Here’s how to get consistent cash flow in your business

The number of businesses that fail within the first year or two is high. Massively high. There are many reasons for failure but one of the reasons is that the bills are consistent but the income isn’t. The income rises and falls as the business owner learns how to market, sell, and deliver their offering.

The sooner you can build your business to be consistent, the higher chance you have of beating the odds and surviving to year 3 and beyond.

So how do you get consistent cash flow in your business?

The only way to do it is to build a consistent sales funnel.

A sales funnel is the system in your business that attracts people toward you so they learn more about you and become prospects and then customers. I content that sales funnels are the most important part of your business because they’re the tool you use to get customers and make money. (I wrote an entire book on it called The Sales Funnel Bible #shameless plug)

So, how do you build a sales funnel that runs consistently?

You need clearly defined steps that are systematized (and preferably automated), and you need a way to keep prospective buyers in a holding pattern.

Let’s break that down…

CLEARLY DEFINED STEPS THAT ARE SYSTEMATIZED

Your sales funnel is made up of a series of steps. These steps are defined by the mindsets that your prospective buyers go through as they journey from “I have a problem” to “This company can help me solve my problem.” Along the way they’ll transition through mindsets like “I can live with this problem” to “I wonder if someone can help me” to “There are several companies that can help me solve this problem” and so on.

So, whether your prospective buyer has to transition through just a few steps or many steps, you need to figure out what those steps are (approximately) and then help the prospective buyer to move through them.

Once you’ve figure that out, you can systematize each step to some degree. Automation is one type of systematization but there are other ways you can systematize it — even if it’s just something as simple as writing out templates so you can customize them when a prospective buyer reaches a certain point in your sales funnel.

By systematizing, you attract people into your sales funnel and move them through with as little effort on your part as possible. (It’s a balance — you’ll want to maintain some visibility and control over the process and it might make sense to build a personal relationship with your prospective buyers. But all of this can be managed through some well-thought-out systematization).

KEEP YOUR PROSPECTIVE BUYERS IN A HOLDING PATTERN

This is the more challenging part. For consistent cash flow, you need to find a way to keep your prospective buyers in a holding pattern. By “holding pattern” I mean: you need to find a way to keep them in your sales funnel without necessarily buying from you today.

You do this through ongoing communication that adds value to them, and makes offers, and promises to add value in the future. My favorite way is to use email or print newsletters, although there are other ways to create a holding pattern.

You should do this while they are still in the Lead stage (that is: they’re learning more about your business and weighing their options). In my opinion, the Lead stage is the best stage to put people into a holding pattern because they are still seeking out information, which positions them perfectly to sign up for your newsletter or some other ongoing communication.

(If you wait until they are at the Prospect stage, they are already getting serious about buying and your newsletter will either entice them to buy right away or will push them out of your sales funnel because it seems to push them backward in your funnel).

HERE’S THE BENEFIT OF A CONSISTENT SALES FUNNEL

By building a sales funnel that systematically attracts people in and puts them into a holding pattern, you create a list of people that you can sell to very easily whenever you want to. This will have a huge impact on your business and its cash flow: An inconsistent business realizes that it needs more customers so it goes out to find them, creating an inconsistent cash flow because of the time lag between finding a customer and getting paid; A business with a consistent “holding pattern” sales funnel already has a bunch of prospective buyers in a holding pattern and can just pluck out a few from the holding pattern when more customers are needed.

Customer service and customer relationships are similar but different. Here’s why customer relationships are better…

A lot of my blog posts are just my thoughts about business; my reflections about what business could and should (and shouldn’t) be.

And lately I’ve been thinking about the difference between customer service and customer relationship.

I suspect that too many businesses think they are interchangeable. But I don’t think they are.

Customer service: I tend to think of customer service as how you handle the customer before, (but especially) during, and after the sale. In many ways, customer service is transactional; it’s built around the transaction of a purchase: A customer experiences your customer service when they interact with your business — when they try to buy something, when it gets delivered to them, when they have a problem. Let’s measure customer service this way: How easy is it for a customer to get their money back when they ask for a refund?

Customer relationship: I tend to think of customer relationship as a more interactive/intimate connectedness. It’s how much your customers think of you outside of the times when they need whatever you’re selling. Customer relationship is what you do all those other times when you’re not selling. Customer relationship is not transactional at all (although it can certainly lead to more transactions). Let’s measure customer relationship this way: When was the last time your customer invited you to a barbecue or their kid’s baseball game?

