The Compound Effect

One of the really powerful numbers around Internet Marketing is something that I call The Compound Effect. You will have seen The Compound Effect at work in many areas of life, not just in money. The Compound Effect exists everywhere. So, let’s discuss how The Compound Effect will completely turn your Online Marketing Success around.

This ties in with other messages in this program, like building a tribe and it certainly works for when we get on to building up relationships in Social Media. So how does The Compound Effect work for Online Marketing? In the Lifetime Customer Value section, we used the example that after 4 years of a relationship with a customer, they are worth £20,000 to us as a Lifetime Customer Value. That figure was based on profit. After reading that chapter, you should have calculated the Lifetime Customer Value for your customers.

Let’s imagine that you’ve got a really happy customer; what is the likelihood that they will refer other people to you? Also, if they are going to refer other people to you, how many people might that be? Quite often I’ll get people phoning up into the office saying; “Fred Smith told us about you etc.” It is all a part of attracting customers to your business. So, let’s take a look at how that starts to affect the numbers. If one customer delivers two referrals for example, how does that affect us financially? £20,000 now becomes £60,000.

When we talk about two referrals, then that is one every other year if we’re talking about keeping a customer for 4 years. Do you think in your business, if you provide a fantastic service, that you ought to at least get half a referral from your customers per year? I would hope that the answer is yes! That’s why we’re working towards getting you into the pattern of keeping customers so happy that they do refer more business your way.

But of course, it doesn’t stop there with The Compound Effect. If your new customers each refer two further clients to you during their 4 years as a customer, then the original customer value now increases to £140,000. Imagine what happens when those 4 customers now refer two each; that’s another layer. That’s 8, on top of the 4, on top of the 2 etc.

The Compound Effect really builds these numbers up. What I want you to do now is have a look at how you could get more referrals from your existing customers. That could include improving your existing products and services; it might be about communicating with them. People won’t refer business to you if there’s no value in what you deliver.

Start to build up a profile of what gaining a new customer in your business might be worth to you if you could apply the Compound Effect. Remember, it is vital you keep those customers raving fan happy about your business throughout your relationship.