James and Tim are back for the last part of their series about doubling your profit and reducing your work hours. In this episode, discover the formula for profit and learn how to get better conversions.
In the episode:
03:20 – Accent exercise
05:07 – A videoke dare
06:00 – A recap of the 2 steps to doubling your profit
07:28 – Today’s topic: Business
08:09 – What is the profit formula?
10:35 – How to get better conversions
18:03 – This is what you should be thinking about
19:20 – The big frequency winner
20:20 – Elements for retaining customers
21:07 – 3 main elements of a membership
22:41 – The reason people stay
25:07 – Salable assets
27:00 – Action step
Internet Marketing Products & Resources
Here you’ll find Tim and James have some things to help your business become more powerful.
Tim: Welcome back listeners to another episode of Freedom Ocean. Me, I’m Timbo Reid, you, you’re James Schramko. How are you, Jimmy?
James: Doing really well. Thanks, Tim. How about you?
Tim: Good. This is a show, for those who have not tuned in before, about the Internet, about Internet marketing, really. So the show about Internet, that would be another podcast that I Iisten to called Reply All. That’s a show about the Internet. That’s their positioning line. But this show is about just Internet marketing and all those questions many of us have, which Jimmy James Schramko has all the answers.
James: We’ve had a lot of audience over the years. We sort of stretched this thing out, don’t we? We broadcast infrequently but we make sure it’s good value.
Tim: Quality mate, not quantity.
James: We’re actually Part 3 now of a 3-part series. The dawn is come. The daylight’s happened, and now we’re going for the evening session on this one.
Tim: Yes. Feeling a little bit romantic, are you Jimmy?
James: Maybe, it must be watching the sunrise everyday. It’s programmed in.
Tim: Does it to you. Well, that is good. You’re telling me these 3-part series type approaches or series-type models of podcasting add a significant listener base because of, what did you call it?
James: Fear of missing out. So if you really want to get more traction on stuff, just say, part 1 of however many, like part 1 of 6, part 1 of 4. It implies that there will be future parts. So you can pick up a subscription. If someone joins after you’ve recorded them, it is tempting to want to listen to all of them, especially if you call back and you refer to future episodes.
So for example, we’re going to introduce what Part 1 and Part 2 were now. So if someone joined us here, they might want to go and listen to them to get the maximum value and that’s because when you stack ideas on top of each other, they can become very powerful.
Tim: One and one equals 11 type mentality.
James: Yeah. Are you going to go the corporate bingo buzzword?
James: Synergy, Tim. It’s got synergy.
Tim: James, I think I’ll take that offline because you’ve hit me with that warning, with that notice. It’s something I am going to have to take offline.
James: What you need to do is to leverage, Tim.
Tim: Oh, I love that gay accent of yours. I didn’t know you had that. That’s kind of like, quite theatrical.
James: Well, theater is good for the listener. Yeah. So in Part 1…
Tim: No, no, no.
James: Oh, come on.
Tim: No mate, we’re not walking away from that quickly. I’ll get to Part 1 and Part 2 and Part 3 in my time. Yeah. What other accents have you got?
James: I’m happy to do it as long as we do one for one.
Tim: One for one? All right. Well, let’s try it.
James: So you give me an accent, Timbo.
Tim: OK. What?
Tim: Oh, no. OK, OK gotcha. I want you to do a Mexican.
James: You want me to do Mexican. This is unbelievable.
Tim: Sort of like, more of an Italian, really. An ItaIian-Mexican, he’s crossed the border.
James: They’re very similar.
Tim: I don’t think the Italians see themselves as Mexicans. I don’t think.
James: You do an Irish one.
Tim: Arrr. To be sure…
James: That’s a pirate.
Tim: To be sure, to be sure. Me name’s Paddy McGee, and I love me Guinness.
James: Oh, that’s good.
Tim: Shocking. Shocking. You’ve got so much admiration for actors. Well, I have anyway.
James: Uh-hmm. They put themselves out there.
Tim: Oh, yeah. Who do you reckon puts themselves out there more? An actor or a singer?
James: Huh. I think guys like Ricky Gervais put themselves out there, like they do some activism as well. They can use their fame for something good.
