October 23, 2012

10% Pre-Tax Profit Absent of Customer Loyalty?

One of the strangest meetings I had was at Shop.org in 2011.  I met with a business owner.  He owned a half-dozen small businesses, each with annual sales of about $3,000,000.  Each business generated 10% pre-tax profit.

In other words, this 30ish year old man was very wealthy.

His entire business model was predicated on search.  Only 20% of last year's customers purchased again this year, and he couldn't have cared less that his repurchase rate was really, really low.

Here's what he cared about ... he cared about when a business hit a plateau.  This told him that the business was "mature", and it was time to create a new business based on search.  This is why he ran a half-dozen businesses ... as one business stalled, he started new ones to replace the old one ... not always succeeding, sometimes winning big-time.

I know, this isn't how you run a business.

I know, this isn't how loyalty experts tell you to behave.

We'll take the newly-minted search buyer, and we'll force all sorts of marketing pabulum upon the customer, all in the effort to encourage the customer to become "loyal".  Then we struggle to produce a business that generates 10% pre-tax profit.

Meanwhile, this guy is taking home 10% pre-tax profit a year, and he couldn't care less if his customers ever buy again.

Kinda makes you think, doesn't it?