs soon, called contracts. That will really help you lock-in relationships.

Mmmm, Frosting

Don't forget to thank your repeat customers. If you ever sell your business, a big portion of its value comes from the predictable, repeatable revenue represented by your customers (your "book of business"). Those bottom- and middle-layer customers may be your retirement. That's really the frosting.




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