Tim: I have this dream of one day, someone tapping me on the shoulder and saying, “Hey, listen, Timbo, in the next room, there’s a hundred thousand people screaming your name. They just want to hear you sing one song.” I think that will be really cool. I don’t think it’ll ever happen. There’s not that many rooms that big, but it’d be kind of good.
A karaoke dare
James: Yeah. When you go to the Philippines, I dare you to tackle a Tagalog videoke. Just give it a shot.
Tim: Well, I get videoke. What’s Tagalog?
James: Well, it’s in their language. So you’d have a song you’ve never heard in a language you’ve never spoken. I’ve done it.
Tim: I’d like videoke.
James: It will get a laugh.
Tim: How does karaoke differ to videoke?
James: Well, it’s the same thing. It’s what they call it there.
Tim: OK. I asked a mate of mine what his favorite Filipino dish was the other day, he said barbecue ribs.
James: They have a very strong American influence in the fast food sector.
Tim: And in their accents.
James: Yes. Well, it’s because of the Americans.
Tim: Enough about us, Jimmy. There are listeners waiting with pen and paper in hand, ready to take notes and improve their life and their business life. In the last two episodes, episode 78 and 79 of FreedomOcean, we started sharing three steps. We shared the first two steps to doubling your profit and halving your working hours. It’s kind of nice. Really.
James: It is nice. We should have seen some progress if we’ve implemented those things.
Tim: If you have done anything, we would love to hear you. We’d love to hear your case study.
Tips shared from previous episodes
James: I’ve heard a few people whispering effective hourly rate in the corridors around my community. I think that’s been picking up. Number one, we started with you and we talked about a way to measure your effectiveness, and we talked about the need to see where your time is going. Turn off all your alerts, get a helpdesk, filter things, block time, focus, manage your fear, and harness your willpower and sleep, and get rid of old stuff, eat well, move around, have a routine and some frameworks. It was a pretty comprehensive episode.
Tim: Yeah. Sort of more than one step there. But we’ve kind of summarized it into one step.
Tim: Delete, do, delegate.
James: Yeah, that’s it. Delete, delegate or do. We talked about being the conductor of the orchestra instead of trying to play all the instruments. Standard operating procedures, small batch sizes, and using the right software to manage your team. That leads us to part three.
Tim: Let’s do it.
James: Today’s part. (making sound effects) That wasn’t an insertion. That was just me ad libbing.
Tim: Oh, it wasn’t? I thought that was like Charlie Watts.
James: I know. Hard to tell the difference.
James: See? Not just accents, Timbo.
James: So let’s talk about business.
Tim: Business models?
James: Well, there’s a few aspects of business in this step. But if we get some of these steps, we’re going to get some real “aha” moments. The first one I want to address is the profit formula, which I suspect, not many business owners actually know. It’s worth having a look at as a little refresher. Are you ready for this one? Pen and paper handy?
James: Prospects x Conversions = Customers. You with me so far? Customers x Dollar amount of your sale x Frequency (how many sales) x Percentage margin = Profit.
Tim: Freaking me out. Do you want to break that down?
James: I know. Did you know that formula, Timbo?
James: Yeah, break it down. Let’s say, we could use your website for an example. Let’s say someone comes along to Timbo’s Small Business Big Marketing, they listen to a podcast, they’re a prospect. Timbo says, “Hey, I’ve got a small business marketing community. You should join.” And they say, “Yeah, that’s a great idea. I’ll buy that.” So now, they’ve converted into a customer. OK?
So now, we’ve just got to work out the profit. That’s the dollar amount, so that might be the amount of your membership. How much is your membership, Tim?
James: Times frequency, which means how many months they’ll stay on board. So it could be six months, a year, who knows.
Tim: Well, 10 months just for the sake of argument.
James: 10 months, yup. Times percentage profit margin. So that means you’ve got to take out any costs, which aren’t many. You’ve probably got hosting and maybe a staff member to do some stuff, but it’s probably a very high margin business unit, right? What’s your margin on that one? 90%?
James: Equals your profit.
James: So that’s basically it.
James: So that being said, firstly if you never knew that formula, please learn this one back to front and sideways. This is what it all comes down to. Any one of those points that you want to modify can get you a massive change in profit. And most people focus on the wrong things. I’ll tell you a huge tip here. Focus on the small numbers first.