HERE’S HOW CUSTOMER SERVICE AND CUSTOMER RELATIONSHIP SHOULD PLAY OUT IN YOUR BUSINESS

You should have good customer service — of course. It should be easy and enjoyable for customers to transact with you. But too many companies brag about the quality of their customer service yet never really make it special. Worse still, they don’t realize that every other business out there is also bragging about customer service (and to a customer, it all kind of looks the same). And too many companies put too much of their focus on creating positive customer service experiences and they forget about the broader customer relationship experience.

Guess what: Your ability to deliver the product or service with a smile seems exactly the same as your competitor’s ability to deliver their product or service with a smile. Your toll-free troubleshooting line seems exactly the same as your competitors’ line. Your no-questions-asked 100% money back guarantee seems exactly the same as your competitors’ guarantee.

If you want to compete on customer service, you need to be absolutely amazing in a zany “I can’t believe they’re doing that” way. You need to give the CEO’s cell-phone that she or he answers 24 hours a day even on vacation. You need to give a 200% money back guarantee. You need to not only deliver the product with a smile, you have to also deliver another free product, set them both up, and then cook the family dinner. That is the kind of customer service that you need to offer if you are going to focus on customer service: Ridiculously crazy customer service.

But likely you won’t offer that (it’s expensive and few companies do). That’s okay because you should be doing something else instead: You should be…

BUILDING A CUSTOMER RELATIONSHIP

A customer relationship is how much your customer thinks of you when they are not buying from you. It’s how often they invite you to their spouse’s birthday party or kid’s ball game.

A customer relationship is intimate. Interactive. Mutually meaningful. Sacrificial. Generous. And it needs to expand beyond the narrow confines of the conversation about your product or service.

A customer relationship looks like this: You’re a real estate agent who sold a house to a client. You also show up to help them pack boxes and put them in the back of the truck, and you pick up the tab for pizza. You send them a newsletter every quarter that doesn’t talk very much about you and your accomplishments, or even spends a lot of time talking about new houses on the market, but rather talks about the kinds of challenges and opportunities they face in their lives — raising kids, getting promoted, saving for retirement, buying a car. You stop by their house on the anniversary of their purchase every year and give them flowers or a bottle of wine. You send them birthday cards. You pay attention to their lives and call them up when something good or something bad is going on. You share your own personal challenges and wins with them. You ask a lot of questions and you savor every answer. You ask about their kid’s baseball games and you show up and cheer.

THAT is a customer relationship.

It’s the kind of interaction businesses want (although they are too busy focusing on service to realize that they’re aiming for the wrong thing).

It’s also the long game with a higher up-front cost but a very significant long-term pay-off.

Confession time. As I write this, I think of my customers and my brands. Do I have this in any of my brands? Absolutely not. I know a few things about my customers — important hobbies or spouse’s name or the number of kids… maybe. But I don’t do anything to build the relationship. So don’t read this blog post as someone who has it all together and is now meting out wisdom from atop a mountain. I’m an amateur who is chewing through my own thoughts and sharing a major failing with you.

On that note, I think I’ll sit down right now and chart out some changes in my business. I hope you’ll do the same in yours.

Small business strategy question: What causes you to lose a sale?

This blog post is part of a series on 100 small business strategy questions that an entrepreneur can ask themselves to help them grow their business profitably. Click the link above for the master list of 100 questions and find the growing series of blog posts discussing each question.

WHY IS A SALES LOST?

When a sale is made, you can break out the champagne and celebrate! Money has come into the business to pay for its operation (and hopefully to put a little into your pocket too). And wise businesses dissect those sales successes over and over to help understand the elements that came together to make it successful.

But not every prospect interaction ends in a sale. Many (perhaps most!) end up without a sale. The smartest businesses take time to dissect THOSE “failures” as well. (I use the term “failures” here very loosely because not every lost sale is a failure. I just used it to mean the times when a sale doesn’t occur).

Here are some ways you can dissect why sales weren’t made:

