The business is healthier, as a result.
Now, businesses usually make one of two mistakes, when it comes to customer acquisition:
- Under Investment, in order to protect the short-term profitability of the business.
- Over Investment, in order to protect top-line sales.
The business that we are analyzing is over-investing, in fact, it is over-investing badly.
Look at what happens when we cut back on catalog customer acquisition activities by 60%, in this case.
This business, from a profit standpoint, is probably at an optimal level ... generating around $12,000,000 of Earnings Before Taxes a year. Now, there's a price to pay for this level of profitability, because we end up with fewer new customers, yielding a business that generated only $90,000,000 of annual demand.
Both business scenarios probably have similar value:
- A $106,000,000 business generating maybe $9,500,000 of annual profit.
- A $90,000,000 business generating maybe $12,000,000 of annual profit.
But here's what matters, folks.
What matters is that a business, even a failing business, can be improved. And if the performance of the business can be improved, then the value of the business can be improved.
2012 is a good time to start thinking about an exit, especially if your business caters to Judy. When a business owns a customer file with 50% or greater penetration among Judy's generation, then the long-term prospects of the business can be questioned. This gives the business owner or CEO an opportunity, a five year window, to significantly improve the productivity of the business, in preparation for an exit.
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