12

MULTIPLYING YOUR BUSINESS

“Being clever was when you looked at how things were and used the evidence to work out something new.” 

—Mark Haddon

People often think I make all my money through media—especially my daily podcast and Facebook Live show since they have audiences in the millions. That’s true to a point, but it doesn’t tell the full story. What people don’t realize is that my biggest revenue streams come from projects going on behind the scenes.

Much of my “hidden” income is the result of multiplying. I talked about this on this page: multiplying is when you find the patterns that link different projects and then use those connections to make more money. It’s how you make the magic of 1 + 1 = 3 happen. For example, CEOs interviewed on my Top Entrepreneurs podcast see the appeal in also getting promoted via The Top Inbox, so I set up a sponsorship package that gets them exposure in both channels (a new revenue stream for me that wouldn’t exist without the original two projects).

Don’t worry if you feel you don’t have enough revenue streams going to start multiplying them. You can uncover new ideas pretty easily. The most direct approach is so simple, I do it all the time and it never lets me down.

ONE QUESTION I ASK CUSTOMERS THAT GETS THEM TO PAY 2X MORE

Use my script and ask your customers.

There’s a specific way to do this to get the information you want: immediately after one of your customers checks out, ask them what other products they buy that are similar. You can do this whether you have one hundred, one thousand, or three customers. Just send them an email asking: “What other tools have you bought to help you X?”

X is whatever space you’re in or problem you’re solving. So if you’re selling tax software, you can ask your customers (whether they’re paying or in a free trial) what other tools they’ve bought to help manage their taxes and money.

Now to be clear, this is totally different from asking customers what they want. There are lots of things people say they want that they won’t actually buy. Knowing what they have actually paid for tells you what they’re willing to spend their money on now.

You’ll get a bunch of answers back. Sort through them and look for the patterns in everyone’s responses. Do they keep mentioning the same products, or the same need? From there, you can decide to:

A famous example of this approach with a physical product is McDonald’s. They realized early on that people like to buy fries with a burger, so they bundled them together. Now customers are more likely to buy both every time. McDonald’s also discovers new revenue streams by copying popular items at other chain restaurants. When Starbucks took off, McDonald’s launched McCafé and started offering elaborate coffee drinks. When they noticed nobody wanted their pale iceberg salads they copied Panera and Chick-fil-A by using more colorful, nutritious ingredients.*

Most of this chapter will focus on how to add products to what you’re already doing. It also ties into what I’ve found to be the most effective growth strategy for launching new revenue streams so you can start multiplying: going deeper on current customers, not wider with new ones.

GROWING REVENUE: HOW TO GET TO $1M

People often think the only way to grow a business is by expanding their customer base. Not true at all. Bringing in more customers is actually the last thing I try to do when strategizing revenue growth. It’s much more effective to think about how you can drive new income from people who are already paying or following you.

Let this be your mantra anytime you think about growing your business: Go deeper, not wider.

One way to do this is by launching a new product that your customers say they also buy. Even if they already have that thing and don’t buy it again, new customers are likely to buy more from you because all your products appeal to them. So yes, new customers do play a role here, but your main focus is on going deeper, not wider, by getting all of your customers to pay you more.

Think about how you can get your current customers paying you more money for more value. There’s a balance to strike here—you don’t want one customer making up more than 10 percent of your revenue. That’s risky. But if you can get a small group of people paying a lot for something they want, your earning potential will be huge.

# CUSTOMERS

PRICE PER CUSTOMER

ANNUAL REVENUE

5

$16,600 per month

$1M

100

$833 per month

$1M

5,000

$16 per month

$1M

100,000

$.80 per month

$1M

Pause and consider what business model you would use if you could have only five customers versus the model you would use if you could have 100,000.

Challenge yourself by putting a creative limit on your customer number. Ask yourself:

I realized that GetLatka.com was never going to be a product that I could sell to a million people at $30/month. There just are not that many people interested in B2B SaaS data. But it offers a lot of value to a very small group of people in venture capital. So I decided I would draw in customers, and keep them, by limiting the number of people I would let in. Maintaining a small circle also allows me to give each customer white glove service and build a waiting list.

Today I cap my customer base at around fifty. Every few months I’ll send out an email letting them know my monthly price is going up. About one to three customers churn as a result of the increase, so those spots open up to the waiting list. Then I email the waiting list saying, “Hey, we have three spots available at $X [the new price].” They fill up immediately.

My audience knows I will only ever have fifty customers at a time. That fact creates an urgency that drives folks on the waiting list to jump in the moment a spot opens up. And I’m going deeper, not wider, to grow cash flow by charging every customer more with each price hike.

