Chapter Thirty-Two

How to Mine the Gold from Your Customer List

(And quickly triple the profitability of your online business)

By Ben Hart

80 percent of your profits will come from 20 percent of your customers.

This is known as the 80/20 rule.  And it’s a well-accepted rule of marketing, business and economics.

This rule was first described in a scientific mathematical way by an Italian economist Vilfredo Pareto who lived from 1848 to 1923.

Pareto noticed that roughly 80 percent of the wealth of Italy was possessed by 20 percent of the people.    He studied other countries and noticed about the same distribution of wealth. Pareto also noticed that the 80/20 rule seemed to apply everywhere in life.

Pareto observed that people wear 20 percent of the clothes in our closet and spend 80 percent of our time with 20 percent of our friends.  He saw that 20 percent of the peapods in his garden were producing 80 percent of the peas. 80 percent of gains in the stock market are produced by 20 percent of the stocks. 

80 percent of a company’s profits will be produced by 20 percent of its products and 20 percent of its customers. 80 percent of commissions are earned by 20 percent of the sales people.

20 percent of causes produce 80 percent of the effects.

So the key to tripling your profitability is to quickly find and focus on the top 20 percent of your customers – your best customers.

In my experience, I find the 80/20 rule is more like the 90/10 rule or even the 95/5 rule.

And that’s actually how it should be . . . IF you build your business correctly.

The 80/20 rule is really the minimum ratio you will find if you are not consciously cultivating your best customers – if you are treating all your customers alike.

But if you make a conscious effort to cultivate the top 20 percent of your buyers, and especially the top 10 percent of your “super fans” who are willing (even eager) to spend big money to get all that you have to offer, you will start to see the 80/20 rule morph into the 95/5 rule.

The key to seeing this happen is to have many products to offer that are similar to the original product they bought from you.  Most importantly, you want to offer upgrade products.

Within any group of buyers, what you will find is that 10% are willing to pay a lot of money for the best of what you have to offer.  They don’t really care what the price tag is.  They just want the best.

You see this with cars.

Most people are satisfied just to have a basic Buick or Honda Accord that can reliably get them to work and to the grocery store.  But some will spend $150,000 for a top-of-the-line Mercedes Benz.  And a smaller number want the $350,000 Lamborghini.

The Lamborghini doesn’t get you to grocery store any faster because you still must obey the speed limit.  The Lamborghini serves no practical driving purpose.  But people want it just to have it.  It’s a status symbol more than it is a car. It’s jewelry more than it is transportation.

You have buyers like this on your list.  But you won’t know who they are until you offer the equivalent of a Mercedes Benz and even a Lamborghini for your product category.

People often ask me how to make money with an ebook.  They show me the ebook they’ve written and tell me they’ve heard people are making a lot of money selling ebooks.

My answer is: “You can certainly make some money selling an ebook, but probably not a lot of money.  You need lots of ebooks to sell.  And you need upgrade products and programs to sell.”

It’s very difficult to build a business on just one product.  You need many follow-up products to sell, and upgrade products.  And your upgrade products should not be marginal upgrades.  That’s a big mistake many businesses make with their upgrades.

Your upgrade product should be a ten-times upgrade from your perfectly good basic product. 

Why is that?

Well, because 10 percent of your customers just want the best of what you have to offer, and don’t care much what it costs.  Money is no object for them.  They just want the top-of-the-line.

They buy the Lamborghini. They stay at the Breakers in Palm Beach.  Their wives buy $800 handbags.  You have people on your list like this who love what you do. They love your product.

If you don’t have a 10-times upgrade product to offer this top 10 percent of your super-buyers and super fans, you are literally leaving half your money on the table.  If fact, you are leaving much more than half your money on the table because your profit margin is so much bigger on your upgrade product than it is on your basic product – or should be.

“But, Ben,” you ask. “ Don’t these kinds of customers expect a lot?  Aren’t they demanding?”

My answer is, not really.  In fact, my experience is they are my least demanding customers.

My problem customers are almost always the ones who aren’t spending much money.  You are actually far better off to get rid of those people.

