Why This Business Coach Turned Down $2 Million in 2015
If I made one simple change in my group coaching business, I would’ve made an extra $2 million this year in revenue. Here’s why I didn’t make it.
Originally posted on Inc.com
This is the most common mistake that first-time entrepreneurs make…
Accepting payments from every single customer.
Sounds controversial, right? I mean how could any business want to turn away money? Especially when you are just starting out. Plus, how is this really even a mistake?
You may get a short term-boost in your income, but you will ultimately ruin your company.
That’s why I turned down $2 million from customers this last year.
Instead of only inviting 40 percent of the people who show interest in my program to become clients, I could have invited everyone.
That’s millions of dollars more. One simple change. Instead of earning almost $2.4 million in 2015, I would have earned close to $5 million.
It’s very tempting to offer your product and service to everyone who could use it. I mean, who doesn’t want more money in their pocket?
However, I’ve learned the hard way that this is a terrible idea (more on that in a bit).
While you may get a short-term boost, you’ll ultimately ruin your company.
I made the choice to be highly selective with whom I have as clients, not out of principle, but because of the results. When you set standards on whom you serve and stick to them 100 percent of the time, magic happens:
- The cost to acquire a customer goes down.
- Your sales cycle gets faster.
- The quality of your product goes up.
- Your customers become happier.
- You can charge more and, therefore, be more profitable.
- It will be more fun to work on your business.
You might be skeptical that saying no to clients can actually lead to all of these benefits. You might still feel that a bird in the hand (i.e., a bad-fit client who will pay now) is better than two in the bush (i.e., an ideal-fit client whom you might find later).
So let me share nine reasons why deciding not to offer your service to everyone is so powerful. By the end, you’ll see how it’s crazy to think otherwise.
Reason 1: A Bad Apple Can Poison the Barrel
If you have a group program, as I do, then even one bad apple can throw off the whole group’s dynamic.
One time, we let someone into the program who had blamed other coaches in the past for his lack of success. Stupidly, we let him in anyway. Immediately, he started messaging other participants and saying things like, “I don’t think this is going to work … I tried this ad, and it isn’t working.” In a nutshell, he was trying to enroll other people in his excuses so he felt better about his shortcomings, before he had even made an honest effort.
As a result of his emails, we saw an overnight drop in the other participants’ morale.
Research proves my point: In a study by University of Washington professors, teams of college students that had just one bad-apple participant performed 30 to 40 percent worse on a task. Team members started emulating the bad apple’s negative behavior almost immediately.
Reason 2: People Want Specialists to Solve Their Big, Painful Problems, Not Generalists
Just look at the medical profession. If you have a life-or-death heart problem, whom do you want to operate on you? A specialist or generalist? Would you be willing to pay more for a specialist or a generalist?
A specialist, and you’d be willing to pay a lot more.
That’s why it’s no surprise that cardiologists (specialists) are paid $207,000 to $330,000 more annually than family practice doctors (generalists).
The mistake that many marketers make is trying to promote every problem that they could solve. I get it. If you have an ability and someone is willing to pay you for it, it’s very tempting to take that money, especially if you really need it.
But as soon as you do that, you’ve made yourself a generalist in other people’s minds, and your value drops accordingly.
Reason 3: You’ll Be More Profitable, Because You’re Targeting Customers Who Can Afford to Pay More
The price you set is a signal that attracts different types of customers. Broadly speaking, there are two kinds:
- DIY customers. People who want to save money by cobbling together information and constructing a solution themselves.
- Done-for-me customers. Customers who have the budget to pay someone else to solve the problem for them, faster and better than they could on their own.
Which kind would you rather attract?
In my opinion, the best approach for 99 percent of service-based businesses is to target done-for-me customers.
They can afford to pay more. They understand the value of paying more. They expect to pay more, as they connect price with value. Deloitte’s 2014 American Pantry Study showed that 32 percent of consumers (the most affluent consumer group) prefer and can most afford to buy higher-priced products, rather than cheaper ones, as long as they trust the brand.
By targeting done-for-me customers, you may have fewer customers, but you’ll get better results for those customers and be significantly more profitable.
When I first started my company, the customers who were attracted to the program were not a good fit. They were looking for a miracle. It was not fun.
Over time, I realized that we could add the most value to consultants, coaches, and service-based businesses that already had momentum and wanted to grow revenue from $50,000 to $500,000.
When I made the switch between these customers, my profit jumped from $90,000 to $1.5 million.
Reason 4: Your Marketing Will Be More Inexpensive and Effective
If you know exactly whom you want to serve, you can more easily put your message in front of them via Facebook, Twitter, and Google ads. Not only that, you’ll pay significantly less per click.
Facebook, Twitter, and Google price their clicks on the basis of an ad’s effectiveness. The more effective the ad is, the cheaper the click. When you target and speak directly to one niche group, your ads become cheaper.
As a result of refining our ad for our exact target market, our cost to get a potential client to book an appointment with us is now $40 to $50. When we were unfocused, the cost was more like $200 to $300.
