Three numbers you should know: the cost of customer acquisition, cost of customer retention, and  value of a customer.

Also, know the difference between your average cost/value and your customer-specific cost/value.  Average cost/value is useful for planning and projecting.  But for management and strategy, you’ll want to know customer-specific cost and value.  Why?  Because then you can try to find more prospects that look like them, for the most profit (and probably the most fun).

As part of your marketing or demarketing analysis, these calculations should turn into what your sales team calls “qualifying criteria” for evaluating leads.  A sales team that isn’t obligated to qualify its leads is a sales team that’s going to cost you real money.  But sales teams aren’t usually the kind of folks who like to spend time on analysis.  If you’re the boss, or if you’re the marketing chief, you need to make these numbers happen.  Get to it!

Last week, one of my longtime business friends was kind enough to introduce me to one of his new colleagues over lunch. I was grateful for my friend’s effort, but a touch horrified when his words of introduction described me as still doing work that I quit doing at least two years ago.

When it comes to marketing my own business — letting good friends and colleagues know what I’m doing and what I want to be doing, and what’s different from what I used to be doing — I’ve clearly been falling down on the job. Talk about your cobbler whose kids have no shoes!

Step Number One — I’m adding “Marketing and Management Consulting” to my email signature.  Steps Two and Three will be to find some clearer words about what I want to do for my clients, and to actively spread the word. I’ll keep you posted on how this self-consult works…

The first purpose of a small business is to serve the entrepreneur who created it and who owns it. The business may have other purposes: to serve customers and even to serve the community. But before these, the business must serve the entrepreneur.

How does a business serve its owner? Certainly, the business should make money.* Beyond that, the business should make the owner happy: through the nature of what it does, through the things it allows the entrepreneur to do with his or her time, through the daily experiences that the entrepreneur has while running the business.

Every economist understands that if a business doesn’t succeed in its obligation to serve customers, it’s not going to be in business for long. But not everyone remembers that if a business doesn’t succeed in its first obligation to serve the entrepreneur, there’s not much chance that it will keep serving its customers well, and there’s not much point trying.

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If the business doesn’t make money, then it isn’t a business, it’s a hobby.  Or at best, an unintentional “nonprofit organization”.

Don’t print a testimonial that praises you for something you don’t want to do.

One of my clients occasionally works miracles for its customers.  When they feel they ought to, my client can pull off a rush job, manage a customer’s disorganized team, and do it all at a rock bottom price.  Sometimes the customer sends an effusive thank you note for the miracle, detailing everything and saying, “feel free to use this as a testimonial.”

My client is smart enough to leave the comments off their website.   That’s not the kind of business they want to attract.  So why would they want to advertise that they do it?

Winning companies make a habit of doing things that are good for their health.  That means choosing work (whether they be projects and clients, or products and market sectors) that adds to the company’s bottom line, assets, and general happiness.

What do you need for a track record of smart choices?

1.  Knowing what works for you.

2.  Evaluating projects (or clients, or products, or market sectors) before you pursue them.

3.  Pursuing only the projects that make sense.

4.  Working the projects you win to make sure you’re doing what you intended.

5.  Measuring your results, during and afterward.

6.  Tuning the process to make it better each time.

If you don’t care where you’re going, it doesn’t matter where you go.  But I suspect you care where you’re going.  And please, remind everyone on your staff (including yourself)  — financial success is measured by net income, not gross income.  And if your staff don’t know how to tell whether their work is yielding red or black net income, think about how to change that.  Pronto.

Demarketing requires discipline: the discipline to decide what you’re not going to do, and then the discipline to stick with the decision.  Some people have this kind of discipline in spades:

Xiang Yu was a Chinese general in the third century B.C. who took his troops across the Yangtze River into enemy territory and performed an experiment in decision making. He crushed his troops’ cooking pots and burned their ships.
He explained this was to focus them on moving forward — a motivational speech that was not appreciated by many of the soldiers watching their retreat option go up in flames. But General Xiang Yu would be vindicated, both on the battlefield and in the annals of social science research.

In The Advantages of Closing a Few Doors (New York Times February 26, 2008), John Tierney discusses the work of MIT behavioral economist Dan Ariely.  As Tierney describes, Ariely proves scientifically that brainpower is not a sufficient driver for discipline:

Most people can’t make such a painful choice, not even the students at a bastion of rationality like the Massachusetts Institute of Technology, where Dr. Ariely is a professor of behavioral economics. In a series of experiments, hundreds of students could not bear to let their options vanish, even though it was obviously a dumb strategy (and they weren’t even asked to burn anything).

The experiments involved a game that eliminated the excuses we usually have for refusing to let go. In the real world, we can always tell ourselves that it’s good to keep options open.

…Your child is exhausted from after-school soccer, ballet and Chinese lessons, but you won’t let her drop the piano lessons. They could come in handy! And who knows? Maybe they will.

In the M.I.T. experiments, the students should have known better…

But they didn’t act like they did.  Read the article and learn about the psychology.  Then remind yourself that discipline is hard, and prepare yourself for the effort.

More on demarketing:

In the mid-1990s, I read a book (title long forgotten) in which the author quoted an interview with the CEO of a large and venerable Japanese company. When asked, “what is the difference between Japanese and American businesses?” the CEO replied — after a long pause — “Japanese companies have a stronger sense of what businesses we will not do.”

– Thank you in advance to any reader who can point me to the original citation.