My easiest customers are always the top 10% of my super-buyers who are also my super-fans.  Not only do they have money to spend, not only are they not the least bit troubled by spending money on what they want, but I rarely hear from many of them. 

My super-rich, super-buyers tend to be busy people – as is the case with the super-successful.  They have full lives.  They are not that concerned with getting every last nickel of value out of me.  They buy what they want or need, and move on to the next thing.  And their checks and credit cards are always good.  They never ask for a refund.  They are not constantly worrying if they are being ripped off. They are pleasant to deal with.

So not only are they ten times more profitable, they are ten times easier to deal with and manage.

In fact, the bottom half of my customers really are not profitable at all.  I lose money on those people. 

Why? 

Because half your buyers will only buy from you once, and will only buy your low-end entry-level product. 

Your most expensive buyer is your first-time buyer.  You are fortunate if you are able to break even on your customer-acquisition cost.  Most businesses (especially larger businesses) go substantially into the hole to find a new buyer.  It takes Time Magazine (and most consumer magazines) more than two years on average to pay the cost of acquiring a new subscriber.

So your new first-time buyer is always your most expensive buyer.

In fact, I really do not consider someone a customer until they have bought from me a second time.  Once someone buys a second time from me, I know that person found what they were looking for the first time.  They were happy with what they got from me.

Your profit is in your repeat buyers.  And your really big money is in those who are happy to buy your 10-times upgrade product.  This top 10% will provide half the money for your business and most of your profits if you cultivate them correctly . . . and IF you have a credible 10-times upgrade product to offer.

Repackaging and Repurposing

But isn’t this difficult – to keep creating new products and upgrade products?

No, not really.

The way you do it is to “repackage” or “repurpose” your basic products into various levels of upgrade products.  This is what car companies do.

For example,  Audi is owned by Volkswagen.  The Audi A6 is on the same frame as the VW Passat.  It’s basically the same car as the Passat, with some extra bells and whistles.

But the Audi costs twice as much as the Passat because the Audi is positioned as the high-end luxury car.  But they are essentially the same cars.  Same engines. Same frame.  Same everything.

So if you want to drive an Audi for half price, drive a Passat.  That’s what repackaging can do.

Put a different wrapper on the same product, make it look fancier and you can often charge twice or three times as much for it.

Jaguar is now owned by Ford.   A Jaguar now is just a jazzed up Ford Taurus. 

Just slap a different looking grill and hood ornament, a few other cosmetic differences, and Ford can then charge three times the price for what is essentially a Taurus.. 

Lexus is a Toyota company.  A Lexus is just a jazzed up Toyota Camry.  Same body. Same frame. Same engine.  Just different packaging.

I do very much the same thing with my business.  If I write a book, I can charge $29 or $39 for that.  But if I then take essentially the same material that’s in the book and put it in a three-ring binder notebook and add in recorded lectures on CDs, I call it a course and charge 20 times what I can charge for the book.

I think the reason this can happen is a book looks mass-produced (because it is mass-produced). But essentially the same material in a plain looking three-ring binder notebook looks more unique and more serious.   It looks more substantial.

So then instead of the $30 that I can charge for a book, I can charge $600 or more for essentially the same material that’s repackaged into a course.

A course has much greater “perceived” value than a book.

Sure, the course contains more “stuff” than a book.  It has the lectures on CD.  It contains more exhibits and examples, perhaps also a workbook and maybe an online exam they can take.  So there is more value in the course than just a book. 

But is it really 20-times more value than my $30 book?

What matters is the value in the mind of the buyer.  What matters is “perceived” value.

What makes a $20 bill worth $20?

It’s just green ink on paper.  And it isn’t even backed by anything – such as a big stack of gold somewhere.  Our paper money is really nothing more than coupons that our government tells us works for paying our taxes.  It’s nothing more than that – no different from Monopoly money in principle.  The government can print money whenever it wants.  The government then tells us what it’s worth.  Sometimes our government prints too much money.  This causes inflation.

The only reason why can buy things with this money is because we have all agreed that it’s worth whatever the number on the paper says it’s worth.

