There can be a fine line between a business that is generating cash and one that is burning cash rapidly.  For a restaurant, one or two percent gross margin on each dish and each drink can easily be enough to make the difference.  As can a few more customers each day or one more pound spent, on average, by each customer. 

Similarly, the differences between a business that is breaking even and one that is making a healthy profit can be subtle.  Once a restaurant is making enough money to pay the overheads, every additional pound taken, minus the cost of ingredients and tax, goes straight into your pocket.  Five more customers a day can easily put another £20,000 each year in your pocket.

£20,000 with just five more customers each day!  That is probably less than one percent of the people who have visited your restaurant in the last month alone.  And there is a simple way to find those extra customers without spending more cash on advertising – build a customer database.  Capture the contact details of every customer and reach out to them regularly with a compelling reason to come back in. 

Considering the financial benefits, why do so few business owners bother to build a database?  Perhaps because it is a long term strategy, which will not start to pay off until a good database has been built.  If you are one of those owners, remember that there is only so much you can do to reduce costs in your business.  And keep in mind that customer communication is something that your competitors may be doing.

You are paying rent so that you can invite people into your shop or restaurant.  Letting them leave without establishing a way to keep in touch is one way to eventually prevent you from being able to afford that rent.

Having recently completed a review of the various services available to bring new diners to restaurants, I’m unable to think of a good reason why a restaurant should be without one of these. 

Take Livebookings as an example.  They work with over 500 websites, such as Yell.com and TimeOut, where diners go to search for restaurants.  That is a total of 500 million potential diners worldwide.  As the UK is a stronghold for Livebookings, a significant number of those 500 million will be potential customers of yours.  If you use Livebookings, any of those people can book a table at your restaurant with a couple of clicks of their mouse.  And you get an online booking facility for your own website too.  The price for access to these new diners?  A small fee for each new customer they bring to you. 

Once you have those new diners in your restaurant, it is down to you to capture their contact details, particularly email and mobile phone number, so that you can entice them back in.  Good food and service is not, by itself, enough.   Particularly as there are almost always other good restaurants nearby.  People are busy and have lots of choice.  Collecting their details enables you to remind them, by email or SMS, about your restaurant and perhaps lure them back this week with a tempting offer.

A traditional marketer will focus on broadcasting a message to the local area using newspapers, posters or flyers.  The message will reach people who may or may not know your business and will talk about why they should become customers.  He is fighting to capture the attention of the masses, regardless of whether they are likely to be interested in your business.  A new media marketer will concentrate on creating a piece of online content (a photo, video, blog, podcast or similar), which is aligned with your business and which your target customers will find entertaining or interesting.  She will distribute it through the online networks of existing customers and draw attention to it in several places online, where people can find it.  She is building a bridge (as Brian Solis would call it) between consumers and your business’ online presence. 

A traditional marketer will want to improve your product or service and will start by asking your customers to complete a questionnaire.  Maybe even an online questionnaire.  He is producing a structured piece of feedback that will help you to make improvements.  A new marketer will make sure that communication channels are constantly open with your customers such that they feel comfortable posting a comments on your Facebook wall or via Twitter to let you know about a bad (or sometimes good) experience.  This marketer will take time to monitor the digital channels for conversations about your business.  She is providing a simple and convenient way for customers to talk to you when they have something to say.

A traditional marketer will seek to acquire new customers.  He will place adverts in the local press, invest time and money in making your website appear at the top of Google ranking lists when people search for certain keywords and perhaps pay Google to make you appear at the top as a sponsored link.   He is forcing your business into the offices and homes of local people.  On the other hand, a new marketer will focus on engaging existing customers and getting them to talk to their friends about your business online.  She will give them a reason to talk to their friends about you.  This could be an engaging piece of online content that they will want to share with their friends.  She is making it easy for local people, at least those who are interested, to find you.

Agree?  Disagree?  Like it or not, social media is important to your business.  As a local business owner, the most important thing is that you do your homework and form an opinion.  At the very least, join Facebook, Twitter and Foursquare and see for yourself what all the talk is about.

Of course, word of mouth begins with a great product or service.  It is this that makes your business worthy of conversation. People love to share positive experiences with their friends and they love to help others find positive experiences.  Provide a memorable experience and you will become a part of their conversations.

But that is not enough.  You need to make it easy for your customers to talk about you. The fact is that people have many of their conversation online, particularly in social networking sites such as Facebook.  And some local businesses are already encouraging their customers (your prospective customers!) to talk about them online. 

Don’t kid yourself that ‘this social networking thing’ is just a fad that will never take off.  Understand that this has taken off and will only become bigger and more important.  In the UK, people are already spending more time on social networks than on search engines like Google.  Realise that you can become more successful if you understand how to get people talking about you online.

Nothing has changed.  People still have the same motivations.  People still enjoy sharing their experiences of a great (or bad) product or service.  What has changed is the way people are talking about it.  Instead of always having to find reviews or recommendations for products or services, those reviews or recommendations are finding your customers through their online friends.

