What is Customer Value Optimization and How Does it Work?

Growing your business is something every business owner wants to do, but many struggle with.  Businesses like Microsoft, Apple, and even McDonald’s have figured it out, so why can’t you? According to Jay Abraham, an author, business executive, and speaker, there are only three ways to grow a business:

  1. Increasing the number of customers
  2. Increasing the average transaction value per customer
  3. Increasing the number of transactions per customer

There are two commonalities in these three methods:  “increase” and “customer”, with “customer” being the more important of the two words.

Customer Value Optimization, or CVO is the process of achieving growth, because it increases both the value your customer gets from you, which will in turn increase value you will get from your customer.  The fact is, Facebook advertising, SEO, Google Analytics, every one of these are a waste of time if you do not have good CVO. The real profit lies in learning how to apply these strategies to your customer value optimization process.

Determine Product and Market Fit

Your business is focused on a product or service, right?  It shouldn’t be. People buy outcomes, not products and services.  What you’re actually doing when you make a sale is moving someone from a “before” state to an “after” state.  As an example, let’s look at dog food:

Let’s say Jenny adopted a 6-year-old dog, but because of health issues he can’t eat food with certain preservatives in it.  You just happen to sell a dog food with zero preservatives, making your food safe for her dog. You are not selling dog food, you are selling Jenny peace of mind that the food she will give her new dog won’t make him sick.

Market Fit

When determining where your target market for your product/service is, it’s useful to make a Before/after grid, so you can better figure out what outcomes you want to sell.  The grid should have two columns (before and after) and four rows, making eight boxes. Each row will have a question, with eight questions in total:

  • What does your prospect HAVE in the “before” state?  What does your prospect HAVE in the “after” state?
  • How does your prospect FEEL in the “before” state?  How does your prospect FEEL in the “after” state?
  • What is the AVERAGE DAY like for your prospect in the “before” state?  What is the AVERAGE DAY like for your prospect in the “after” state?
  • What is your prospect’s STATUS in the “before” state?  What is your prospect’s STATUS in the “after” state?

Many marketers focus on the after and ignore the before, but showing the journey between the “before” and “after” states will increase the value you are selling to the customer, and therefore you can charge more.  If you are not able to clearly articulate the journey from before to after, you may have an issue with your product or market fit. Every other part of this process depends on having a proper product and market fit, so getting this right from the beginning is vital.  

Choose a Traffic Source

Let’s get one thing clear:  You do not have a traffic problem.  You might have a business model problem, an offer problem, or a measurement problem, but you do not have a traffic problem.  Low traffic is a symptom, not the disease. Google, Facebook, and anywhere else you are advertising are all lining up to sell you targeted traffic, so there’s no shortage of traffic to be the problem.  You need to just understand how much your traffic is worth and how to get the most out of the traffic you get. The goal, no matter what traffic source, is to guide prospects into the Customer Value Optimization Funnel.

Start with a single traffic source, email marketing, Facebook advertising, SEO, etc., and master it before adding a second.  Your traffic strategy begins and ends here. Traffic drives prospects into the CVO funnel, which begins with a lead magnet.

Offer a Lead Magnet

This section and the next (Offer a Tripwire) are how you grow your business via the first strategy of Jay Abraham’s, increasing your number of customers.  A Lead Magnet is an irresistible bribe that gives a specific thing of value in exchange for the customer’s contact information.  No money changes hands, but this still qualifies as a transaction. These are often on your landing page of your website, and must provide tremendous value.  Increasing opt-ins on lead magnets, being at the top of your CVO funnel, will pay big time throughout the other steps.

What irresistible offer can you make?  It doesn’t have to be big and complex. In fact, the simpler your offer is the better it’ll work.  

Offer a Tripwire

A Tripwire is an irresistible, low-ticket offer that exists ONLY to convert prospects into buyers.  These low-ticket offers usually cost between $1-$20, though for higher-priced markets can be as much as $500.  There are two goals of a tripwire, the first is to increase our number of customers (so far we’ve only had leads). The second is to change the relationship you have with your prospect, making them a customer.

Tripwires are not your money makers!  They are to get new customers acquainted with your business so that they feel comfortable buying bigger-ticket items in the future.  Some tripwire offers include:

  • Physical products
  • Physical books
  • Pieces of software
  • Paid webinars
  • A la carte services

You will not make any money on these offers, you might even lose money.  But the point here is to get new customers in the door. Once they’re a customer, the next three steps will be where you see the big payoff.

Offer a Core Product

Now that they’ve purchased a tripwire, now you can offer a core product.  These core products are your flagship products, what your business is known for.  For example, McDonalds’ flagship product is hamburgers. Most businesses get nowhere by making core offers to cold prospects.  There’s no trust between the two parties. If you’ve been following these steps, you’ll have already had two successful transactions with the customer at this point, so it’s an easier sell because they have warmed up to you.

In SOME CASES the sale from a core offer can make a profit, but it doesn’t have to.  Consider taking the earnings from this transaction and reinvesting it to acquire more customers.  After all, the first method Jay Abraham described was to get more customers, so why not try that? You’ve still got two more stages in the CVO where you can make a profit.

Offer a Profit Maximizer

Now is when you start to make money.  Coincidentally, now is also when we move to the second of Jay Abraham’s method of business growth, increasing the average transaction value of the customer.

Most business’s core products aren’t where the profits lie.  Microsoft and Sony, for example, end up losing money on Xbox and Playstation sales.  How do they make a profit and stay in business, then? Easy, they offer a profit maximizer in the form of the games you play on these consoles.  As another example, Mcdonalds doesn’t lose money on it’s hamburgers, but they make much more on the soda and fries, so they push those more than the burgers.  Any offer made after (or in tandem with) the initial sale is a profit maximizer.

Offer a Return Path

Finally, the third method of business Growth from Jay Abraham is to increase the number of transactions of each customer.  Return paths allow you to have frequent, strategic communication with your buyers that will cause them to make another purchase.  To do this, you can offer new lead magnets, tripwires, core offers, etc. that they may have either missed or passed up on along the way.  

Additionally, you can offer things like loyalty programs that reward your customers for repeated purchases.  Social media, content marketing, and ad retargeting are also good tools to consider.

Your customer wants to get the most out of you too.  By following these steps in the process of Customer Value Optimization, you can better ensure that you are getting the most value out of your customers and vice versa.  It’s a long path to get here, but it’s well worth it in the end.

Are you feeling overwhelmed over how to implement Customer Value Optimization into your business strategy? We can help! Contact us here for more information.

Customer Value Optimization
What is Customer Value Optimization and How Does it Work?

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