Finding Customers
The following information is divided into sections to make life easier. There is a lot of information to absorb and we would strongly advise reading more widely before you start out, as without writing a whole book for each business model it would be impossible to cover everything.
Setting up a Shop - Online Selling - Direct Response - Agency Sales
Setting up a Shop
Location, location, location
When we think of starting a business many of us automatically think about
starting a shop. It is traditionally the way that we do our shopping and
we all understand the customer experience, how it should look, feel etc.
Unfortunately it is obvious that rents on 5th Avenue, Oxford St, or the
Champs Elysee will be out of our price range. Add to that the cost of fixtures
and fittings, a shop fitter, interior designer etc and it can start to
get very expensive.
This view of the world often stops us from taking our dreams forwards. In fact opening a shop does not have to be anywhere near as prohibitive as the above paragraph might suggest. If your business is reliant upon walk in customers then you might be wise to pay the rents in prime shopping areas and cut costs elsewhere, but bear in mind that you will be competing with the big boys.
A better approach might be to take on a B or C location and find ways to promote your business to customers who may have to make the effort to come. By B or C locations we mean those areas that are not in prime shopping areas, a B location might be an alley or side street close to an A location, and a C location would be further out, maybe in a local rank or shops or possibly even a stand alone unit in a residential area.
Taking on a lower rent location will lower the expectation of customers in terms of the decor, level of design etc and bring the focus back onto the product, service levels and delivery. It becomes more important therefore that you focus on getting these aspects 100% right as well as finding ways to promote your business.
Leases
Different markets will have different requirements in terms of lease lengths,
and amounts of deposit etc. We suggest that you speak with a real estate
agent (or 2, or 3) to establish what is normal in your area. Typically
you will need to pay several months rent in advance and/or a deposit which
still makes this the most expensive distribution choice however the credibility
that a shop gives you and the added trust brought about by having a fixed
location may make this worth while, particularly if you are selling a high
end product or service. Not many people will buy their Porsche through
the internet site unseen, and most people would like to meet their accountant
face to face.
Budgeting
A general rule of thumb is to work out how much money you need to get started
and then double it. This may sound a little weird but there are all sorts
of hidden costs in setting up a shop, not least of which is the time it
takes to find customers during which you will be paying rent, salaries,
utilities etc. without any income coming in.
Things that you should think about include: -
Stock you don't need to fill the shop but try to use all the available space
Rent including any deposits and advances
Utility costs speak to other businesses in the area to see what they spend
Staff costs think about opening times and keep these to a minimum at the
start
Security will the area that you are in require alarms, or security guards?
Parking even if only for deliveries there may be costs involved
There may be additional costs that are not covered here depending upon your business. Many businesses fail in the first 12 months because this is not well enough thought through, make sure you either have sufficient capital or a borrowing facility to cover every eventuality and you should survive long enough to get the promotional aspects right, and drive your sales.
Promotion.
Having a shop in a B or C location can lead to failure unless you manage
to bring customers in the door. There are many ways to do this, and the
methods that are suitable will depend upon your product range and target
customer group. Some ideas are listed below but you will need to be creative
to make your business stand out from your competition.
Advertise in the local newspaper
Small but regular ads showing your unique attributes
e.g. largest range of children's sports equipment in lower Boston
Networking
If your business relates to work, or a hobby then you can call or meet with
all your contacts and ask them to spread the word.
Local businesses
Your local bar owner/landlord may allow you to put up a notice, you can also
use notice boards in schools/universities/childrenˇ¦s clubs and after school
classes/gyms etc. to promote to a specific group
Write for the local paper
When you have a new product or service, write a brief summary about it and
issue it as a press release to your local newspaper(s). Check first to
see what format they prefer and stick to it. On a slow news week your (free)
article might just make it, and of course will contain your contact details.
Get Online
Use Yahoo and EBay to promote your business. Photograph as much stock as
possible and advertise online. Having the shop address and name will give
you added credibility and many online shoppers are real world purchasers.
In addition the postage costs should not be prohibitive and it is a good
way to keep stock moving and increase your cash flow.
Think about whether you can/or should start a blog or a website. You can include support information, contact details, special offers and loyalty schemes to keep your regular customers interested, and to keep bringing them back to the shop. If you are in a fast moving industry you can also keep your customers apprised of new products, developments or services.
Issues
Apart from cash flow you will find some issues such as setting up business
bank accounts, accepting credit cards etc. It is easier if you can speak
to your bank before you star and understand their requirements.