What makes the $20 bill worth $20 is that we “believe” it’s worth $20.  The second we stop believing it’s worth $20 is the second it will be worthless.

If a napkin were to fall into your lap with a doodle on it that was done by Picasso while he was sitting in a restaurant, how much would that napkin be worth?

I don’t know.  I’m not an art expert.  Quite a lot, I imagine.

Picasso’s doodle on a napkin might look no better than your doodle.  But the napkin would be worth a lot – perhaps hundreds of thousands of dollars . . . because it’s Picasso’s doodle.  The value is in the mind.

If you hand a bag of gold to a pigmy, he’s not going to know what to do with it.  A bag of gold has no value to the pigmy.  The gold is valuable only if we believe it’s valuable; and it helps if others share this belief. A bag of gold has no value whatsoever to a pigmy.  It’s just more weight to carry around.

Understanding the principle of building “perceived” value is the key to creating upgrade products that are mostly just repackaged versions of your basic product.

So a course that arrives in a box or that’s delivered over the Internet has much greater “perceived” value than a book.

Of greater perceived value still is the live lecture or speech.

If I can charge $30 for a book and $600 for a course that arrives in a box – I will get paid $5,000 and sometimes $10,000 to give a single one-hour lecture – which is also just material taken from my books.

A lecture might, in essence, be a single chapter from one of my books.  But I get paid $5,000 or $10,000 for the one-hour lecture. 

The content is the same as the chapter from one of my books.  The only difference is format – packaging.

How you package and how you position your product in people’s minds determines how much you can charge for it.

Manure can either be a pig pile of worthless cow dung.  Or it can be repackaged and repurposed as valuable fertilizer.

Most businesses are missing the boat by just selling a product one way.

An ebook can be a great lead generation device that you offer free to people who fill out the sign-up form on your landing page.  It can also be printed and sold as a book for $25 or $30 (often to the very same people who already got the book as a free download). 

The same material can be repackaged and repurposed again and sold as a course for $600 or $900.

So, how might you apply this principle to your business?

First, take a look at what you are selling now.

Can you create an upgrade version of essentially the same product – for very little extra effort?

Can you turn the Ford Taurus you are selling now into a Jaguar with just a few relatively minor and cosmetic changes?

A company that has built it’s entire business on this strategy is American Express.

There’s really not much difference between the entry level green AmEx Card, and the Gold card, the Platinum card or the Pearl card.

Sure, you get a few extra benefits with each new upgrade.  But mostly what happens is you just pay American Express a higher annual fee for each upgrade.  The card is essentially the same. 

What people are buying is the prestige of carrying the upgrade AmEx card.

The value is in the mind. The value is in our perception.

Some people are happy to pay triple to own a Jaguar rather than a Taurus because they want the prestige of owning a Jaguar – even though it’s essentially the same car as the Taurus.

Prestige and status are strong motivators to buy an upgrade, to buy the best.  Is a Ritz-Carleton really all that much more comfortable than a Holiday Inn?  Maybe a little.  But is it three times more comfortable?

A wealthy friend of mine once served us a $2,000 bottle of wine -- 1982 Chateau Lafite Rothschild.

Sure, it was good.  But so is my $17 Kendall-Jackson.  I would say the $2,000 bottle was only a marginal improvement over my $17 bottle.
   

But some people are willing to pay a lot for marginal improvement.

People could pay $30 for a  good durable handbag that looks very nice.    Or they can pay Gucci $800 for a really crummy handbag that falls apart and, frankly, looks lousy (at least to my eyes).

When people buy a Gucci handbag, they are not buying a handbag, they are buying the label. They are buying the prestige of owning this very expensive handbag.  They aren’t buying a handbag. They are buying jewelry.

Can you think of a way to create a super-upgrade product like this out of what you are selling already?

It is absolutely for certain (it’s a law of economics) that 5-to-10% of your buyers are willing to pay ten-times what they are paying your right now to have the best of what you have to offer. 

They don’t really care what it costs.    They just want the best – for the same reason that people will pay triple to drive a Jaguar rather than a Taurus.

