A strategic alliance is when you and another business go into a loose partnership, and help each other make extra profits. Alliance is a really good word!
For example, a handyman and a painter may refer each other and give each other a referral fee or vice versa. Suddenly each one of these business owners has a “sales person” working for him with no wages or salaries, no additional insurance or vehicles.
There are many types of strategic alliances and today we will go through a fewToward the end I’ll go into detail how I’ve set up one of my alliances.
So what is a successful Strategic Alliance?
A strategic alliance is NOT selling at wholesale. It is a way that both partners can make more money from the strategic alliance than it costs them. That is what will be considered a success.
Before getting started, there are a few things you need to think about in depth…
1. Know your cost of doing business.
This includes the cost of printing, envelopes, phone calls, schmoozing with the other business owners and more.
2. Know your margins.
You need to know the net profit you make from anyone who buys your product or service. By understanding how much you actually make from each sale, you’ll be able to work out the % response required to make your campaign profitable. Make sure to factor in everything. At the end of the day, many businesses fail because they don’t count on the little things. What looks like a great profit margin is whittled down to nothing by the little things like gas, lunches, miscellaneous expenses… The more accurate you can be, the better the decisions you’ll make on how to set up your alliances.
3. Lifetime Value.
Each customer has a lifetime value. If you view each customer as a single transaction, you are thinking short term. You are setting up your business on a short term basis without realizing it.
Remember, a new and loyal referring customer will make you a healthy income over the course of your lifetime. Hence lifetime value. This is where long term thinking comes in, as well as knowing what your average sale is.
Example: Let’s say your average sale is worth $200, your customers normally buy from you 2x a year and your average customer has stayed with you for 5 years. That customer is worth $2,000 in business, plus any referrals they send your way.
There are actually companies that will acquire customers for the cost of the advertising, knowing they will not make any money until the second sale. So if you know your numbers, the future is yours.
What are some things that make a strategic alliance successful?
The Right Attitude … One thing you’ll discover is that you are doing the other business a service as well getting more business yourself, totally a win, win situation. You need to understand that they’re getting as much benefit as you are. When you approach them, do so from a position of power. Your attitude should be “I’m going to help you out. This is a great opportunity, and I’m going to be selective with who I work with.”
You are going to look for businesses that operate with the same ethics and principals as you do.
Of course, if your offer to the other businesses is not strong, you’ll be fighting an uphill battle from the outset.
Targeted Lists … You don’t want to deal with businesses and customers that are unrelated to your line of work. You need to choose businesses that deal with almost identical customers to you.
For example your target customer might look like:
- People who own high end homes
- People who are absolute music fanatics
- People who have pets that do not have children
- Single professional women who own homes over 300k
Your customers need to be definable in terms of age, sex, interests or income.
Offer … A strong offer will make all the difference, like Pete Mitchell says, what bait will they bite on?
Support From the Other Business … If your ally business gets right behind the idea you’ll have a far better chance of success. If they go into it with an, “alright then, I don’t like the idea but I’m willing to give it a try”, you’re fighting an uphill battle. You need to get them on board from the start and make sure they approach the project with a, “this is going to be great attitude.”
Follow Up … Once you’ve set up the alliance, you need to maintain it. You may even have to train some of their sales people and create scripts for them to use. Keep regular contact with the ally business and keep giving them reasons to help you out.
Obviously, if you’re working hard for them, they’ll work hard for you. Don’t expect it to be all your own way, there has to be give and take. Of course, this is a small price to pay for a strong alliance – you are gaining a new source of customers!
This kind of “marketing” will undoubtedly cost you less than advertising, direct mail, flyers or Yellow Pages. Better yet, the customers come ‘referred’, which means they come with a good attitude. They will look for the good things about your service and be less suspicious. They are also unlikely to go shopping for better deals. They’ve heard ‘good things’ about you, and that means they want to give you every opportunity to please them. As you are probably aware, these customers are pretty rare. It’s worth working hard to develop an alliance that provides you with a steady stream of them.
I know you’re saying this seems like a lot of work and it is, however the rewards far outweigh the work
Why would you even consider forming a strategic alliance? By the time we are through you will have that figured out!
A strategic alliance is ideal when you have a specific group of people you want to market to and there are other non-competitive businesses already dealing with them. Or like in my case, my partners have a service to sell their clients as an add on.
Remember, strategic alliances work best because the potential customer thinks the other business is doing them a favor and giving them a tip – “deal with these guys and they’ll really take care of you”. The customer believes the business has gone out of its way to make a recommendation which will help them. Because of that, they feel some obligation to take action.
You need to find businesses that are willing to get behind the idea 100%, or else forget it altogether. That brings us to the other consideration, are there any businesses out there that are willing to open their minds enough to run with the idea?
Of course, it depends how you bring it up with them. If you say “listen, I want to use you and steal your customers”, that’s probably not going to work.
However, if you propose to them you have a service that compliments their business and you have figured a way for them to make pure profit from what you do with no added employees, no added insurance, no added overhead, just pure profit. This usually will get their attention.