Tim: Is it because they’re easier to increase in multiples?
James: Exactly. You’ve got it, Timbo. You’re a smart cookie.
Tim: Thank you, James.
James: See, of the formula, usually the smaller numbers are conversions. OK? Let’s say you convert 1% of the people coming to your website. If you could change that to just 2%, that would double your profit. You feel me?
Tim: I do. That’s an awkward phrase, but yeah, I hear you.
James: OK. So how do you get better conversions? Let’s talk about a couple of things to do that.
How to get better conversions
Everyone will focus on getting more prospects, but really they should be focusing on getting more conversions and something else, which I’ll get to in a minute. One thing for sure is podcasting. Letting people have access to great, free content, and letting people get an understanding of who you are, what you’re about, how you go about solving problems, what your capabilities are, that’s going to increase their confidence to trust you.
So I and Timbo both do podcasting. It’s a great way to increase conversions because someone who comes to you feels like they know you, they trust you and understand you. So they’re going to convert at a higher percentage rate than someone called to your website. Do you agree with that, Timbo?
Tim: Yeah, yeah. Totally, totally.
James: Yeah. So you’re reaching more people as well. That’s a side benefit. But you’re in a trusted marketplace. You’re on someone’s iPhone, it’s properly published, it’s legit. The other thing you can do is make sure that your website is in order. The website, for most of us online businesses, is the point of conversion. So your on-page elements have to be spot on. That means removing all the distractions that take away from a conversion. Make it easy for people to find your offer, make the offer compelling, it should be mobile responsive so that it can work on any device, and it should load faster; therefore, it’ll also rank well.
Tim: That’s a really big one Jimmy, that whole website thing, because I’ve been guilty of, and I’m sure many listeners have, where you go, you know what, I know my website isn’t as good as it could be. And then you go and do all this study and you listen to podcasts and you sign up the courses and forums and everyone says do this and do that, and you know, green button is better than red button, and then you’ve got to have this. Like it’s never ending. I think one of the things that I’ve learned, and I reckon you’ve learned, too, along the way, is that just use some common sense.
James: Just keep it really simple.
Tim: Keep it simple. Get rid of the clutter. What do you want people to do when they visit your website? Make it clear. Have a clear call to action. That type of stuff.
James: Do what everyone else does. They pretty much go to my website and they figure if I’m making a few million bucks off it, I might as well start with something like that.
Tim: Copy, Jimmy.
James: There were so many copies of my site, we decided that we should just sell it. So we literally sell our OTR theme, and at the moment, it’s 199 US bucks.
Tim: There you go.
James: So you’re one day away from having a website that’ll probably convert if you don’t have a crap offer.
Tim: Therein lies the challenge.
James: If you look at Freedom Ocean, we have a very clear, simple navigation. It’s directing people to your site and my site, Timbo. It’s easy to find the episodes. It’s easy to leave a voice message. It’s easy to put your email address. It’s a nice, simple site. So don’t get too caught up in the whole thing. You’re about one day away from a reasonably converting WordPress mobile responsive website. If you just want to go down the path, it’s already been proven and tested.
By the way, I’ve got a full-time Web developer who just works on that. So we’ve spent tens of thousands, probably, developing the layout and heat maps and the analytics. We track everything, from sidebar clicks through to where the best opt ins are. All this stuff.
Next step is to keep publishing content because if you keep publishing content, then you have that exposure. Again, your prospects will convert more easily because they’re just getting more and more used to you. They trust you, they know you. So it’s OK to have one-time campaigns. You can have marketing campaigns. But if you have cold traffic, it’s harder to convert than warm traffic, and if you have hot traffic, like people who just come back over and over and over again, they’ll end up buying if you sell something that solves their problem.
Tim: I think again, not enough people give weight to that one. They publish content on their website when they create their website.
James: Yeah. And they just let it gather cobwebs.
Tim: Yeah, yeah. Push the Go Live button.
James: People think it’s a big deal, it’s really not. I publish, and I’m sure you do Timbo, pretty much publish daily or every day or so.