No matter what you are selling, you need to have an upgrade version.  And it needs to be a substantial upgrade – priced at least five times more (preferably ten times more) than what your standard product costs.

Of course the upgrade product must be a real upgrade.   It must have some significant benefits that are different and better than the basic product.  It can’t be a rip off.

But very often these additional benefits don’t cost you much at all to add to the basic product.

I have an American Express Platinum Card. 

I’m sure there are some extra benefits attached to it.  But I really have no idea what they are. 

I use my platinum card the exact same way I used my green AmEx card when I had that.  There’s no difference.  So why do I have the Platinum card?

I’m not sure.  I guess just because it was offered.

I was offered it, so I got it.  So instead of paying AmEx $60 a year, I now pay AmEx $300 a year for the privilege of having this Platinum Card.

That’s how most people make buying decisions.

“Oh, so that’s the better version.  I’ll just take that then.  Or do you have anything even better I can look at?”

That’s how 10-to-20 percent of your customers make their buying decisions.  They just want the best of what you have. 

If you don’t have platinum products to sell to the top 10 percent of your customers, you are literally leaving about half or even as much 80 percent of your money on the table – money you could have had simply by adding some extra bells and whistles to your basic product.

So take a careful look at what you are selling now. 

Focus first on your best selling product or service.

And then think of ways you can repackage your basic product or service to create an attractive upgrade product for very little extra work.

All customers are not alike – but most businesses treat their customers as if they are all alike.

Repackaging and repurposing what you are selling into more expensive upgrade products and services is just about the easiest way to increase you profitability geometrically.

Data Mining and List Segmenting

I have a big list of leads and customers – more than 100,000 names in all on my email list.

My email list gets bigger every day.  But not all names are alike – even if they have all indicated some level of interest in what I am selling.

About 10% of the 100,000 name on my list have ever bought anything from me.  The rest are just leads that have not panned out, or have not panned out yet.

My rule is that if I can’t turn a lead into a buyer of some kind within 60 days, I won’t be able to after that.  After 60 days of trying and failing, I consider the lead dead.

I stop sending offers to leads who have not converted to a buyer of some kind within 60 days.

Following this rule also helps me avoid being tagged as a spammer.

Among those who do buy,  I know I can increase my profitability geometrically and immediately if I just have a way to identify the people on my list who have money to spend – the rich people.

There are steps you can take to find out who on your list has money to spend. 

This is important because most people cannot to afford your ten-times upgrade product, even if they wanted to.

There are many people on your list who are your die-hard fans, who love what you do, but they just can’t afford to be a Platinum customer.

So you don’t want to constantly hit these people (these great customers who love you) with Platinum offers that they just can’t afford.  You’ll discourage them.  You will make them feel less valuable.

At the same time, the rich people on your list don’t want to constantly be pitched on your $29 product.  Your Ritz Carleton level customers are not interested in your discount coupons for staying at Motel 6.  There’s a “Message-to-Market Mismatch.”

You have different economic classes of customers on your list.

So there are two categories of information you need to be collecting on your customers – Demographics and Psycholgraphics.

Demographics refers to categories such as enthnicity, gender, net worth, occupation, income, location, marital status and whether they are homeowners, two car owners – the kind of information the Census Bureau collects on us.

Psychographics is about our preferences and our emotional and behavioral patterns.  “He’s a Republican who likes to golf and eat ice cream” is a description of psychographics.

We must collect both categories of information to be effective target marketers.

All your customers are interested in what you are selling – or they never would have bought from you.  They share a common interest.  That’s psychographics.

But there’s an affordability gap. 

All kinds of people enjoy pro football. Some can afford to watch only on TV.  Other’s can afford end zone seats.  Others will spend the extra money for seats on the 50 yard line.  Only a few can afford sky boxes.

They all love football – but there’s a big gap in what they can pay to watch the game.

If you are marketing golf vacations to Scotland that cost $6,000, you would obviously want to target avid golfers.  You might want to mail your offer to subscribers to Golf Digest.

