TSPBizPro.com » What’s a compelling offer?

What’s a compelling offer?

Posted by Tony Plies

This is a question I get a lot when my clients get to this part of their Virtual MBA curriculum included in our online Business Academy. While it’s all explained in their classes, it’s typically the first time they’ve heard this concept. Of course, they know what it means – it’s pretty straightforward. They simply need some examples to understand what it is and what it’s NOT.

Let’s be clear: a compelling offer is NOT what you see and hear in typical advertising. It’s NOT a discount, it’s NOT a sale, it’s NOT “free estimates”, it’s NOT “family owned”, or “call today” or “best selection”, “greatest volume”, “lowest prices”, or any of the typical platitudes you see and hear in your daily bombardment of traditional advertising.

No, a compelling offer is, well, compelling. It means an offer that compels people in market for what you sell to take action. It’s that simple. It’s the competitive aspect of marketing that makes your offer the “no-brainer” solution to consumer buying issues in your genre.

But devising a compelling offer is not always so simple. What usually is involved in a compelling offer is knowledge and creative thinking. The knowledge generally comes from knowing your costs, Yep, you must know what your TOTAL cost-of-sale is. That means not just what you paid for it plus your mark-up, but what you paid for it, your costs included in any sales commission, administrative costs, and even fixed costs like building lease payments, insurance, and all the associated costs of running your business.

If you’re not factoring in all your variable costs plus your fixed costs and plugging your margin into the total number, then your profit isn’t what you think it is. That will affect your cashflow negatively. That’s why it’s not uncommon for my Advisors to hear “How come my CPA says I’ve got a profitable business, yet I’ve got no cash?”

Figuring out how to get a true profit margin is in another post. For now, we’ll assume you’ve got your costs and profit aligned with your products and/or service margins. So, you’re now ready to continue building your compelling offer(s).

Next comes vendor negotiations. Can you get a discount for buying bulk? How about guaranteeing a certain volume or similar for a reduced cost? Ask your vendors. In today’s world of escalating prices, vendors are keen to keep the business they have, and many will provide some sort of deal just for asking. Especially if you tell them you are revisiting supplier agreements in an effort to cut costs. Most will give you a 10% discount right off the top.

Think about that: if you’re spending $25,000 annually with a supplier, a 10% discount is saving you $2,500. While that may not seem like a lot, that is 100% profit in your pocket. If you’ve got a 10% net/net margin, that 10% supplier discount is 10x your profit margin. That means you’d have to sell $25,000 worth of products or services to put $2,500 in the bank. You just did that with one vendor telephone call.

Can you think of some things you could do with an extra $2,500? Do that with all your vendors and you might be surprised at what suppliers will offer to keep your business.

“It never occurred to me to look at upstream and downstream vendors to build a compelling offer my competitors wouldn’t know how to match. I got calls from a couple of them wanting to know if I was trying to run them out of business. This was the easiest improvement I ever made in my sales effort, and it didn’t cost me an extra dollar to do it.”
John D. Weber

You might also find some surprises that lead to compelling offers for your business. Here’s an example:

A sunroom builder and all of his competitors buy the same products from the same wholesaler. They all build the exact same sunroom and sell it for the exact same price. There is absolutely no difference in quality, materials, price, or craftmanship. So, the builder is telling me “You can’t help me. There is no difference to promote.”

But all is not as it seems. I asked the builder, “So, what is the next thing people buy after buying a sunroom?” The builder just looked at me. “Huh? What do you mean?”

“Well, people don’t sit on the floor in an empty room, do they?”

Through the Business Academy training, the builder learned techniques for negotiating a better deal than his competitors. He also learned through the Academy how to negotiate “upstream” and “downstream” products and services. That means working with vendors that supply products or services that naturally fit before or after the main purchase.

The builder negotiated with a furniture wholesaler to feature five (5) different ensembles of furniture – in fact, he obtained 15 pieces of indoor/outdoor furniture for $1,100 so he could sell his sunrooms fully furnished for the same price as his competitors’ empty rooms. After that, he determined he could wire the rooms for surround sound for nearly nothing (they were already building the walls & ceiling, so wiring was easy). Then he added in a wall-mounted 55″ flat panel TV and a ceiling fan for a total of another $175 per room.

So, for just under $1,300 in margin, he could sell his fully furnished sunrooms for the same price as his competitors’ bare rooms. Did he take a little less margin? He certainly did – but he more than made up for it on a lot more sales volume. His increase in market-share overwhelmingly made up for the little less margin he took to dominate the business.

His compelling offer?

“Buy our sunroom fully furnished with your choice of 5 furniture ensembles, big screen TV, surround sound, and ceiling fan for the same price as their empty room.”

He showed pictures of his finished room fully furnished versus their empty room with the headline, “Not all sunroom builders are alike!”. So, if you’re in the market for a sunroom, which would you rather have?

Now THAT’S a compelling offer. Think like a consumer. If you were in market for a sunroom, which one would you choose?

This works for ANY business.

If you put your mind to it, maybe do some negotiating, you too can come up with an offer that’s more compelling than your competitors and thus increase your sales volume, market-share, and PROFITABILITY.

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