Specific issues such as credit card readers can be got around if your bank is too restrictive, for example by using internet based payment systems and a simple card reader. Search online or speak to local businesses to see who provides these services in your area.
If you have started and you may lose a big sale through not having a credit card machine you will often find a local business willing to put the transaction through for you in return for a small fee.
Online Selling
It is possible to build a business that is purely online, and it is not a bad way to start out as there are less complications and it is much lower cost than opening a physical shop. You do not need to pay rent, or buy masses of stock; in fact you may be able to accept orders before you order any stock at all.
Portals
The easiest way to start is using EBAY or Yahoo. Make sure to use your company
name so that you build some awareness amongst the clients who are interested
in your product range.
Both Yahoo and EBAY have clear instructions on how to get started, and you should definitely browse through similar items to see how they are being sold. If you can find a unique edge to your product line that is great but aim to use similar language to the more established sellers as they should have worked out how to communicate with their client base already. For example you may want to use words like "hip" and "rad" with a certain age group (probably about 35 as I use these words) whilst another group may respond better to "latest" and "up to date".
Spend a little cash
This sounds counter-intuitive, but if you are not confident of your ability
to make sales, or are unsure of demand then it may pay you to source some
items at retail prices and sell them at a loss. The cost of this can be
well worth the experience and you do not need to sell at a huge discount
in order to get the learning you need.
Once you have some confidence that there is an online market for your goods you should look into building a website. There are plenty of free tools available including payment processing sites. If you are creative then you can create a professional looking site quickly and cheaply, if not then you may want to investigate paying someone to build a simple site for you. This is cheaper than you might think these days. A simple site can be commissioned for as little as a couple of hundred dollars.
Promotion
It is not enough to just build a site, as people will not find it. There
are plenty of books and internet resources available that will teach you
techniques to optimise your search engine rank and move you towards the
top of the first page. In my opinion this high tech approach comes second
to a much lower tech option; promotion.
It doesn't matter that your business is all online, read the section on setting up a shop for ideas on how to promote your website. The trick is to get as many people as possible to visit your site and see what you have on offer. When they get there you need to find a reason for them to come back.
Put as much content as possible on your site so that there is plenty to read. Hopefully this way people will book mark you. If you are selling bi-cycles you could have a page for your favourite bike routes and/or a page on bike maintenance for example.
Carry offers and new product lines on the first page. If you are due new stock then a banner stating new stock coming soon is also useful. In your off line (real world) promotional materials highlight the information pages and/or the fact that you are offering new products or services.
Keep those EBAY/Yahoo spots running. It is a lot of work but every ad can carry a link back to your homepage, where potential customers can more easily view your whole catalogue.
Use Email
Every customer that buys from you is a potential repeat customer. Once the
money is in your account and the goods dispatched send a thank you note.
Follow up 10 days to 2 weeks later with some kind of promotional offer
and repeat for those that buy again.
Even the customers who do not buy, but leave an email address can be contacted every 3-6 months with a promotional offer, discounts, end of line stock, refer a friend vouchers etc.
Remember
No one is going to walk past or drive past your shop, you must keep promoting
the website both online and offline to see continued success. This will
also help your search engine rankings as the volume of searches will increase.
Keep the homepage fresh and interesting and you should see plenty of repeat
business.
Direct Response
This has been my business on and off for years. I have sold loans and credit cards using direct mail, and set up numerous insurance businesses selling products over the telephone. There are a number of approaches, some cheap and some very expensive but they all strive to do the same thing, make a direct connection with the customer who wants or needs your product or service.
The simplest way to do this (in a perfect world) would be to visit or call your customer and offer him your product. In this perfect world you would know who wanted to buy your product before you spoke them and thus would never waste your time or theirs. This of course is not possible.
So how does this work?
Every piece of junk mail that comes through your letter box is direct mail,
as is every piece of spam in your inbox. Some people reply to this stuff
and the ones that do are very profitable for the direct mailers. At the
lowest level of sophistication you could take every address from your phone
book and mail them an invitation to buy your product. Some of them would,
but unless you are selling a very high margin product probably not enough
of them to cover the cost of your stamps.
Typically less than 1% of direct mail recipients will respond to a direct mail offer. This means that on average you need to post 2000 letters to get one response. If you assumed printing and postage costs of 50C a letter that means your 1 response has cost you $1000.
