Why Spending More To Show You Care Makes You More Money

Recently, I took a Crossfit free trial session. It lasted 3 days and at the end, they gave each of us a free PVC pipe to practice with.

It was cool! I felt like a ninja.

There were no strings attached and there was no hard sale pitch at the end. Just a simple statement of the price. Now, selling hard isn’t always a bad thing, especially in an industries where the average person is too scared to even consider selling. But this was an industry where I have been sold harder too and phone called, so it did stand out.

I have gone to several gyms and martial arts demos to try it out over the years and the pitch at the end was usually long and overly pushy.

It was the first time I tried Crossfit and it was cool to see that they spent 3 hours of their manpower teaching us and then they gave us a free toy with no strings attached.

And for once, the toy wasn’t something useless like a “free pen” or  “free hat.” I could actually use this PVC pipe to stretch my shoulders and do the drills they taught me. It was relevant to what they taught.

Quite frankly, not enough people do this. They’re unwilling to spend money on the front-end to get people in the door. Maybe they are scared strangers will take their stuff and run. And there is a small grain of truth to that.

You don’t want to just throw money wildly at someone in hopes they will buy. That will waste you money. But a strategic use of money is a great way of capturing the money you are leaving on the table.

Marketing legend Jay Abraham says that you should be more than willing to lose money on the front end if you make it back later on. This means that you may be losing money on the initial advertisement, but you make it back in time because you have calculated how long the average customer stays with you (it’s called average lifetime value).

Pizza delivery chains do this all the time. They lose money on that first $5 Pizza deal. But it gets you in the door to trying it out. And then you end up returning for years to buy more pizza.

Understanding this strategy will help you find your optimal marketing method for the highest impact.

He’s done this numerous times himself. He let a radio station mention his product and keep all the profits ($3 a sale) for his advertisement because he knew that they would come back time and time again to buy more once customers tried it out.

Tony Hsieh, author of Delivering Happiness and the man who sold Zappos for $1 billion, said in his book that lifetime value of a customer isn’t fixed in time like most financial equations make it seem. He believes you can make it longer by taking care of the customer more and overdelivering.

You gotta care more than others.

This Crossfit event really got me thinking. Their cheapest individual package is $200 a month, which isn’t cheap. Yet I think the free gift might have tipped people over the edge to show that they cared.

I saw someone sign up on the spot for 6 months afterward.

Arguably, their gift could have been even better than a free pipe. The pipes probably cost them a couple bucks from the Home Depot next door.

If you want a simple, no-brainer method of dramatically improving profits, reputation, branding, and culture in the long run, this is it:

Delight your customers by taking the extra mile to care more.

It seems so obvious but you’d be surprised how few organizations and people actually do this. Some may think that they do this. But you just have to survey the customers to realize that they aren’t that impressed.

There’s a gas station I drive by almost every day. I stopped going there to fill up my tank and have purposefully chosen to go to the one next doors. Why?

Because one time, I went in and the owner was incredibly rude to me. His body language, facial expression, and everything showed that he didn’t want to be there. He looked at me like I was an idiot for not memorizing my gas station number before I walked in. He treated me like I was stupid when I interacted with him.

That’s the opposite of delighting your customers. And it left an impression.

In a recent event, Warren Buffett said that you might not remember the price of your first car, but you remember the feeling you got after you bought it: may you didn’t want to go to the same place again because the salesman was a dick or you loved it and wanted to tell your friend.

He went on to say: Do as Jeff Bezos does: always seek to delight your customers over and over. 

While most people do the bare minimum, Jeff has constantly moved heaven and earth to drive down the price of his products at Amazon and increase delivery speed against impossible odds. By taking care of the customer, the customers took care of him (by making him one of the richest people in the world).

Many of the best, long-lasting businesses are defined by this philosophy.

And the best part is it’s so simple.

Now, a related concept that is worth talking about is economic goodwill.

What is economic goodwill?

Economic goodwill is the intangible loyalty, reputation, and trust you build with your customers that you cannot measure with numbers that leads to extra profits.

This is a vital concept in business that accounts for a large percentage of Warren Buffett’s profits in business.

For example, Warren noticed that See’s Candy was doing up to 4 times more profit as their competitors with the same amount of factories and assets.

Now, this was unheard of and the numbers just didn’t make sense. Up until this point, Mr. Buffett was a numbers guy. He compared working capital (the value of equipment you’re using that you own) to the amount of profits you made. He didn’t really care about or know the importance of going above and beyond for the customer. He assumed one piece of machinery in a factory always had to produce the same amount of goods and profits.

It lead to one of his greatest discoveries, and something that he said he would have made him much more money if he had learned this earlier in his life.

The truth is that there is much more than raw numbers and statistics to a great business.

On paper, the numbers may look pretty good, but there are intangibles that turn a business from a good business to a SPECTACULAR business.

See’s Candy had built a reputation that made customers loyal and more than willing to pay more for the same candy compared to their competitors (Hersheys’ and Coca-Cola are other great examples. The knock-off versions are literally the exact same ingredients for a fraction of the price.)

Let’s take Warren’s first big investment, a company called Berkshire Hathaway. It’s his biggest regret, but the numbers seemed awesome: he bought the entire company for much, much less than the market price of the machinery.

What this means is that he could have bought the company and immediately closed down the company and sold all the factory equipment and parts for much more than he paid for the company.

