What is Customer Value Optimization (CVO)?

It’s the same system Starbucks and McDonald’s have used to corner the coffee and hamburger markets. It’s the same system Amazon uses to dominate e-commerce.  It’s how Best Buy, Beach Body (selling workouts like P90X) and Sports Illustrated have become household names.

This system works for small and enterprise level businesses. It works for mom-and-pop shops and billion-dollar retailers. It works whether you sell traditional products, digital products or services.

This system works because it exploits each and every aspect of the irrefutable law of business growth put forth by legendary marketer Jay Abraham …

There are only three ways to grow a business:

• Increase the number of customers
• Increase the average transaction value per customer
• Increase the number of transactions per customer

We call it Customer Value Optimization or CVO.

This is the stuff they don’t teach in business school.

Learn the Steps to Customer Value Optimization

The following flowchart outlines the CVO system.

When you’re learning new tactics like Twitter, Google Analytics or Facebook Advertising you’ll need to constantly remind yourself of the CVO process.  Otherwise, you’re wasting time and money.

Warning:  There is little profit in understanding, for example, Pay Per Click (PPC) Advertising or Search Engine Optimization (SEO) in and of itself. There is enormous profit in understanding how to apply these traffic strategies to the CVO process.

Here is a flowchart of the Customer Value Optimization system, courtesy of our friends at Digital Marketer …

 

Here are the steps:

1. Determine Product/Market Fit
2. Choose a Traffic Source
3. Offer a Lead Magnet
4. Offer a Tripwire
5. Offer a Core Product
6. Offer a Profit Maximizer
7. Create the Return Path

Let’s examine each of the steps in more detail …

 Step 1 – Determine Product/Market Fit

There may be nothing more important than choosing the correct market, simply because every other part of the process is dependent upon having a group of willing and able buyers.

No amount of work or luck will help if you don’t have a willing and able market.

In the next step, we’ll dispel the myth behind traffic generation…

Step 2 – Choose a Traffic Source

This might shock you but you DO NOT have a traffic problem.

You might have a business model problem, an offer problem or a measurement problem.

But you DO NOT have a traffic problem.

Here’s why…

If I told you that every time you could get a visitor to a web page you’d make $10 in profit, could you get traffic to that web page?

Of course you could! You could pay up to $10 to get a visitor to that web page and still break even. In fact, you’ll be able to pay more than $10 to get a visitor to that page when you truly understand the whole of Customer Value Optimization.

World-renowned marketer, Dan Kennedy likes to say,

“He who can spend the most money to acquire a customer, wins.”

And Jeff Bezos, Founder and CEO of Amazon.com, once said (in a tongue-and-cheek warning to his competitors)…

“Your margin is my opportunity.”

Once you understand CVO, you become unstoppable. Amazon.com sells on the thinnest of margins knowing that acquiring new customers, selling them more and selling to them more frequently is how you become unstoppable.

Traffic is not a problem.

Google, Facebook, Twitter and LinkedIn, just to point out the obvious, are lining up to sell you targeted traffic. Your Search Engine Optimization agency wants to send you more traffic.

You simply need to understand,

1. How to measure what traffic is worth
2. How to extract maximum immediate value from that traffic

Tactics are worthless if you don’t understand the CVO process.

This is why you are frustrated. You have no context. You have no system.

There are thousands upon thousands of marketing experts who can teach you how to drive traffic through tactics like email, direct mail, Facebook Ads, SEO, and so on. But these are simply traffic delivery systems. None of them will do you any real good until you first understand the goal.

And that goal — no matter which traffic source you choose — is to drive prospects into the CVO Funnel.

The CVO Funnel begins with the Lead Magnet…

Step 3 – Offer a Lead Magnet

The Lead Magnet and the Trip Wire Offer are the means to attain the first objective in Jay Abraham’s method: increase the number of customers.

The Lead Magnet is an irresistible bribe that gives a specific chunk of value to a prospect in exchange for their contact information. This is usually their name and email, but depending on the strategy and the industry, you may want to collect more information.

Make no mistake, although no money changes hands with a lead magnet transaction, it will need to provide tremendous value.

The Lead Magnet is usually offered on a web page called a landing or squeeze page that is optimized to convert even cold traffic into leads.

The landing page doesn’t need to be fancy. Very often the highest-converting landing pages are simple in messaging and design.

The Lead Magnet exists to increase leads. Because the Lead Magnet is the very top of the CVO Funnel, increasing opt-ins here will pay dividends throughout the rest of the system.

Now, concerning your Lead Magnet … what irresistible bribe could you offer in exchange for a prospect’s contact information? The more leads you generate through the Lead Magnet, the more Tripwire Offers you’ll be to make.

Step 4 – Offer a Tripwire

If you understand and execute on this step, you’ll be ahead of most of your competitors.

Remember, our first goal is to increase the number of customers. So far, we have only generated leads through the Lead Magnet. We still haven’t generated new customers.

The Tripwire offer is made to those that have displayed interest through the Lead Magnet. The Tripwire is an affordable offer, usually between $1 and $20. In markets selling high-ticket products and services Tripwire Offers as high as $500 can convert well.