OK so selling socks is out as is most consumer products, but clearly there are products that this works for. There are also other ways that you can make this system work for you.
Use e-mail
It is effectively cost free. So suddenly you can contact 2000 people for
free and if 1 of them buys you are in profit. The problem with this is
finding enough email addresses. If your business needs 200 customers to
break even you would need a list of 400,000 customers and that is more
than I have in my address book. How about you?
Target your message
If you are selling educational equipment target teachers, and parents. If
you are selling computer games target single males over 25 who have bought
them before. The point being that if you can find the right group of people,
they will be naturally interested in your product and thus the response
rate will go up.
If you were selling low cost golf balls and you had the telephone number of every member at your golf club you could probably afford to call them all and still turn a healthy profit. With email you save the cost of the call but t is less personal, you would have to test both methods to see which is more effective in terms of making a profit.
Hire a Copywriter
Or go on a copy writing program to learn the tricks of the trade. There
are techniques available, and ways of writing that will drive higher response
rates. Your messages will not only get the readers' attention but will
hold
it longer and drive more of them to take action and buy your product.
Many new copy writers will work for free to get a portfolio together, or on a share of the profits basis. Exploit this as far as you are able. Try to find new copy writers and offer them opportunities to practise their skill. You will both benefit.
Where do I find my targets?
OK so using the phone book is not cost effective. Try to find websites and
businesses that have linked interests to your own. If they will not give
you their email list they may be prepared to send an email on your behalf
in return for a fee, or a share of the profit.
You can buy lists, but many have been over sold, or contain spurious email addresses. Unless the list is well targeted, or you can test it before committing to any fees, or you are working purely on a profit share basis (no sales no fees) then try to find other sources.
Your own website will provide you with very rich data, if you do nothing else make sure that you email them regularly with offers and/or information.
Party planners
Everyone knows or Tupperware parties and the more recent versions that include
sales of items as diverse as jewellery, cosmetics and even marital aids.
Many of these businesses are assisted by the big multi level marketing (MLM)
companies such as Amway who will train the seller in how to promote and run
the parties as well as supplying the stock.
If this method of distribution appeals to you then we would strongly advise joining one of these MLM companies to gain the experience of how to do this.
Essentially the principle is that you have a party at your house, or the house of a friend/colleague/previous customer. You invite your friends, or the home owner invites their friends and you make a presentation, play games and hand around the products for people to feel, touch, and see.
Usually the host will provide food and drinks, although you may want to share in the cost of this. They are very sociable events and allow the group to ask questions, get each others opinions etc.
This is a great way of making sales if you are a naturally sociable person but of course you need to be confident enough to ask for people to host your parties and to lead the activities that go with them.
If you are good at this you can make a substantial income from the MLM companies but I would highly recommend the switch to sourcing and providing your own products where the profit will be 100% yours and you will truly be your own boss.
You may want to think about giving the householder a commission for allowing you to use their house, and for inviting all their friends.
Agency Sales - network marketing
In an Agency sales model you will allow other people to sell your products in return for a commission or share of the profits.
Essentially the Agent will represent and promote your product for you, and you will pay them the lion's share of the profit in order to make it worthwhile. The reason that you will be willing to do this is that you want to attract more agents to do this for you. You have all the hassle of sourcing supplies and the cost of carrying stock, but they will take care of making the sales for you. As long as you can support the network, your earnings increase in multiples along with the size of the network.
Imagine passing on 90% of your profit for each person in your network. For each Agent this feels like a good deal as they recognise the value that you add in terms of training, support and sourcing products. Once you have 10 Agents you should have at least doubled your income, if you can get to 100 agents you will be making 10 times as much. To put that in context a business that comfortably makes you $20-30K a year on a part time basis might be able to sustain an income of $200-300K if you get this right.
Note that the actual multiples will depend upon how motivated the individual agents are, and their level of talent in making sales.
Getting started
We would not recommend going down this route until you already have a business
up and running. It is important to understand the intricacies of the business
so that you can teach your recruits the pitfalls, and show them the sure
fire ways to make sales.
A simple way to get into this business might be to move on from party planning to ask guests at an event whether they would be interested in running similar events with your products.
Another way to start would simply be to advertise for commission only or self employed sales people in the local newspaper, or on local interest bulletin boards. Many people will be attracted to this on a part time basis if your commissions are high enough to be worthwhile.
Note that your company or personal name may be at risk from misrepresentation. You should speak with a lawyer about drafting an agency contract before you start taking on agents.