Jeff Bezos, CEO of Amazon.com, has many famous and popular quotes. However, there is one quote that sticks out and hints at the direction not only Amazon is heading, but where business is going in general.
This quote is not only sums up his business building philosophy and the direction he wants to take Amazon, but also provides a solid foundation for dominating your market and industry now and into the future. Here’s a few tips extracted from this quote for achieving the kind of market dominance that Amazon is famous for.
Cash Flow Is King, Not Margins
Amazon scares everybody. It’s not only because they have the largest and most easy and intuitive e-commerce platform in the world. It’s because of the person in charge of it all and his overall mindset.
A quote from an article on BusinessWeek sums it up nicely saying,
“Bezos is more concerned with driving cash flow than making money because he believes the opportunity offered by the Internet, and by e-commerce, is massive and still largely untapped.”
Your first reaction to that maybe something along the lines of, “well I want to make a profit from my business, not just increase cash flow”. Think back to that original quote, “your margins are my opportunity,” and ask yourself what if your competitors followed this quote in their business and you did not. Where would they be in one year, five years, or 10 years down the road here compared to you?
The thing to remember is that it’s not necessarily about profit margins, it’s about being able to pay more for a customer than your competitors. And that’s exactly what Jeff is focusing on in order to grow Amazon and capture what he believes is a largely on untapped space in e-commerce.
What if instead of focusing on profit margins, you focused on engineering your business to pay more for customer that all of your competition?
Conversions Are Important, But Not Everything
One area of focus for increasing cash flow is by increasing your conversion rate of your website as a whole. This is not about increasing the conversion rate of one page. Rather, it’s about seeing your overall website as one large sales funnel and optimizing each piece individually to produce exponential increases.
While conversions are extremely important, they are not everything. If you already have a sales funnel that produces a large order value per transaction then optimizing different parts and pages of your sales funnel is a great place to start. However, there comes a point where increasing conversions provides diminishing returns. At this point, instead of focusing solely on increasing your conversion rate, you need to focus on increasing lifetime customer value.
Focus On Visitor Value & Average Order Value
Once you have aggressively optimized every piece of your sales funnel to convert visitors into customers then it’s time to start focusing on the bigger picture. What’s that big picture? Lifetime customer value.
Lifetime customer value can be summarized into three main components: (1) How many new customers you acquire on a daily basis, (2) how large of a transaction size they spend, and (3) how frequently they conduct transactions with you.
The quote from just above hints that Amazon has a long-term focus on increasing lifetime customer value instead of short-term profit margins. This is the path to total market domination. This is where the real leverage is.
When you combine and aggressive, continuous approach to optimizing your sales funnel and focus on the big picture, of increasing lifetime customer value by increasing the number of customers, the size of the transaction, and the frequency of transactions, then you can have a competition crushing, cash flow generating machine.
This is where things are going in 2014 and beyond. You need to be focusing not only on increasing your conversions, but also increasing lifetime customer value as well. Next time you are thinking about enjoying short-term profit margins just remember the quote from Jeff above.
It’s either going to be you seeing your competitors margins as your opportunity, or your competition seeing your profit margins as their opportunity.
So which one is it going to be?