How to Increase Your Profitability per Customer

Text of my newsletter from 24th May

Two months ago, I started a membership site with a business colleague. Well, to be truthful, it didn’t start as a membership site, but we’ve turned it into one.

Why? Because the membership site model creates predictability in our income, as members pay their monthly subscriptions.

There are a ton of tools available today that make starting and running a membership website a straightforward process, but a membership site is not the only way to generate recurring revenue.

I created a recurring revenue stream through offering maintenance and support plans to customers of my website agency business.

The holy grail for any business is to generate recurring income while reducing your cost of customer acquisition.

If you’re selling a single product, whether online or off, you have to keep your promotion activity going in order to keep that stream of single-purchase customers coming.

So you have a constant outgoing expense for marketing and promotion.

But if you have a recurring revenue stream from existing customers your profitability, at least on those customers, is many times higher.

Of course, you need to be looking at customer profitability over time, as opposed to per transaction.

If your average cost of acquiring a new customer is US$35, and they pay a monthly subscription of US$10, you’ve recouped your acquisition cost after 4 months and every subscription payment thereafter is pure profit.

You can still market and promote your business to bring on more customers, of course, but, as long as they are recurring-payment customers, they will be highly profitable.

The other way to increase profitability per customer is to upsell them with new addons, or better versions of what they’ve already bought.

But I like the recurring revenue (subscription) model because it’s lower on the radar, and can be just as profitable over time.

This week’s articles

This week I’ve linked to two articles on ways to increase the profitability of your business, 8 ways to make working from home more productive and enjoyable, and marketing tips for lawyers (that actually apply to any business!).

The best way to increase your profitability

Growing your customer base is expensive – if not in dollars spent on advertising and promotion, then in your time. And your time is valuable.

So the most cost-effective way to increase your overall profitability is to increase the amount your existing customers spend with you.

A no-brainer when you consider the cost of acquiring a new customer.

Here are some examples of ways to do that:

How to increase your profitability

How to set up and grow a membership business

In this 46-minute podcast, Shane Sams discusses with Stephen Gates how he (Stephen) went from being an electrical engineer to starting a blog, creating his first product and growing it into a membership site.

The major benefit of operating a membership site is that your revenue stream becomes more predictable – it’s the Monthly Recurring Revenue stream, that I talked about back here.

Listen to Stephen’s story as he describes how he grew to making US$10K a month:

How to start and grow a membership website

8 tips to make working from home productive and enjoyable

I remember on the first day I was fully independent with my (then) new business feeling a bit lost: I had been used to the structure which defined my day as a corporate employee, and that structure was suddenly gone.

And I’m not the only one to have had that experience!

Here are personal tips from 8 entrepreneurs who work from home, on how to define a new structure and maximise your productivity:

8 tips to make working from home productive and enjoyable

4 Marketing tips for lawyers (that work for all businesses)

This article is focused on marketing a law firm and, if you’re a lawyer who’s considering setting up on your own, I definitely recommend it.

But these marketing tips work for any business.

4 marketing tips for lawyers

Fun flashback

As someone who grew up with the Beatles, the song I’ve linked to this week is pretty emotional for me.

It was released in October 1980, after John Lennon’s ‘lost 18 months’, when he had got himself straightened out and was back together with Yoko. You can hear the optimism.

And 6 weeks later he was shot on the steps of his apartment in New York City.

What a tragic waste of everything.

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Cheers,

Martin Malden

Martin Malden
Owner – WealthyDragon

Website owner: Martin has been working online since 2006 and focuses on two areas: 1) affiliate marketing and 2) designing and building websites based on WordPress. He has his own WordPress agency, and serves clients in Hong Kong, Australia and the UK.