Clate Mask, CEO of Infusionsoft, also used a deeper-not-wider approach to growing revenue. He told me how, back in 2014, his customer churn was 8 percent every month. That means out of every one hundred customers who signed up for his software, he’d drop to ninety-two the following month. That churn is really high if you’re trying to build a software business.

So he did something counterintuitive: he started charging customers more money and fewer of them left. How did that work? Well, he discovered that churn was high because people were signing up for his software as a free trial but didn’t start using it right away. Then, when their trial was over, they left.

When Clate added a $2,500 service fee at the beginning of the sales process, his customers became more invested. He also started attracting more serious customers while weeding out those who never intended to pay for the service. He could also afford to put one of his people on each customer to help them have success quickly. Churn dropped from 8 percent to 2 percent. He signed up fewer customers, but at a higher price, and those customers were more likely to pay for longer periods of time.

If you’re still getting to know your customers, you can cast a wide net first, then study their behavior over a few months: Who has reordered already? Who has paid the most money? As you start recognizing trends you can tweak your approach to serve those high-paying customers more directly.

The image on the next page shows how many customers canceled their subscription to my first company, Heyo, depending on the month in which they signed up. We called this our cohort churn analysis. Out of the 443 customers who signed up in February 2014, 84.7 percent had churned by February 2016. If I were exploring new pricing options, I’d reach out to the 15.3 percent of customers who signed up in February 2014 who are still paying me to try to identify why they are so sticky.

I’d then update my pricing, or introduce an upsell, based on why these super-sticky customers keep paying. In Heyo’s case, the customers who kept paying the longest were those who captured the most leads through our Facebook contests. So we started to tie pricing to the number of leads collected and immediately saw a revenue spike.

Anyone can do this with their business. Look at which customers have paid you the most historically, then figure out why they paid you the most and introduce pricing tiers around that data. Don’t make decisions based on your gut alone, which is sometimes right but often wrong. You want gut + data.

Totals

% of Cohort Churned

Feb-14

443

84.7%

Mar-14

401

82.7%

Apr-14

418

78.6%

May-14

304

79.2%

Jun-14

438

81.6%

Jul-14

396

77.5%

Be careful here: don’t just upsell for upselling’s sake. Customers have a low tolerance for that. Aim to upsell based on usage if it can fit your business model since customers will be hooked by the time they face the new pricing. We did that with Heyo and it’s also how I monetize The Top Inbox—you hit a $5/month pay wall after using it fifty times. It’s a no-brainer for customers to pay by that point since they’re regular users.

When upselling physical products, think about how supermarkets use checkout lanes or how Amazon uses “people who bought this also bought this other thing.” It’s not annoying to put ping-pong balls on the beer end cap in a college town. The store knows that most college students buying beer ($9.99) will also buy ping-pong balls ($3.99) to play beer pong. You just increased your average checkout size from $9.99 to $13.98.

The annoying version of this is when you’re at a Verizon store and the sales guy tries to sell you a bunch of extra stuff you don’t want: cables, chargers, “new data plan for just $1/month.” Make sure you’re upselling things that the customer is already thinking they want.

THREE MULTIPLYING TACTICS TO FILL YOUR WALLET

Once you have multiple projects or products running you can get to multiplying. In all my business dealings I’ve discovered three multiplying tactics that, when used together, get me maximum returns.

Multiplying Tactic #1: Increase “Wallet Share” by Increasing the Time a Customer Is Under Your Control

Wallet share is simply the amount of money a customer spends on your products. You’ll know your wallet share is growing when your cart value—the average cart checkout—starts to increase.

You want to maximize the amount of time a customer spends in your ecosystem so you can put more products in front of them. As customers we succumb to this tactic all the time, especially when we feel we’re getting a better deal by doing most of our shopping in one place.

It’s exactly why Costco requires memberships to shop there, or why Amazon has Amazon Prime. They know you’ll shop with them more if you invest in the membership fee. It’s why we get drunk on the all-inclusive cruise. You start drinking at 8 a.m. and you drink all day, every day, because you want to get your money’s worth.

Walmart is valuable by itself, and so is any gas station. However, they are more valuable together because we spend more time “in their control.” By the time we drive off Walmart property they’ve dipped into our wallets for everything from toilet paper and frozen pizza to the 5-hour Energy drink and car wash we got with our gas.

So you’re not Walmart or Amazon or Costco—not even close—but anyone can grow their wallet share, no matter their business size. The key is to simply understand what else your customers buy that is most closely related to products you’re already selling.

Let’s say you sell iPhone cases. And let’s say you’ve done the hard work of getting your case ranked high on Amazon and getting distribution in a retail outlet. However widely your product is available, the work you put into getting distribution has paved the path for any other related products you can sell. So what a waste it would be if you sold only iPhone cases.

