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Triple Break Point Scenario

When seeking to find the leaking money in your business, this technique can expose things that might be hidden or may not turn up until much later. It also greatly narrows down the number of locations and options that must be investigated when looking for leaks.

The technique involves developing a scenario that predicts the normalized outcomes and looks for variance by allowing you to compare expected outcome and actual results. Doing this as part of the planning lets you project what might happen and keep a record to compare against later on. It also lets you look back to find out how accurate you were and were you can use what you have learned to make better predictions.

As with most of the techniques used in our work and especially those in the book, this technique gives immediate value and gives increased value over time. The more you use it the faster it becomes to use and the better it is because you have more data to model.

First Break Point – Best Case Outcome

Given what you know about what you are planning what is the best possible realistic outcome? If you are sending 100 sales letters to potential clients what is the best possible outcome that could occur? Obviously not all 100 will want to buy but maybe 30 will. If this is the most you can hope for then a 30% conversion is the Best Case.

Second Break Point – Worst Case Outcome

Given what you know about what you are planning what is the worst possible realistic outcome? Will the 100 sales letters to potential clients produce no results? Obviously the is the Worst Case. Is it the realistic worst case? If you have never sent any sales letters before and you have no examples from your target market to draw from you may not know the realistic worse case so start with 0%. It is easy to think you will get some response no matter what, but it may not be the case. If you miss the mark with the first try it can be really rough.

Third Break Point – Probable or Likely Outcome

Given what you know about what you are planning what is the likely to happen? If it seems that the 100 sales letters to potential clients will get somewhere between 0% and 30% then 15% would be the mid line but not necessarily the probably outcome. Again, if you have never sent any sales letters before and you have no examples from your target market to draw from you may want to consider that as a factor. So maybe you start with 10% as your probable outcome.

Then look to see where all of the known facts line up with one of the three scenarios. What are the key factors (likely key factors if you are undertaking something new)?

They might be:

  • Quality of the writing on the sales latter
  • Selection of the list to send the letter to
  • Timing of the sending of the sales letter
  • Price of the offer

What would it take to get the best case performance? High quality sales letter sent to an excellent selection of interested members of the list at a time they were very interested in the product that was priced right.

What would it take to get the worst case performance? Pretty much the opposite case.

A bad sales letter sent to uninterested people when they do not want the product especially at a wrong price. The probable case will run somewhere in the middle if all goes according to plan.

Now let’s leave price out of this for the moment because it is not really the issue here (and besides it is often the first resort of a failed sales attempt to just go a lower the price to try to get business, something which is often not the right answer).

In the sales letter example a first draft gets sent to approximately 10% of your active customers with a conversion rate of 5%. You spend a day reworking the sales letter and send to a new group and it generates a 7% conversion. So you spend a day and further improve it. And it generates a 10% conversion with another new group. So now you have hit your probable case scenario. You decide to rewrite the sales letter one more time. This time you get a 20% response. That is obviously the winner. So you send that same letter out to the next group and it gets 25% conversion. You didn’t change anything and the conversion rate improved. So you send it to another group and get over 30%. But with the next group the conversion falls to 20%. What happened? What would happen if we sent it again? Should we change anything? What would we change?

It was the same letter that just pulled 30% only two possible factors; bad segment of the list, or the wrong timing. So now you can begin to narrow it down. Was there some event taking place that caused the number to climb as the event drew near? Maybe, this should be investigated. Was there a saturation effect? No only a controlled number of people got the sales letter. Are there any commonalities on the last group on the list that only converted at 20% and the prior group that converted at 20%? Maybe, this should be investigated.

If the facts or numbers mostly fit one scenario except for a single or a few areas then that is where deeper investigation is required.

In the sales letter example a question is also raised about the sales letter quality and its effectiveness. Was it really the changes that increased the conversion rate? Or was it another factor like timing?

Upon investigation the key was a special event that was increasing demand. A good sales letter can only pull 20% conversion rate but when people are thinking about a related event they are 10% more likely to convert. So the first win here is can you go find more events that get people interested? The Stop Leaking Money win is when you find such an event, understand it and go create the next one and leverage what you just learned in the previous scenario.

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