The numbers were good and the price was cheap, but it turned out to be a huge flop because of things he didn’t account for: the employees thought of him as this horrible take-over guy who wanted to destroy their jobs, so he decided to try and turn around the company instead. But then the company started struggled for many years because the industry was suffering and nothing could be done about it. Even though he hired one of the best managers in the business, you just couldn’t compete with companies overseas who could do it for much cheaper.

So why was See’s candy different?

Because they went above and beyond the standard.

Their customer service, their branding, the quality of the candy, and the extra things they did added to a greater end result.

Do you know of anyone in your industry that has conversion rates that abnormally high?

It’s because they actually care and they go the extra distance.

Kimra Luna has an online business. Compared to the industry standard, she gets an incredibly high open rate on her emails and conversion rate to sales on her webinars. Why is this the case? Because she went the extra mile: She did dozens of free webinar presentations with no pitch at the end just to help others. She spent her entire day for months answering every single question people asked her over Facebook and email. And these were people she paid thousands of dollars to acquire through Facebook Ads.

Now, that doesn’t mean you should run to Facebook and spend your money because that’s risky and you can lose a lot of money. The point is that she went the extra mile.

I was reading Creating Magic, a book by a highly successful manager of tens of thousands of employees at Disney. He talked about how some of the best hospitality businesses would go beyond the extra mile: They would listen in on conversations of the guests and if they heard that someone was getting married or graduating college, they would sense a bunch of flowers, a personalized card, and maybe even a card for a free massage.

This creates incredible amounts of customer appreciation that’s hard to measure. This customer may tell their friends, may tweet about it to who knows how many Twitter followers, might post that on her Instagram that has 50 thousand followers, or might come back to that hotel 10 more times than she  would have.

Or maybe do nothing at all but tell her mother.

…who might recommend her group of friends. Who knows?

A few more quick examples:

In the well known book E-Myth Revisited, Michael Gerber talks about how he visited a hotel and told them what type of coffee he liked. Every single time he visited a hotel in that chain after that, no matter where it was in the country, he would enter the room and the exact coffee he like would already be brewed and everything he liked was already set up: the fireplace was on, the orientation of the chairs, the ironing board was out, and so on. And he never asked for any of this.

This is why people are willing to go to a different store and pay multitudes more for Hershey’s chocolate if it’s out of stock. Even when there’s plenty of nameless store brand chocolate there.

This is why people will do the same for Coca-Cola versus store brand Coke.

And if you look at the double-blind taste test studies, Coke tasted about the same, if not worse, than a store brand.

Those results are stunning.

As a quick but important note, economic good will has to be constantly updated or it will erode. Without branding and marketing, Coca-Cola would not stay on top.

Also, realize there’s many ways of creating economic good will. Take your pick: reputation, strategic location, branding, customer service reputation, connections, and so on.

This is why a company like Coca-Cola is worth much, much more than its proper, equipment, and inventory when a store brand is not. There’s something else going on than the numbers tell you.

So although numbers are important, stop focusing solely on statistics.

Also,  remember that your extra contribution doesn’t have to be so massive.

It can be simple:

An extra compliment and smile after every customer service exchange.

Sam Walton of Walmart did one small tweak like this and it did wonders.

He came up with the idea to get thousands of his employees to start going up to customers, smiling at them, and asking if they need to be helped. It’s a standard nowadays, but small things like that can tremendously improve performance, service, and profits.

How to use Fish Hooks for unexpected rewards:

You can do this in your life, just for networking:

In the book the Education of a Value Investor, the author, Guy Spier, learned to use what he calls “fish hooks.” By sending out small gifts and gestures, you do infinitely better than others and are kept at the top of their mind.

In his case, he sent out kind, personalized emails or letters to awesome people he met the night after a networking event. No one else bothered to do this and it kept him in their minds.

They’re called “fish hooks” because not everyone reciprocates. Most of the things you send out mind not get any response. But occasionally you do, and that means a world of difference. This exact tactic is how he formed a great relationship with money manager, Mohnish Pabrai, which ultimately lead to a dinner with Warren Buffett.

It’s also called a fish hook because it opens you up to spontaneity: you have no idea the full extent of what that might lead to because you cannot predict it. One kind gesture or gift you send out can lead to a whirlwind adventure, a dozen meaningful connections, thousands of dollars in profits, or an incredible time doing something you never knew about.

The cool thing is:

It can be inexpensive.

Look at this holiday card Guy sent me:

guy spier holiday card

It’s festive, personalized, with custom photos of his family, and folds out.

Yet, it may have cost him a few bucks to send out, especially in bulk. And the mailing is fully automated. And yet it works because no one else is bothering to do this.

In fact, this is a small example of a fish hook in action. Without him knowing of it, I am writing of what he did, thus letting visitors of this blog become aware of him AND maybe prompting a few to buy his book. He had no idea of the positive consequences of this.

So will you start taking action RIGHT NOW?

How will you add some extra value?

If you don’t have much money to spend, no excuses. Guy Spier’s letter could be further personalized, but would require some manual labor from the source. How about going a little further with personalizing something? You could write a long, personalized letter about how much a person means to you every holiday season. No one does that. 

I’m going try and do that myself. How can I add some extra value to you?

Also, thanks to Evan Carmichael for inspiring this post. This was something I wanted to talk about for quite some time but forget about it. Evan does this himself by sending out free brownies and a personalized card. 

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By Will Chou

I am the the founder of this site and I am grateful you are here to be part of this awesome community. I help hard-working Asian American Millennials get rich doing work they love.

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