That’s a decision based on psychographics.  But you would also want to make sure you were targeting only those who could afford to pay the $6,000.  That’s demographic information.

Your golf fanatic who is just out of college and starting his first job is not going to know what to do with your offers for a $6,000 golf vacation in Scotland that keep showing up in his email in-box.

After a while, he’ll just hit the delete key when your emails come in. Or he’ll automatically pitch your direct mail offer in the trash without even opening it.  And your mega-platinum customer is not going to be impressed with getting your discount coupons for Pinnacle golf balls (a low-end ball).  He wants to be treated like royalty.  And he expects you to know who he is. 

The great marketers do not send out one-size-fits-all offers.  The great marketers create products and offers tailored specifically to both the interests and the means (ability to pay) of the people they are writing to.

Sometimes demographic information and psychographic information overlap.  For example, you might want to send your invitation to golf fanatics who own Jaguars because owning the Jaguar (though psychographic) is an indicator of wealth (a demographic characteristic).

On the other hand, you would not want to send your offer to millionaires who are not golfers.  They could certainly afford an expensive golf vacation, but would have no interest in going because they are not golfers.

For direct marketers, psychographic information is more important than demographic information. 

If you have no way to find people who want what you are offering you have nothing.

If you are selling golf stuff, you will make much more money from your budget conscious golf fanatic than from the super-rich who have no interest no golf. 

And quite often, you find hyper-responsive buyers among people of modest means.  Some people of modest means spend every penny they have on golf stuff.  You certainly want to cultivate this kind of buyer even if he’s not a candidate for the $6,000 golf vacation.

Collecting both psychographic and demographic information on your buyers will help drill deep and mine the gold from your customer list.  Most of your money will come from your hyper-responsive, high-net worth customers who will buy whatever you put in front of them.

They are just die-hard fans of yours.  And they have plenty of money to spend.  They want any and every product you can offer them. For these people, you want to have a mega-platinum product to offer – a product that is 20 or even 50 times more expensive than the basic product 90 percent of your customers are happy with.

So is there a way to quickly identify those who are most likely to be candidates for your skybox seats and who are most definitely not interested in your end zone seats?

The answer is “yes.”  You need to be a “data miner.”

There are some great “data mining” companies that can help you identify those on your list who have money to spend.

Two companies I use most for this are Target America (http://www.tgtam.com) and Wealth Engine (http://www.wealthengine.com).  You simply submit your list to one or both of these companies, and they will tell you who the millionaires are on your file.

Target America’s data base contains 7,000,000 millionaires.  Wealth Engine screens a list against 25 data sources that track real estate and investment holdings, size of pensions, charitable contributions, contributions to political candidates, business ownership, service on foundation and corporate boards, and other categories that indicate wealth.

Axciom (http://www.acxiom.com) is another data mining company. It has access to Census data. So if you think the information you supply on your Census form is private, think again.  Congress recently held hearings on whether it’s right for “data mining” companies to have access to Census data and to use it for commercial purposes.  Axciom is one of the data bases relied on by Wealth Engine.  So by using Wealth Engine, you have access to Axciom’s data.

Experian, the credit bureau, also provides data mining services.  Yup, your credit information is free game for the data miners.  It’s not the least bit private.  Yes, troubling . . . but you can use this fact of life to your advantage.  You too can join the “data miners” – and, by so doing, join the rich.

Dun & Bradstreet’s data base of business owners and executives is another great source.  Wealth Engine also uses D&B as one of its data sources.

The two companies I like best for my data mining are Target America and Wealth Engine. They are one-stop shops for your data mining needs. They are also customer friendly.  The data they provide has proven to be reliable for me. 

Both Target America and Wealth Engine cater to non-profit organizations – helping non-profits identify potential major givers.  Non-profit causes are just what motivate the founders of these companies.  But their service works just as well for a business trying to identify wealthy customers and prospects.

My use of the “data mining” capabilities of these companies has helped me vastly increase the profitability of my Inner Circle program – the online marketing training program I run for entrepreneurs.

By using Target America and Wealth Engine, I am able, for example, to find those on my list who have the resources to spend $5,000 on a one-day seminar. 