Tim: I got to say, my trick to that, a) Enjoy it, enjoy the process, and b) Make a game of it. Even when at times it can get a bit tough because you’re under the pump, make a game of it. Recently, I was really wanting to get a really interesting guest on the Small Business Big Marketing show, and I just thought, you know what, I could settle for a lesser guest but I set myself the challenge of getting a really good guest. It’s fun. Make a game of creating content.
James: Timbo, you only just have to ask. I’d be happy to come back.
Tim: (laughs) I’m always tempted to revisit our guest but I’m kind of like, I’ve kind of already done….
James: I do it. I do it all the time. In fact, I thrust my old guests back over and over again in a multi-part series. It’s just a winner.
James: You know, it’s like a comedian or a band. They get success from getting a routine or a song set. Imagine if you go to AC/DC concert. You get up there and they’re all new songs you’d never heard. You’d be like, “What’s this?”
Tim: I want the classics. I want “Back in Black.” I went to a Counting Crows concert six months ago and knew one song. And I’m a Counting Crows fan. I was very disappointed.
James: See? So what I do is I figure out what my people respond to and what they like, and I get the guest back. I think I’ve had Luke Moulton back more times than he appeared on Small Business Big Marketing.
Tim: He’s cheap. He’s easy and cheap.
James: Very easy to get. He misses the microphone, I think. But I had a mini-series with Clay Collins, and I’ve had guys like Dan Dobos back over and over again. Because if it’s working, just do it again. It turns out to be really easy.
Tim: Well, my view on that, though, and I agree that’s a good way of doing it, but I’ve done 258 episodes as of today, and I’ve figured there’s a few more business owners in the world that I’m yet to get to before I need to go back overall grand. That’s my thinking.
James: Wouldn’t it be interesting though to see their growth? I was so lucky to catch Clay Collins at the start of his amazing ride. And now they’re up to, I think they’re around 10 million bucks a year or 8 and a half million dollars a year. So I caught that as a time capture as he was going through hyper growth and it’s a really cool thing to be able to listen to and see the change in just one guy.
Tim: Yeah, nice. Right on, Jimmy. So the creation of content is clearly something that people should continue to focus on.
James: Yeah. Keep doing whatever’s driving that relationship. That’s going to help conversion. Again, of the formula, if you remember the formula, it’s Prospects x Conversions. We’ve talked about Conversions = Customers. Then we have Customers x Dollar amount x Frequency x Percentage margin. Now what’s the smallest number there? It’s usually frequency.
Focus on frequency
A lot of people are mucking around with prices. It’s a common question. How much to charge for this? What should I charge for that? What they really want to be thinking about is what my kid thought about it at school the other day when they had a business class and they said, “Let’s make a product,” and they broke off into groups. The kids in my son’s group was saying, “Let’s make it expensive because then we can make more money.” And my kid said, “Well, what we really want to do is we want to increase the frequency. We want to put it on a recurring subscription so that they buy it over and over again. And then the price isn’t really that important.”
See. If you can have a member staying for 10 months, it’s like they’ve bought 10 times your membership. Even if you put your price up 10% or 50% or 100%, you quadruple your price, it’s still not going to cater for that 10 time multiple you get from frequency. So what we want to do is focus on frequency.
Tim: Gee, you must be like a proud father.
James: I was very proud. In fact, I’ve got a whole series called the “legacy lessons” coming where, when we go to motocross, we just chat in the car and he jots down ideas that we talk about. And I’m going to basically pass on what I’m teaching my kids to my customers because I think that it’d be really cool to put it into the world because they’re not really teaching it at school. I think we need to supplement our kids’ education at home.
Tim: Oh, yeah.
Elements of a membership
James: So for me, the big frequency winner has to be recurring subscriptions. I’m just a huge fan of recurring subscriptions, especially memberships. You and I both have them. I’ve got a couple, you’ve got one. Maybe we can just talk about some of the elements that go into making that successful because you want to have one of this. You’re getting smooth cash flow every month; month in, month out, you’ve got this billing coming in in advance. You know that it’s coming in.
Retention rather than acquisition
Your main job then switches from going and getting your customers all the time to just keeping them. So, how you fix frequency is you increase your retention. So that’s where you focus most of your time, on retention rather than acquisition.
Tim: Yeah. OK. Gotcha. Retention being like, continue to improve the customer experience and the value that you give to those people who are already in your membership program?