  1. Take a sampling of prospective buyers from a previous period of time. For example, examine all lost sales in the last month or examine the last 10 prospective buyers who didn’t buy. You need to either do this on an ongoing basis and handle just a few at a time (which is good if you are a sole proprietor or a freelancer or something) or you need to grab a batch and do them all at once in a big “fail-fest”. This sample should be of anyone who interacted with your business but definitively chose not to buy from you (as opposed to people who are in your sales funnel who haven’t bought yet). It’s not a perfect science to find these people because there are some slow pokes that you should take a closer look at… they’re the ones who keep claiming that they’ll buy but never do. I’m being someone general here because every business is different so you’ll have to find the definition of a lost sale that works best for you.
  2. With this list of people in hand, figure out where they were in the sales funnel when they chose not to buy. Usually, this will be people who were your leads who asked not to be contacted anymore and it will be prospects who were presented with your offering and said “no” and couldn’t have their objections overcome.
  3. Hopefully you recorded the reason they gave to not buy from you. (If you don’t record the reason, start doing so immediately!) Examine them carefully. and look for patterns over a period of time.
  4. Next, look at different factors like: How long were they in your sales funnel for? How did they interact? With whom did they interact? What information did they receive?
  5. Also, compare their progress through your sales funnel with the progress of your successful sales. Many times, you’ll find that there are a lot of clues here. The people eventually say no, for example, might bring up price earlier than anyone else or they might take longer to progress than the ones who became buyers, or they interacted in a certain way with certain staff members.
  6. Look for patterns. Try to find what is similar about people dropping out at these earlier stages and how is it different from people who progress through your sales funnel and end up buying from you. Look for common questions; common phrases, common pathways; skipped steps, etc.

You will eventually find some common factors. You might not discover all of them immediately. But with each time you do this, you’ll learn more and you’ll become more adept at spotting a “non-buyer” long before they even know they are non-buyers!

As you do this exercise over and over, you’ll discover that you can quickly and easily divide people into two groups: People who never should have been in your sales funnel in the first place and people who should have been there (because they are part of your target market) and just didn’t go through with the sale. When you divide people into those groups, it becomes even easier to find the problem areas.

Once you have identified the problem areas (which probably won’t happen the first couple of times you do this exercise), you can create a game plan to fix them.

Small business strategy question: How do you define a customer?

In a previous blog post I listed 100 small business strategy questions that entrepreneurs need to ask and answer to grow their businesses. Then I’ve been occasionally examining each question and providing tips and advice on how to answer that question and then apply the answer to your business.

The small business strategy question I’m looking at today is: How do you define a customer?

The first part of the answer to this question has to do with the synonym you use in place of the word “customer”. I use the word “customer” to refer to anyone who buys when you’re selling but not every business uses the word “customer”. They might use words like “client”, “buyer”, “subscriber”, “patient”, “member”… or something even more specific (like “seller” for real estate clients who sell their homes or “insured” for someone who has purchased insurance). But for my purposes in this blog post, I’m going to use the word “customer” to refer to the group of people you sell to, regardless of what you call them in your day-to-day business.

That’s not the only way we define a customer. We also define a customer based on what commitments they make. Someone who subscribes to our free newsletter might not be a customer. But they are a subscriber. To some businesses, a subscriber is a customer; to other businesses, a subscriber is not a customer.

And, we define a customer based on when they become customers in your sales funnel will help you define your customer. For example, they might be a prospect until they commit to buying from you, even if they don’t pay until after they’ve received service. But that’s not the case for every business. Some businesses don’t have customers until that customer hands over cash.

It’s kind of a fuzzy line: When someone goes to McDonald’s, are they a customer when they drive into the parking lot or when they walk in the door or when they stand in line or when they order or when they pay their money or when they get their food?

WHY DOES IT MATTER?

You might be wondering why it matters how you define a customer, and why you should go through all this trouble for something that is apparently a very fuzzy definition.

There are a few reasons why it matters: Knowing who your customers are (and when they become customers)…

  • … helps you to market more effectively by shaping your marketing and sales efforts toward the value that the paying customer will receive (as opposed to some general value that people can get for free from you). This protects you from doing all that work to drive people to your blog or email newsletter only to have them think that you have given away everything of value and there is nothing worth paying for.
  • … helps you to work toward one specific goal in your sales funnel. (And, if you have other people on your team, you can align that goal so you’re all working together toward the same thing).
  • … helps you to measure your marketing and sales success so you can test the effectiveness of your marketing and sales efforts and improve for greater profitability.
  • … helps you provide better customer service by helping people who are actually customers (versus those who might be committed to your business but not a paying customer.
  • … helps you to innovate with simple things in your sales funnel like adjusting your paygate or delivery times

All businesses have customers but businesses define those customers differently. How do you define yours?

Why it’s sometimes good to lose a sale

Your conversion rate is the percentage of prospects that actually buy from you.

So if you have 100 prospects and 10 of them buy from you, your conversion rate is 10%.

Easy.

But here’s what you do need to know (yet many entrepreneurs don’t know)…

Part of your job as a business owner is to improve your conversion rate. Try to grow that rate by closing more often. Instead of closing 10/1000 customers, try to close 11/100. Then 12. Then 15. Then 20. Etc. This is a smart move because it’s more profitable (and less work!) than just increasing the number of prospects.

