The Art of the Local Business Joint Venture Part Deux

posted on Nov 10 by Tim Conley in the Local Marketing category

How Not To Do A Joint Venture With The Devil

STRUCTURING YOUR JOINT VENTURE
Part 2 in The Art of the Local Business Joint Venture gets us into the guts of a JV. I’ll cover partners, pitching, revenue sharing, your product/service offer and follow-up. If you have any questions, just leave it in the comments section and I’ll be sure to respond. I hope to do a Q&A post for Part 3 of the series.

WHO MAKES A GOOD JV PARTNER?
In Part 1, I mentioned the Before, During and After of a prospect/customer’s buying process for your product or service. This can encompass other products, services or information they need to make a purchase with you either before, during or after. To be of the utmost value to your prospects and customers, you need to know what those things are. This can lead you to companies you wouldn’t have automatically thought of when contemplating a JV such as one of your vendors.

The other aspect of choosing a JV partner is picking non-competitive industries that share the same customers. As in Part 1, I mentioned residential services partnering with each other to expand their businesses.

Lastly, and the really big factor in choosing JV partners is “can you trust them.” Will they provide a great service or product to your customers? Will they fulfill their end of the partnership? And will they pay you ALL of your share of the revenue? This goes both ways. They will need to be able to trust you, too. Make sure you can prove trustworthiness for yourself and your potential JV partners.

PITCHING A JV DEAL
Once you have an idea of who you want to joint venture with, you need to approach them with your idea. If you know the people in charge, great…call them on the phone or meet them for coffee and lay out the JV in plain English. If you don’t know them, then I recommend you get to know them. Even buy from them to make sure they will treat your clients with respect. Get to know some of their customers. What if their customers are unhappy or just marginally happy or worse, bad customers? You don’t want to get a bunch of miserly, complainers for customers who end up making your life a living hell. You probably already have a few of them and who wants more, right?

When pitching, know what outcome you want. Are you wanting to offer the partner’s products to your customers, offer your products to your partner’s or both. Know how much you can afford to share. This will be covered in more detail a little later. Don’t go into the meeting without a plan already drawn up. You don’t want your JV partner to get confused. Confused people don’t buy and they don’t partner, either.

I recommend you pay for all marketing costs to your partner’s customers. Don’t make your partner work…at all. It’ll kill, or at the very least, slow the deal. When pitching the partner’s products to your customers, you should get that person to pay for any materials, postage, etc or get a large enough percentage to cover those expenses. But in all of this, don’t get greedy. Make it a win for you and a super win for your partner. It’ll do great things for your reputation and most importantly, the deal will go a lot smoother.

GIVE & YE SHALL RECEIVE OR HOW NOT TO BE GREEDY
I’ll say it again–Don’t get greedy. When getting your products offered to a partner’s customers offer as much as you can afford. Knowing the Lifetime Value of a Customer is very important to your success. If you are offering 10% of the revenue and you can afford 20%, you’re being greedy. Let me make this more concrete.

I once did a JV with a pest control company where I offered $200 for every customer of his that signed up with my company. With partial payout at signup and the rest at the end of three months service. The way the numbers played out, with people dropping before the end of three months, those who dropped service after (which were very few), my cost per new customer from the JV was a little over $250, which was the annual profit from a service customer. I wouldn’t make a profit from service till the next year. Thankfully, I could expect a customer to stay for over five years. Also, I had additional services and products to sell, so in reality I typically made a profit within six months of acquiring a new customer through a joint venture.

It is really hard for another service company to turn down $200 per customer just for making a recommendation. Your numbers will vary, but it is vitally important that you know them–at least an approximation–before you commit.

IT”S ALL IN THE OFFER
Your offer needs to be irresistible. That means whatever you are selling must be so good that the customer would be a complete fool not to take it. By the way, this also makes your JV partner look completely awesome to her/his customers. Since I don’t know what your business is I can’t give you a specific offer to run with, but here’s how I brainstorm:
1. I try to think up what the deal of the century would be for my type of business. I think about what I could bundle together and sell at a discount and what services or products I could give away just for trying my business.
2. Run the numbers. Ideas may sound great, but if you can’t afford to do it you can go broke trying.
3. Test the offer to see just how compelling it is. You can run a test ad in a neighborhood paper or HOA newsletter to see if you get a decent response. If you know your JV partner well enough, do a test run to a segment of her customer list and see what results you pull.

TO GO OFFLINE OR ONLINE?
This is an easy one. Should you use email or a letter in the mail? Do you or your JV partner have an email list of customers? Yes? Do an email campaign and a letter in the mail. No? Start building an email list and send a letter in the mail. Also, if there is a retail location, give out a sales letter to people in the store or restaurant. Told it was easy to decide.

FOLLOW-UP IS CRUCIAL FOR LONG-TERM SUCCESS
Here is where many people fall down. Follow-up will do three things. 1. it will increase your total response, 2. it will make sure your or your partner is providing great customer service and 3. it makes it easier to track the revenue.

The one area I’m going to talk about is increasing response. Many people send out one email or sales letter or worse some lame-ass boring brochure and that’s it. Let’s say you get 2% of the people who received your offer to become customers. If you follow up with another sales letter, you’ll probably double your response or get a total of 4%. If you send another letter, you’ll probably add another 1%. (your percentages will vary so use for illustration purposes only)

The important lesson is to keep sending your offer till it isn’t profitable anymore. Once someone buys remove him from the list of prospects and put him in your ‘JV Purchased’ list and start the customer service follow-up. Those who didn’t buy get letter #2 and so forth.

That’s the basic structure of a local business joint venture. Please add any comments or questions. In this short 2-part series, I obviously couldn’t cover all the details nor can I offer any specifics without knowing about your business. Just add your comments or questions and I will do my best to answer them.

~ Tim Conley

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