James: Yeah. So here’s a few elements that are important to make it work; you’re going to need a billing system, so some way to collect the money, and you should make that automated. You’ll need a platform, so whether you’re using Facebook, and I recommend you don’t, or your own private community platform where you interact with people and create a network effect. And then a CRM system. It stands for Customer Relationship Management. You want to be able to stay in touch with these people and send them news, let them know when there’s something happening, like a local meetup or a live event. When some members had a great success or someone’s put a really good resource that you could share, then that’s how you want to communicate with them. These things all help with retention.
There’s three main elements that you need to make a membership.
3 main elements of a membership
It’s content. You need to have content. So you put information there. You don’t need a lot of content. That’s one of the myths. You really just need a little bit of starter content. It could be a couple of posts or an idea. In your case, if you’re a marketing expert, you might have a brand builder training or something like that. That might be the content. How to dissect what you mean to your customers, like what is a brand? One of the key essential elements, print out this worksheet, how do you develop your own brand, and then people could ask questions along the way, which leads to the second thing, which is coaching.
This is where people will really value something where they don’t just get a PDF to download or a DVD to watch, which they probably never will. It’s where you coach them and say, “How are you going with that brand builder? What questions do you have?” Notice I didn’t say “Do you have any questions?” I asked, “What questions do you have?”
Tim: And is this like not one-on-one coaching, you’re talking about some kind of monthly webinar or something?
James: You know, you can have a recurring subscription for mentoring one-on-one. You could have a group. I’d suggest one to many. It’s more leveraged for you. It’s great value for the customer if they can also access many other people’s questions and answers and share ideas or sound out things in a qualified environment, which leads us to the third thing. That’s community.
That is the network aspect. This is where you get the real retention. The reason people stay is because of the community. If you think about when you went on school camp or something, or summer vacation when you went with your friends, or surf camp, or whatever it happens to be. You get there, you go through all the group dynamics; the forming, the storming, the norming, the performing, and then you have to break up and then it ends and everyone cries and hugs and then you go home and you miss them.
But in this case with the community, they don’t have to go home. They could stay a member forever. And really, you want to have this idea of a forever customer. If you have this forever customer, you’ve now turned into a farmer. It’s like owning an orchard that constantly bears fruit. When you want something to eat, you go out and pick some fruit and it keeps growing back instead of being the hunter, running around with a spear, hoping you can catch something tonight.
Tim: Love that. Which part do you enjoy doing the most, Jimmy?
James: Well, of the three main parts of a business model, getting customers, converting them, and then delivering what you saw, I like the getting part in terms of the podcasting. That’s enjoyable. I like having a chat to my mate Timbo and recording it. That’s fun. I do like the delivering. I like answering people’s questions in my forum, which I’ve been doing for about 7 years now. I like seeing people grow. I like seeing their success. And I like dealing with the same people over and over again and watching them become a better version of themselves. It actually requires less effort than constantly having new relationships and new context and new conversations. It’s way more profitable.
Tim: It’s underestimated in any type of business or industry, the idea of creating community and building a tribe. Anyone could do it. And it’s powerful. It’s a basic human need; the need to belong, isn’t it? Whether you’re a florist, or a vet, or an online marketer, you can still create community through forums, through meet ups, through monthly webinars, where you get together, whatever it is.
James: Look at Facebook. It works because people want to be connected to other humans. If you get the recurring aspect right and if you set things up in the correct way, you can actually also have a high sale value. You can actually build an asset worth selling, like selling an orchard. You could sell that orchard because it’s got crops and yields. It’s hard to sell the spear and say, “Works well.” It still requires a lot of skill and direct input; versus the orchard. You can say, “Well, first you’ve got to do nothing. The fruits literally are going to drop off the vine when it’s ripe. Just walk around with a bucket. You’ll be fine.”
Create a salable asset
Tim: Probably a key part of it though, and it’s great to be able to create an asset to sell. I mean, it can’t rely therefore too heavily on you.
James: No. You have to provide a commercial salary for the part that you do. That means if you want to sell it, you just work yourself out of the business and you pay other people to do the things that you’re doing, which is totally doable. Been done by many before. It can be set up. If you remove some of the elements, you can still make it work.