To start, they will send out a series of marketing materials to their database of current and past customer and prospects. It is up to you work out the details on who pays for what. Preferably, have them pay for the cost to send out the materials. With this model you can pay them a higher commission and you don’t have any out of pocket expenses now.
I’m really going to emphasize that you are only going to approach companies that are like minded to the way you do business.
You are not interested in your new alliance having customers that don’t like them. If they don’t like them they are not going to like you so it will be a waste of time.
Here is another key… the businesses you want to approach are the ones that have business owners who are looking to put a big emphasis profits and who are interested in using leverage to make that happen.
What Can You Offer the Ally Business?
Remember, this is business … not something based on friendship. You need to work out precisely how much you can offer these businesses.
You need to work out what you’ll sacrifice in order to make this arrangement work.
Here are some ideas:
Commission … the old stand-by.
This tends to work well in any situation. There are very few people who would turn down extra money in their pockets. If you are going to sell the idea on this basis, give the potential ally business owner an idea of how much they will be making a week.
If you say, “I’ll give you 10% of every job I sell from what you send me”, people don’t tend to get very excited. 10% doesn’t sound like much. Why not phrase it like this, “you deal with about 50 customers a week, don’t you? If you refer one in every ten, that’s 5 customers a week. My average sale is $600.00 per customer. That adds up to $300.00 extra profit in your pocket a week. And all you have to do is give them this voucher and say a couple of good words about me.” Big difference?
Why not be a bit more generous when thinking about how much to offer? Consider the lifetime value of the customer. You’d be better off just covering your costs on this first round and banking on the customer coming back to you. Of course, it depends on your business.
There are so many ways to set up your strategic alliances including an offering that gets mailed out to their customers on your behalf. For this model you will write the letter and put together the offer.
Your alliance partner can also incorporate one of your services into their business. By doing it this way you really have to have a trusting relationship because they will bill their customer, you will invoice your partner, and they will send you a check. Sort of like a subcontractor, just without wholesale pricing.
In my business it has worked out tremendously and very profitably.
This is how I do it…
My partners are roofers and one of my divisions does roof cleaning.
For the most part, roofers know nothing about roof cleaning which is good for me. It is much easier to educate one businessman who owns a roofing company than to educate 25 home owners on the benefits of roof cleaning. That said, I do love HOA’S because they are forcing owners to keep their homes looking good in the neighborhood.
Back to the roofers…it’s an easy add on sale for the roofer.
Roofer to Mrs. Jones, “We are here to give you an estimate on repairing your roof. I’m sure you are aware that the repair is going to look newer than you old roof, would you like you old roof to look like your new repair?”
Mrs. Jones will probably ask, “Oh you can do that too? Yes, I would like to include that in the quote!”
Notice the roofer is the expert on the roof not the roof cleaner, however I have made him more professional with the knowledge that I have supplied him. Plus (and this is a big one for Mrs. Jones) the roofer is a one-stop shop. She doesn’t have to searching around to find a roof cleaner afterwards.
In this case, Mrs. Jones thinks that the roofer is the expert on all facets of the roof, so have the perceived expert sell for you. Just teach him right!
This is what is happening…
The roofing salesperson has just sold a roof cleaning to someone who was not looking to price out a roof cleaning. This why this particular program works so well for me. I don’t ask for referrals from roofing companies, I ask them if they would like to make profit from me.
This is a business transaction that works. If I look at asking for referrals from people that don’t know me or haven’t experienced our stellar service as begging and I don’t need to beg.
Let me run through what I do for my partners:
1st I contact them by mail with a series of letters or I am introduced to an owner by someone they respect.
2nd Once we meet and they are interested in learning more, I go over a marketing program that I have put together for them to use in their business to sell my roof cleaning services.
From the introduction on roof cleaning, I give them our frequently asked questions hand out that includes:
- Flyer: Why they want to keep their roof healthy looking and the benefits of having a heathy roof.
- Flyer: Why a roofing company would even suggesting having their roof cleaned and maintained. When their main objective to replace roofs.
- A bonus certificate to the home owner for signing the paperwork to have the roof cleaned with in the 7 days.
- All the material we leave the homeowner that makes them responsible for damaged plants.
- A copy of the healthy roof Guarantee.
- The thank you letter we send along with the Certificate of Guarantee.
All the materials have their logo and contact information.
This mailing works SO WELL that I have roofing companies calling me now. When I talk with them I ask if they are business men or roofers. You should hear the responses I get, it’s fun! Then I go through the “do you want to make profit from my services or a measly referral fee” scenarios. I give them the choice.
This system will work for any contracting business, you just have to decide where and what to plug into.
How can you let some one else sell your contractor services
I will make this system available to a select few contractors for a modest fee. This includes everything from the proposal letters to the roofing companies to the final thank you letter and Guarantee, along with the correct word usage.
If you email me at email@example.com and put in the subject line “I want to have others sell my services”, I’ll contact you to see if we have someone already using it in your area.
If you live within 20 miles from me, sorry you won’t qualify. You will have to try to get my customers some other way!