On my list of active 2,000 Inner Circle members, about 3% can afford to spend $5,000 to attend a one-day seminar.  But that’s 60 people.  If I get 10 of those to attend, I make $50,000.

Not bad for a day’s work.  Plus I build one-on-one relationships with achievers, with high net-worth people. 

And if they have a great experience at one of my seminars, next time some of them will bring a friend.

“Birds of a feather tend to flock together.”  Millionaires hang out with other millionaires.  So this is a great way to build a clientele of super-high-achieving, high net-worth business owners.

That’s why I spend a significant amount of effort researching who the millionaires are on my list.

My marketing program for the millionaires on my list is completely different than for my basic $38-per month Inner Circle training program.  It has a different look and feel – more closely resembling Ritz Carleton than Holiday Inn.

I don’t want to send invitations for a $5,000 seminar to people who are straining to spend $38 per month for the basic marketing training program. 

They would feel discouraged that they can’t afford it.  They would feel I do not value them.

Sure, I value them.  90 percent of the people on my list fall into this category.  I’m thrilled to have them as customers.  Some of them are great customers.  They buy all my under $40 products.  They just can’t afford to plunk down $5,000 for a one-day seminar.

So I send them offers that more closely align with their financial profile.

I don’t send those who can spend $5,000 offers for $38 products – anymore than Motel 6 should be sending coupon offers to those who customarily stay at Ritz Carletons.

In marketing, you always want to have that “message-to-market match.”

You don’t just want to have part of your message right. Just getting the topic right is not enough. You want to have your entire message right.

Yes, both the super-rich and the budget-conscious stay at hotels and eat at restaurants.  But they stay at very different kinds of hotels and eat at very different kinds of restaurants. 

You want to be whistling the same tune as your customers.  Your budget conscious and super-rich customers have a common interest. They are interested in the same topic.  They both bought from you.  But they are whistling different tunes.  Your message must whistle the same tune your customer is whistling.

You can make a lot of money from both categories of customers – but you need to be whistling the same tune they are whistling.  Don’t try to move your customer out of their comfort zone.  Meet them in their comfort zone.

But there is a caveat to what I have just told you.

Data mining companies such as Target America and Wealth Engine are not perfect.

They have not found all the rich people. There are lots of people out there you would never guess are rich – who are not on any data bases of rich people.  They live like average folks.  Their wealth is hidden away.  Many small business owners fall into this category.  All their money goes into their business.  That’s where their wealth is.  So they don’t show up on paper as rich.  They don’t have a lot of cash lying around.  They don’t stay at Ritz Careltons or own a fancy car.

That’s why it’s a good idea occasionally to send your ten-times upgrade platinum offers to your big list of regular buyers . . . because you will find diamonds in the rough.  

One non-profit organization I’ve worked with received an $8,000,000 gift from the will of a donor who passed on – and who for years had been contributing to the organization at the $25 level. The charity (Young America’s Foundation) had no idea this donor had this kind of money.

So you never exactly know who is on your list – even if your “data mining” and research is state-of-the-art.  I’m always surprised by who the rich people are.  The world’s second richest man Warren Buffet still lives in a modest house on main street in Omaha.  He lives like an average person. Bill Gates prefers to buy used golf balls because they’re cheaper.  Go figure.

The key point is that once you have found your Platinum customers, stop sending them your low-end offers.  Put your Platinum customers on their own list.

This is called “List Segmentation.”

Segmenting your list and sending offers tailored to the demographics and psychographics of your various segments is critical to your success.  It allows you to achieve a much more precise “message-to-market” match.  It allows you to send super targeted offers to each segment on your list so that you are always meeting your customers in their “comfort zone.”

So stop sending one-size-fits-all offers to your list.  That’s the big mistake most businesses make.

Instead, craft highly tailored offers designed specifically for each segment on your list (each segment representing a different category of person).   Don’t think of your list as just one list.  Think of your list as many lists.  Treat each list differently.

This is  how you do target marketing the right way.  This is how you transform a marginally profitable list into an oil well that never stops gushing money. 

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