The goal of the Tripwire is to fundamentally change the relationship from prospect to customer.  The conversion of a prospect to a customer, even for $1, is magical.

The key is to make a Tripwire Offer that is irresistible to your leads.

The most common way to make the Tripwire irresistible is by selling it at cost and, in some cases, at a loss to you.

That’s correct. You are not trying to make a living from selling Tripwire Offers. You are trying to acquire buyers because there is nothing more valuable than a list of buyers.

When you understand the rest of the Customer Value Optimization process you will understand how the Tripwire Offer is the single most powerful addition you can make to your business — even though you make no direct profit from it.

A classic example of a Tripwire Offer comes from Columbia Records,

Columbia House took over the music market by making an absolutely irresistible offer (13 records or tapes for $1) because they understood that acquiring a list of buyers is the name of the game.

Tripwire offers can be seen all around us.

Think about the ridiculous flat screen TV deal at Best Buy. Or the rock-bottom price of a Kindle Fire on Amazone. Or the $260 weekend getaway at a lake-front resort for $109 on Livingsocial. By the way, the reason travel and hospitality companies struggle with marketing on deal sites, like Groupon and Livingsocial, is because they throw out offers without considering how they should fit into the CVO strategy.

The strategy of Tripwire offers is simple: convert the maximum number of Lead Magnet leads into paying customers, even at the expense of your profit margin, with the understanding that acquiring a paying customer will deliver profit through the next three steps:

• Core Offer
• Profit Maximizer
• Return Path

Ok, now that you understand how to increase the number of customers, let’s talk about increasing the average transaction value per customer.

Step 5 – Offer a Core Product

You likely already have a Core Offer. It’s your flagship product/service.

Most businesses get nowhere by making Core Offers to cold prospects. However, add a Lead Magnet and Tripwire Offer and you’ll see your Core Offer sales explode.

After all, you’ve already had two successful transactions with this buyer.

This is why it’s critical to over deliver with the Lead Magnet and Tripwire.

In some cases, sales from the Core Offer will make you profitable. But if you follow through on the CVO process, you could opt to take everything you make from the Core Offer and reinvest it to acquire more customers. Does that seem a little nuts?

Again, this is how you become unstoppable. And this is what your competitors would never consider doing. You see, your competitors are making a Core Offer and trying to make a living from it. You don’t need to make a dime from your Core Offer.

Remember, as Jeff Bezos says, your competitor’s margin is an opportunity. It is your opportunity to, for example, spend more on traffic acquisition, conversion rate optimization or increase the value of your offers.

It might stun you to find out that many of the most successful businesses in the world make no profit until they reach the next two stages, Profit Maximizers and Return Path.

Here’s where things get very interesting…

Step 6 – Offer a Profit Maximizer

The second of Jay Abraham’s business growth methods is to increase the average transaction value per customer. The Profit Maximizer does just that.

The vast majority of travel/tourism companies don’t have Lead Magnets, Tripwire Offers, or Profit Maximizers. They live and die selling cold prospects on their Core Offer.

This is why they struggle and you won’t.

Would it shock you to find out that McDonald’s makes almost no money on the hamburger.  The hamburger is the Core Offer, but it’s the fries and drink upsell, the Profit Maximizer, that built the Golden Arches.

Best Buy sells laptops and plasma TV’s (Core Offers) on wafer thin margins and makes it up on warranties, installation and Geek Squad support (Profit Maximizers).

Amazon shows you at checkout, “People that bought this product, also bought that product” to increase the Average Basket Value, and maximize profit.

What could you be offering as an upsell or cross-sell? What could you bundle with your Core Offer? How can you enhance your Core Offer through a membership or other continuity program?

Find your Profit Maximizer and you’ll be on your way to becoming unstoppable.

Once you’ve captured those new customers with your Lead Magnet and Tripwire Offer, and Maximized that initial purchase, its time for further growth …

Step 7 – Create the Return Path

The last way to grow a business is to increase the number of transactions per customer.

Enter the Return Path.

The goal of the Return Path is to have frequent, strategic communication with your buyers and prospects that cause them to buy again and again.

Because you have received their contact information through the Lead Magnet you have the ability to continue marketing.

You can offer new Lead Magnets, Tripwires, Core Offers and Profit Maximizers because you have permission to market to them.

Email marketing, content marketing, organic social media, custom audiences and ad re-targeting are tactics used to maintain communications with customers and increase transaction frequency.

How are you ensuring that you can reach your customers again and again? When was the last time you contacted a customer with something other than an offer?

Increase the number of touches with your existing customers, both promotional and non-promotional, and you will increase transaction frequency through the Return Path.

Time to Call it Quits

I understand why you’re frustrated. You’re frustrated because you don’t know IF your ads are paying off. You don’t know WHY you are spending all that time on Facebook. You don’t know WHY you are looking at your website analytics. You have every right to be frustrated, because sales people and consultants are coming at you from every side, telling you these are the things you have to do to be successful.

The problem is, every one of these tactics is useless without a system.

Now you have that system. Apply even one of the steps in this system and you will grow your business.

Apply them all, and you’ll be unstoppable.