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Marketing mastery: Commanding margins of 40% to 50% or more

June 9/16, 2014; Volume 27/Number 29

By Jim Augustus Armstrong

Screen Shot 2014-07-10 at 11.30.25 AM(Second of three parts)

“Our margins start at 45%,” Craig, a flooring dealer from Florida, recently told me. “And our sales volume is up 60% over last year.”

Craig’s story is not uncommon. Dealers all over the U.S. and Canada are commanding margins of 40% to 50% (and above) on everything they sell. This is in spite of the presence of box stores, cheap-price local dealers and online discounters. They are doing it by using primarily three strategies. Let’s take a look at the first one:

Have a marketing system in place to protect, nurture, grow and profit from your “herd” of past customers.

New customers who come to you through traditional advertising have a ton of baggage. They are skeptical, price sensitive and harder to close. Not so with your past customers. They already know you, like you and trust you. They are far easier to sell to. (This doesn’t mean you should never advertise to cold prospects, but you shouldn’t do it at the expense of marketing to your herd.)

There are a number of benefits from working with past customers. First, you can avoid the massive advertising costs it takes to get a new customer to walk in your door. This savings goes right back in your pocket.

Past customers are pre-sold. On a “ready to buy” scale of 1 to 10, past customers are 9s and 10s. New customers from “traditional” advertising are mostly 1s and 2s, and you have to do all the hard work of moving them up to 10 before they will buy.

Past customers are much more willing to pay 40% to 50% margins than strangers. They are much more pleasant to work with because there’s already a relationship. They don’t treat you like a criminal out to rip them off. They are much easier to sell to. Past customers refer their friends, relatives, neighbors and co-workers.

When I ask dealers if they market on a regular basis to their past customers, the overwhelming response is always no. So here we have a tragic situation. Instead, they spend all their time, energy and money using “traditional” advertising to try to get distrustful strangers to buy from them. Does this make sense? Not if you want to command 40% to 50% margins.

That’s why it’s critical to have a “herd building” marketing system in place. In fact, savvy margin dealers think of themselves as “ranchers.” They realize the biggest profits come from past customers, so they have marketing systems in place to fence in their herds, nurture their herds and protect their herds from poachers.

By making this one critical shift in your thinking—from floor covering dealer to rancher—you will transform your business and life. You’ll leave your competitors in the dust, including Home Depot. Why? Because the vast majority of dealers will never make that shift.

However, if you are unwilling to make that shift, and another dealer in your area is, you’ll probably wind up eating his dust. More and more dealers are shifting to the rancher concept, so be careful you’re not the last one to the party.

In the next installment we’ll cover an effective, affordable and proven strategy for marketing to your “herd.”