To figure out what to sell next you need to know what other phone-related products your customers buy, and how much they’re spending. If it’s, say, $100 a month, your goal should be to get as much of that $100 as you can for yourself. So what else are they buying, and how can you sell that to them? The most powerful way to find out is to ask them. Runners-up: look at the “Customers who bought this item also bought” section on Amazon below your product, or similar products; for software, search Siftery .com or BuiltWith.com.

If you learn they’re buying USB chargers with the cell phone cases, do you then go partner with a USB cord provider? Do you build your own? License it? You can approach it any way you’d like once you know what customers are buying.

A company doing a great job at increasing wallet share is BestSelf.co. The owners, Cathryn and Allen, are brilliant entrepreneurs. They created and sell the SELF Journal for $31.99. Since launching in 2015, they’ve sold more than two hundred thousand units. Part of the genius behind their journal is that it covers only thirteen weeks’ time and you can start using it at any point in the year. So once you’re hooked on using it you’re going to buy another one after those thirteen weeks are up—you won’t care about the expense. BestSelf.co even incentivizes customers to keep their wallets open by offering a journal subscription. You get a new one every thirteen weeks for 10 percent off.

They’ve recently expanded to selling related products like the SELF Shield, a cover for the SELF Journal that actually costs more than double the journal itself.

They’re also selling T-shirts for $24, a WIN THE DAY hoodie for $55, SmartMarks (a combo bookmark and notebook) for $15, Sidekick (a mini-version of their SELF Journal) for $13, a wall RoadMap for $9 . . . and that’s not even half their stuff. Today their average order value is $54—nearly double what it was two years ago ($28), before they started adding additional products. The wallet share they’re going after is the money people spend on productivity tools—and they’re doing a great job at that.

On the software side, ClickFunnels founder Russell Brunson keeps customers using his tools by making it as easy as possible for entrepreneurs to market, sell, and deliver their products and services online. Russell has studied his customer data and knows that churn will drop from 10 percent to 4 percent in the first two months if they do a couple key things, like setting up a custom domain—so Russell does it for them. He sets up a custom domain and covers the bill as part of the on-boarding process. He’s also found customers are more sticky after they set up SMTP integrations. Once they’re in, ClickFunnels’ tools help customers execute every step of their business, from setting up a website to customer service, so they never have to use another service. Then the more their business grows, the more they use ClickFunnels to keep it running. The entire business model is built around increasing wallet share. I interviewed the ClickFunnels COO on my podcast, where he shared that they’ve passed sixty-five thousand customers and $60M in annual recurring revenue without raising any outside capital.

Multiplying Tactic #2: Once You Have More Wallet Share of Customers, Negotiate Discounts on Things You Already Buy

You can do this on anything, from supplies to software subscriptions that help run your business. Every dollar you save is a dollar you get to keep. If this sounds petty to you, remember that wealthy people are wealthy not just because of how much money they make, but how much they keep. Driving down expenses is just as important as growing your income. So once every three months or so, look at your expenses to pinpoint your ten biggest payments. Send an email to those companies and say:

“I need to find a cheaper option. I can’t afford this anymore. Can you help me cancel my account?”

Say those exact words so they understand that you really might leave. Almost every company has a process in place where, when somebody asks to cancel, it unlocks the ability for the salesperson, or a team member, to incentivize you to stay with discounts, etc. This is especially the case with software and services. They just have to actually believe you’re going to cancel.

A few times a year I email any software company that I’m paying more than $100 a month for and simply say, “I need to cancel my account. It’s not doing what I thought it would.”

I recently sent this email to ActiveCampaign, a company that I use for specific email marketing campaigns (Aweber is what I use for everything else):

“Hey, if you look at my account you’ll see I haven’t used it as much as I have in the past. I should probably cancel the $275/month payment. Can you help me do that?”

Christine, a customer success manager at ActiveCampaign, replied and offered to bring my monthly payment down from $275 to $182. I saved nearly 50 percent just by asking. You’ll get these kinds of responses all the time when you threaten to cancel a service. It’s the fastest way to save money.

This doesn’t work with a huge company like Amazon or Facebook. You can’t do this to get a cheaper iPhone. But you probably have many expenses that you’re paying to smaller companies where you’ll have power and leverage. They don’t want to lose you because that means churn goes up.

This tactic won’t be as easy if you’re buying supplies for a physical product until you get some scale. It’s still absolutely doable, though. If you have a food truck and reach the point where you’re doing five thousand meals a month, you’ll start to have negotiating power over suppliers. Just by virtue of increasing your order quantity you can drive down your unit costs on things like avocados or food containers.