Reason 5: You Will Acquire Customers Faster
When trust goes up, speed goes up.
When trust is high, multimillion-dollar transactions can literally happen in days instead of months. For example, because Warren Buffett has a reputation as a successful investor who has integrity, he can get deals done in a fraction of the time it would take someone else.
Buffett completed the acquisition of McLane Distribution (which had over $22 million in sales the year before) with Walmart on the basis of a two-hour meeting. The merger took less than a month and avoided the usual months and millions for due diligence and attorneys.
When you speak to people’s problems directly, you build trust faster.
When you build trust faster, the sales cycle shortens and you close more sales.
As I explained in Here’s My Exact Strategy for Turning $15,000 Into $200,000 Every Month, a shorter sales cycle makes a huge difference on your company’s growth trajectory. When I made the shift from a slow sales model to a fast sales model, my business jumped from $120,000 per year to $2.4 million per year.
Reason 6: Your Target Customer Will Want to Work With You Even More
The power of high standards is true in dating, and it’s true in business. From a psychological perspective, high standards make you more attractive on two levels:
- Scarcity. As a result of our scarcity bias, people want what they can’t have or what is difficult to obtain.
- Rationalization. As a result of confirmation bias, your brain subconsciously needs to justify why you spend extra effort in one place rather than another. It often does this by attributing extra value to what you put the effort toward.
If you really want to work with someone and you know the person’s very picky, you’re going to work extra hard to impress him or her in order to get into the program. If you know that other people could take your place once you’re in the program, you’re going to work that much harder as a student and therefore get more results.
At my company, we don’t set high standards and enforce them just because it’s a good marketing tactic. It’s core to our business. Before anyone can become a client, we must have a one-on-one call with the person. We invite only 40 percent of the callers to the program. We also have high standards during the program. If we see that someone is not a fit, we very quickly refund the person’s money and take him or her out of the program.
Having high standards will push away the wrong people and make those who are a good fit want to work with you even more.
Reason 7: It Gives You Peace of Mind
You should never trade happiness for money.
Life is too short to work with someone you don’t want to work with.
Beyond filtering our target market on the basis of their problem, we filter according to whom we want to work with.
I ask myself, “Is this person a hassle? Is the person a jerk? Does his or her business align with my values and ethics? Do I even want to work with this person?”
The quality of your life is highly impacted by the people you serve. If they’re difficult, they will cause you extra stress and decrease your company’s morale.
Reason 8: It Increases Your Word of Mouth
There is a shift that happens when people keep hearing about you over and over. Suddenly, when you talk to people, they already know about you, trust you, and want to work with you. That makes your job much easier.
If you define your market too broadly, it’s exponentially harder to get this repeat word of mouth.
Billionaire investor Peter Thiel explains the phenomenon well in his book Zero to One:
“Always err on the side of starting too small. The reason is simple: It’s easier to dominate a small market than a large one. If you think your initial market might be too big, it almost certainly is…. Facebook started as a service for just one university campus before it spread to other schools and then the entire world.”
Bottom line: Start with as narrow a target market as you can. Saturate that market. Then explore broadening your focus if it makes sense.
Reason 9: Your Customers Will Be Happier With a Service Streamlined Just for Them
Here’s a rule of thumb you need to remember:
The more types of customers you try to please with one service, the worse the service will be. Here’s why:
- When you ask for feedback, you’re going to get a thousand different feature requests.
- Each extra feature makes the service harder to understand and use. When a service has too many features, we hit feature fatigue. In an academic study of 199 consumers, 66 percent initially preferred high feature products compared to low feature products, but this number was reduced by 22 percent after product usage.
- Some features that help one group of customers may hurt another.
Early in my business, I made the mistake of working with anyone who wanted to improve his or her online marketing. To serve everyone, I used video courses to teach several different approaches.
No one took action!
As a result of narrowing my focus to businesses that were already hitting a certain revenue threshold, I made changes to my business that I would have never made otherwise:
- I increased my price 100 times.
- I teach only one system, instead of many, to attract clients.
- I deliver the strategies through group coaching rather than video courses.
Now, nearly everyone in our program takes action and gets results, and the business makes more than $1.5 million in profit per year.
If I had listened to everyone’s feedback in the beginning, I wouldn’t have made any of these choices.
Pick just one kind of customer. Build the best service for them. Ignore the rest.
Don’t Settle! Set High Standards
Business is like a mirror. The business is constantly reflecting back to you everything in your brain: all of your fears, all of your doubts, all of the things you are not great at, and all of the things you are insecure about.
It doesn’t matter how good your marketing is or how good your messaging is. There’s no escaping cause and effect. What that means is that you attract the kind of clients that you settle for. The clients that come into your business every single day are a reflection of who you are and how you view yourself.
So, take a stand. Don’t settle.
Set high standards and keep them!
Once you’re ready, follow this step-by-step guide I created on how to attract your ideal customer.