It’s important to always push that rate higher. But there is a limit.

There is a point at which your rate is too high. At that point, people are becoming customers in droves (which seems good) but it could hint at something seriously broken right now and something terrible is about to happen in your business.

1. SOMETHING IS BROKEN RIGHT NOW

If your conversion rate climbs and climbs and reaches a point that is too high, it can often suggest one of the following things:

  • That your marketing overpromises the value of the product or service.
  • That you have incorrectly priced your products or services and the value you offer is far greater than the price you’re asking. Note: The value you offer should be higher than the price you’re asking but if it’s too high then you might end up with too many customers — and possibly too many unprofitable customers.

2. SOMETHING TERRIBLE IS ABOUT TO HAPPEN

A too-high conversion rate means bad things are about to happen in your business:

  • Perhaps you will end up with a customer service issue if you overpromised something in your marketing and after your customers purchased your product or service they discover that it doesn’t do what it’s supposed to do.
  • Perhaps you will end up with a cash flow issue as you dump all of your revenue into growing your infrastructure to handle the influx of customers.
  • Perhaps you will end up with a big stockpile of inventory if your conversion rate is a spike that decreases as quickly as it increases.

(On a related note, this is one of the reasons why many new businesses fail: They get customers but don’t have the cash flow or infrastructure set up to handle those customers).

With conversion rates that are too high, you’ll end up with dissatisfied staff, dissatisfied vendors, dissatisfied customers, balance sheet problems, income statement problems, cash flow problems, procedural/infrastructure problems, and more.

WHAT YOUR CONVERSION RATE SHOULD BE LIKE

Your conversion rate should start low and grow steadily. It should grow with your business as you improve your skill set and infrastructure, and as you staff up. You can test your ability to handle more customers (in smaller spikes) as you try out new marketing methods or selling methods or technology.

In other words, your conversion rate should steadily improve through intentional scaling rather than as a wild and unpredictable growth

ONE OTHER REASON WHY YOU WANT TO LOSE A SALE

There is another reason I haven’t mentioned: As your business grows and your conversion rate climbs, you should be worried if you start closing nearly every sale.

Why?

Because you learn just as much — or more — from the customers you don’t serve as the customers you do serve. The ones you don’t serve will tell you why they didn’t buy (sometimes you have to ask) and you should listen. If enough of them are asking for something that you can deliver, you can offer products or services to serve them.

If many are looking for a cheaper price, consider establishing a budget-friendlier service you can offer them (or a layaway plan or something like that). If many are super-users and your product or service is for the average user, consider a higher-pried, higher-functionality version of whatever you’re selling.

Just recently, one of my subscribers at an email newsletter unsubscribed. He was kind enough to email me why. Turns out, he’s not in my target market. We’ve had a great conversation since and he’s become a good contact I will rely on in the future. He’s just one guy. But if more of my subscribers (or UNsubscribers!) tell me the same thing then I’ll need to adjust my newsletter to match their request. I plan on using a survey shortly to see if there are others who are like that first subscriber. If so, it’s an easy fix!

THE QUESTIONS I HAVEN’T ANSWERED YET

So I haven’t yet answered some questions and you’re probably wondering about the answers: “What’s the right conversion rate for my business?”, “What rate is too high?”, and “How fast is too fast for a conversion rate to climb?”

You’re going to hate my answer but the answer is: “I don’t know.” Conversion rate ratios and speed are going to be different for every business. It depends on a million factors including your business model, and what infrastructure you have in place, and your relationship with customers and vendors and staff, and your own personal ability to deliver (or manage staff) while scaling up.

But here are some tips to help you find the right conversion rate for your business:

  • See if you can get access to average conversion rates in your industry. Those numbers won’t be perfect but they are a start.
  • Know your current conversion rate (many businesses don’t know what their conversion rate is) and use it as a baseline.
  • Figure out what factors will increase your conversion rate. (It usually has to do with the marketing and sales efforts in your sales funnel but sometimes other factors like the time of year will impact it too). Then do your best to master those factors — either by systematizing them or predicting them in your sales funnel.
  • Ask yourself how you would handle the growth in customers if you intentionally increased your conversion rate to 5%, 10%, 25%, 50%, and even 100%. How would your business handle it? What changes would you need to make throughout your sales funnel? Build checklists and flowcharts to help you be intentional.
  • Build contingency plans to handle unexpected spikes in your business. Start with figuring out WHY the spike is occurring and then plan how you would scale up quickly to handle the sudden burst. (There are lots of things you can do: Staff up quickly, have technology researched and ready-to-implement, discount prices for delayed delivery, set up a waiting list, etc.