This happens in every industry, on every level. Walmart gets its gas cheaper than anyone else because it can promise the gas supplier it will deliver huge volumes of sales. You have this same leverage. For example, I get software that I need to run TheTopInbox.com for free or at a big discount by offering to mention the software company on my podcast. Best Self.co gets better prices on paper the more their volume increases.

Multiplying Tactic #3: Get Your Biggest Revenue Streams Working Together

You learned in math class when you were a kid that three small things multiplied together yield something small: 1 × 1 × 1 = 1. But just level up by one degree and you start to see growth: 2 × 2 × 2 = 8. The more things you multiply together, and the more powerful each of those things is, the bigger output you get. These are basic rules of nature and math.

Apply this thinking when growing your business. Find your biggest revenue streams, or the projects or skills with the biggest potential, and try to get them working together.

This approach led me to create GetLatka.com. My podcast was my first big asset—put that at a 10. I wanted to figure out what I could multiply it with to get a big output. So I thought about what I was really good at that could become a large asset. Well, Heyo was a software company. I’m great at building software. So I thought, How can I take my podcast, a media asset (10), and multiply it by another asset related to software (10) to get a 100 output?

Then I remembered a problem my podcast listeners had: they valued the info in my 700+ episodes but didn’t have time to sift through every one to find the specifics they’re looking for. So I decided to spend $50,000 without putting up any of my own cash (more on that in chapter 11) to create GetLatka.com so listeners could easily sort through my episodes to figure out which to listen to. They can also look up revenue data, customer counts, valuations, and more data on privately held software companies.

NO-COST SALES: FROM SPREADSHEET TO $2K EACH MONTH IN MY POCKET

It all started with me preselling a simple Google spreadsheet. I filled the spreadsheet with data points my podcast guests gave me and then told my podcast listeners they could buy a version to download themselves:

Today GetLatka.com has come a long way from that spreadsheet. I multiplied my biggest asset (my podcast) with my high-potential skill (creating software) to create a cash-printing software that clients use to sort through my podcast data. Now I increase my prices incrementally. Here is an example of an early customer paying me $24K ($2K/mo) for the data (see “Retainer Fee” at bottom):

RETAINER AGREEMENT

This Retainer Agreement (this “Agreement”) is entered into effective as of January 1, 2018 (the “Effective Date”) by and between █████████ a Delaware corporation █████████and The Latka Agency, LLC, a Texas corporation (the “Latka Agency”)

RECITALS

  1. █████████ is engaged in providing revenue-based financing loans (“Revenue-Based Loans”) to qualified commercial businesses (“Qualified Businesses”) on terms and in amounts that have been previously outlined to the Latka Agency.

  2. █████████ desires to engage and authorize the Latka Agency to introduce certain Qualified Businesses to █████████ subject to certain terms and conditions, in return for certain feeds to be paid to Latka Agency hereunder.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows.

  1. Role of Latka Agency; Not an Agent of █████████ retains Latka Agency to act as its non-exclusive intermediary to locate Qualified Businesses (each, a “Prospect”) that may desire to have █████████ provide Revenue-Based Loan with any Prospect. LATKA AGENCY IS NOT AUTHORIZED TO ACT AS AGENT FOR █████████ OR TO OFFER TO FINANCE OR MAKE A LOAN TO ANY PROSPECT OR TO BIND █████████ IN ANY WAY WITH RESPECT TO THE MAKING OF ANY REVENUE-BASED LOAN. LATKA AGENCY IS AND SHALL BE AN INDEPENDENT CONTRACTOR AND NOT AN EMPLOYEE, PARTNER, AGENT, REPRESENTATIVE OR JOINT VENTURER OF OR IN █████████

  2. Information. Latka Agency may make certain information available to Prospects regarding █████████ and/or to █████████ regarding Prospects, their qualifications and or conditions for financing in such Prospect, however the evaluation of such information is the responsibility of parties to the Revenue-Based Loan, and any information provided to either party may be accepted or rejected by the parties.

  3. Retainer Fee: █████████ will pay The Latka Agency, LLC a monthly fee of $2,000 in exchange for curated introductions to Prospects. Payments will be made monthly via credit card on the 1st of each month. Any Retainer Fee payable to Latka Agency hereunder shall be solely the obligation of █████████. Notwithstanding any provision to the contrary in this Section 2 or elsewhere in this Agreement. █████████ shall not be required to pay any Fee. . . 

The goal here is to get all three multiplying tactics working at the same time: expand wallet share, negotiate discounts on things you use in bulk, and get your biggest revenue streams working together. If you get only one multiplying tactic working, it’s like eating a sandwich with just the bread. You’ll eat it (what most of you do your whole lives), but it tastes awful. Get all three working together and you have a big, beautiful sandwich with meat, lettuce, and tomatoes that dance in your mouth. Tastes much better. Welcome to the New Rich.