I think a good example of a salable asset is something like Netflix. They’ve created this recurring subscription membership where you get access to content.
Tim: Yeah, but that never relied on an individual, like yours and my forum right now relies on individuals. You and me.
James: Well, I’ve tested it before with SilverCircle, where I pulled myself out of it and I brought in experts and sold tickets to the experts’ content. I just basically brought the customers through the marketing funnel, and then facilitated the running of the webinars, which I could easily pay someone else to do. But I wasn’t the star of that show.
Tim: Yeah right.
James: It worked really well. I imagine I could do that again. If I had a 1- to 2-year window, I could remove myself from the business. It certainly isn’t like that right now, but it’s also a great cash cow at the moment. And I like it.
Tim: You like it. Yeah, exactly.
James: I like it. But it’s a choice. I just want to make sure the people know it’s possible.
Tim: Now, listeners, that is the third step to doubling your profit and halving your work hours.
James: So really, it’s a time to work out your priorities. Sorry, priority. Priority is a singular word. I learned that from Greg McKeown from Essentialism. It used to just mean one thing, and we’ve sort of stretched it into multiple things, which loses power.
Tim: Work at your priority.
James: Work at your priority.
Tim: It doesn’t feel right, but clearly Greg is a grammar Nazi, so I’m not going to cross him..
James: Well, he’s a historian, I think. He’s looked up the original meaning. But if you would listen to Part 1, Part 2 and Part 3, you should have a clear priority. You certainly have a lot of notes. But of all the notes, circle one thing, do that, and it’d be great to get a comment, report back on what happened so that we can find out that we’re not wasting our time.
Tim: Jimmy, do you ever get one of your ninjas to create a nice, little PDF type set up that people could download from the show notes to this of that formula, that business formula?
James: Yeah. I think we’ll make it a picture for the show.
Tim: The profit formula? Yeah, I think it’d be very shareable. Print it out. It’d be just a kind of nice thing to have in the front on your desk somewhere and ask yourself each week, which part am I going to be working on this week or this month.
James: And it’s important to credit some of the people where these things come from. I remember learning the simple version of it from Jay Abraham and I saw the more advanced version of it from Brad Sugars, who I think may have been a student of Jay Abraham’s. It’s important to acknowledge the people who have come before us. It’s certainly not a new formula from us, but it’s certainly one worth knowing. I don’t think many people do know it. When you do know this formula, you can’t really lose.
What topic would you like covered?
Tim: Jimmy, that’s episode 80 of Freedom Ocean. I would love listeners to tell us what topics they would like covered, what are their most pressing Internet marketing questions, what are their biggest conundrums, what’s giving them the absolute sh** right now that’s stopping them from moving forward. Send us an email, send us a voice mail, just go to FreedomOcean.com and just tell us what you’d love us to cover because then we’re creating stuff that you want.
Tim: We love that.
James: This is for you and you can control the direction we take. Make a choice.
Tim: Now Jimmy, I’m off to the Philippines. You are off to Maldives?
James: The Maldives. Yep.
Tim: “Mal-daivz” or “Mal-divz”?
James: We say “Mal-daivz” but I’ve been watching a video called “Serendipity” and they say “Mal-divz”.
James: So I’ll probably go with that. This guy Tony Hussein, or Tony Hinde, discovered it by accident as a surf spot. He ran aground, shipwrecked, and kept it a secret for a number of years. Even when he would go and visit his mates, he’d pretend not to be a good surfer and they’d feel sympathy for him missing out on all the good waves. But he actually had the best waves. Sneaky bastard.
Tim: Love it. Love it. And he then subsequently named it the Freedom Ocean, I’m guessing.
James: No. He actually named all of the breaks there and he set up a resort on Pasta Point and he’s basically married a Maldivian, and had a family, and stayed there, and passed away there on a surf break doing what he loved.
Tim: Wow. Living the dream.
James: “Serendipity” is a good movie. That’s a bonus.
Tim: Nice. Nice. All right, buddy, well, safe travels. Listeners, thanks for tuning in to the Freedom Ocean. Have a great week. Go and implement. If you do, let us know. Until next time. We knew the tag line. Thanks, Jimmy.
James: See yah.