The ultimate financial leverage

Sep 01, 2006

When you make an investment of any sort, there is always a correlation between risk and reward.

To make £1 million from a passive investment requires you to have and risk a substantial amount of money with no control over the results because you’re betting on what someone else does, which in turn is likely to be influenced by factors beyond your control.

Running a business, on the other hand, gives you total control over where your investment is going because the ultimate financial leverage is available to you. That leverage is your marketing.

Essentially, there are two types of leverage you can apply to your business.

Bad leverage is anything with a lot of associated risk or financial danger. If it doesn’t work, you could lose almost everything – and if you’ve borrowed money, that could mean losing more than you invested in the first place.

Good leverage, on the other hand, is where you can control, minimise or even eliminate any risk or danger yet still have almost unlimited upside potential.

By applying a series of simple marketing techniques to your business, making small improvements, tweaking what you already do and doing things that little bit better (often for little or no extra cost), it’s possible to achieve massive leverage and dramatically improved results.

If you approach your marketing in the scientific manner we advocate, you can pretest a variety of marketing approaches inexpensively. By measuring and comparing the results produced by each approach in turn, you can discover exactly what works before you invest serious sums of money into any one strategy.

Once you’ve isolated the elements of each approach that work most effectively, you can multiply your results again and again by bringing together various combinations that are proven to work together, thoroughly exploiting each approach in turn by layering one effective approach one on top of another.

This can take you from arithmetic to geometric and even exponential growth and give you totally predictable results with a return of hundreds or thousands of per cent on your investment, all completely within your control – a virtual impossibility with any passive investment.

If that sounds too good to be true, let me explain why results like this can be both certain and predictable.

Let’s say you have 1,000 current and/or historic clients. If you’re not constantly communicating with them but they know who you are, they value your product or service and they appreciate the way you do business, these people are likely to be very responsive to any relevant offers you might make.

It will cost you about £500 to send out a sales letter to 1,000 clients. By pre-testing several variables in your sales letter, it’s quite possible to bring the highest performing elements together and generate 10pc, 15pc, 20pc or greater response.

If you achieve a 10pc response to a product or service you’re offering for, say, £600, you’ll generate £60,000 in revenues for an investment of just £500. In other words you’ll have achieved 120 times return on your £500 marketing investment in a matter of days or weeks. That’s 12,000pc.

While it’s extremely rare for a passive investment to deliver anything close to this sort of stellar return, results of this magnitude can be achieved every day in almost any business situation by implementing the right marketing strategies effectively. But that’s only the beginning.

If you currently have to interact with 20 prospects to gain one client and you introduce better conversion strategies that improve results from one in 20 to one in ten, you’ve doubled your new business and sales revenues. That’s really great leverage.

If that one customer typically spends £250 and you now introduce some simple strategies that increase your average transaction value to £500, you’ve doubled your business again and leveraged it substantially.

If that customer had bought from you once a year and you introduce some simple strategies to bring them back three or four times a year at the same transaction value, you’ve potentially tripled or quadrupled your business again.

You will have achieved leverage upon leverage upon leverage. This can result in exponential growth and it’s easier to build your business this way than to do it the hard way that most people choose.

The likes of Dyson, eBay, Amazon, Dell, Direct Line, Apple’s iPod, Nokia, IKEA, easyJet, Red Bull, Orange, Carphone Warehouse and Virgin have emerged from obscurity to achieve industry dominance in just a few years by leveraging everything they do. The application of the same marketing principles has also taken some of the world’s most successful entrepreneurs to where they wanted to be.

If you run a business, you’re in the most exclusive and prosperous club in the world because your business has virtually unlimited potential. You’re only restricted by how many concepts, tests and different marketing approaches you can combine and implement in a given timescale and by how much geometric progression you’re comfortable with achieving or are capable of handling.

Your business is a legal licence to leverage up, up and up again. The moment you realise this, you can double and redouble your results merely by adding marketing strategies and implementing them in a scientific way, then by adding yet more strategies.

When you do that, you not only keep increasing your upside return, you keep lowering and eliminating your downside risk.

When you adopt this marketing leverage mindset, you’ll be able to do more business with more customers more often and more profitably.

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