Q. Dear Zenagos, I started a business making custom T-shirts a while ago. I learned how to advertise and get customers. Now, I realize I probably need to offer more than just T-shirts. What’s my next step?
You have arrived at an important insight – the importance of Lifetime Customer Value (“LTV” – also referred to as Customer Lifetime Value or “CLV”). Acquiring customers (through advertising and other marketing and sales activities) is expensive and time-consuming. Once you have attracted those customers, the more they buy, the more efficient and profitable your business becomes.
If you can add products to your lineup that your customers enjoy, then you can increase the average customer purchase, and that extra revenue requires no additional work. As the finance professionals say, every additional dollar of gross margin “falls straight to the bottom line.” So, how do you decide what new product to add?
Brainstorm Product Ideas
The first step is to generate some ideas. If you can set aside a few quiet moments to think, you can probably come up with a few ideas yourself. But don’t stop there. Can you survey your most recent customers and ask them what additional products they would like to see? If you have employees, ask what they think. Talk to your family and friends. You never know who will have the great idea that will the right one.
As a way of organizing your ideas, we like mind maps. There are lots of free mind mapping tools, such as Miro, FigJam, and MindMup. It doesn’t matter which tool you choose. (You can, of course, sketch on a piece of paper.) What matters is that you set aside some time to think about your ideas and to generate as many additional ideas as possible.
Conduct a Feasibility Analysis
Once you have a list of product ideas, it is helpful to compare them. You don’t need to do exhaustive research, but it helps to line them up against one another, using some criteria. If you can’t think of categories, try these: Idea, Process, Supplier, Cost, and Price. Create a feasibility worksheet with five columns, using these headings. Under “Idea,” list the best ideas from your brainstorming exercise. Then, for each idea, consider the process you would use to create the product, the suppliers you would need, the costs you would incur, and the price you could charge. Again, the exact criteria you use are not as important as the fact that you take some time to really compare the options.
Once you have filled out your worksheet, think about how you will make your decision. One important thing to consider is what would be most attractive to the customers you already have. If you have advertised T-shirts and have attracted an audience that wants to buy T-shirts, what else interests that audience? It makes sense to offer something that they might want to add to their purchase, rather than something that would require you to attract a new and different audience.
If you are thinking about expanding your business, then you are already doing something right. If you can focus on your customers’ wants and needs, you can increase the average purchase per customer and improve your business. These are the questions that all businesspeople need to solve in order to develop a satisfying and sustainable business.