How can more local people become aware of your business?  Of course, you can place ads in all sorts of local publications or shop windows.  You can invest money to make sure that your website is visible within the top few search results on Google.  But when people see you in those places, what do they know about your business?  The answer is, not a great deal, other than that you are spending money to become better known.

If your mission is to grow awareness, your best friend is word of mouth.  Personal recommendations from your existing customers to their friends and colleagues are far more powerful than any type of advert.  This is something that every business owner knows.  The problem, however, is that it is hard to increase the rate at which referrals are made.  As a business owner, your main path to increasing referrals is improving your product or service.

If your business is so good that your customers send their friends to you, what can you do to increase those referrals?  Here’s an idea.  How about making it easy or comfortable or natural for your customers to refer you?

Think about this:  Where do your customers have their conversations?  Where do they talk to their friends?  According to the latest figures for the UK, over 27 million of us have these conversations regularly on Facebook.  In fact, if you compare the amount of internet traffic to social networks (such as Facebook and Twitter) with the amount of traffic to search engines (Google, Yahoo etc) in the UK, the former outguns the latter by 55%.  And this trend is only just starting to take off.

Increasingly, people are starting to find out about businesses via social networks.  In this respect, online referrals via social networks are taking over from search engine results. 

As a local business with loyal customers, this is great news for you.  If you are a coffee shop, you don’t have the resources to compete with the investment Starbucks makes in outranking you on Google when people search for local coffee shops.  However, you do have good customers.  And those customers do have friends (130 Facebook friends, on average), many of which will be local friends, who could also become your customers. 

Your first challenge is to make it attractive and convenient for your customers to talk about you when they socialise with their friends online.

It takes planning, time and effort to build a customer database and this research suggests that all that hard work is very worthwhile. 

So what is your customer contact database worth?  I would suggest that there are two key questions to consider.  Firstly, what is the quality of your data?  Secondly, how do you use the data?

The quality of the data is crucial.  How many of your records are out of data?  Have any of your customers changed their details since you collected them?  If customers hear from you regularly and value your communications, they will let you know when their details change (or at least you will find out when a message bounces back). 

Another indicator of data quality is the method you use to collect your data.  If you use incentives such as a freebie, the chances are that a number of people will sign up even if they don’t want to hear from you.  Of course, these people are unlikely to look forward or respond to your communications.  The smaller the incentive, the better your chance of capturing genuinely interested customers.

Have customers given you explicit permission to contact them in certain ways?  Email, SMS, Facebook, post?  If their permission is explicit, they are more likely to respond to your messages.  The fact that they gave you their mobile number when booking a table does not mean they want to receive SMS messages from you.

What do you know about your customers’ interests?  Which of your product lines are they most interested in?  What type of events would they like to hear about?  Do they want to know when you have a sale or discount?  When is their birthday?  The more you know about them, the more you will be able to tailor your messages and the happier they will be to hear from you.  Your aim should be for every message to be anticipated (see explicit consent above) and relevant to their interests.

Let’s say that your customer database meets all of the above quality criteria.  So what is it worth?  Well, that depends entirely on how well you use the data to entice customers to spend money with you.  Let’s take a simple example. If you send an email to 1,000 customers in your database and, as a result, 20 customers visit you and spend £300 between them, simply subtract the cost of the campaign (say £50 for the email to be built) from £300 and divide by 1,000 to calculate your average value for that campaign (£0.25).  But what if you do this once per week and achieve the same results on average?  That means the average return on one of your customer records over a year is £13 (£0.25 x 52).  Someone who buys your business should be able to generate an extra £13,000 over the next year using your customer database.  So ask yourself, what should they pay you for it?

Of course, the other question you should ask yourself is how to find out more about your customers and how to create more compelling communications so that you can increase the average value of your contacts.  For hints, look at the customers who respond most often.  Their contact details will already be worth far more than your average.

First of all, two questions: Do your existing customers use the social networks?  If not, are there people who use the social networks that you would like to have as new customers for your business?  The networks are used by so many different people across different age groups and walks of life that your answer is likely to be ‘yes’ to at least one of those questions.

As a local business, a great deal of your growth and prosperity is due to word of mouth.  Give your customers a product or service that is remarkable enough and they will enthuse about you when they talk to their friends.  That’s nothing new, so what?

Well, the point is that many people spend time ‘talking’ with their friends on social networks.  For example, Facebook has over 22 million users in the UK at present.  This is around a third of the total population.  Facebook users are getting older and their average (median) age is 33 (as of November 2009), so they’re not all kids.  In fact, the fastest growing segment on Facebook is 55-65 year-old females.  Facebook users spend a total of 8 billion minutes per day on Facebook. With around 300 million users worldwide, that’s an average of around 26 minutes per user per day.

Outside of the social networks (in the real world!), you give people a reason to visit your business, you give them a great experience when they visit and they, in turn, refer their friends.

The good news is that it’s the same process in the digital world of social networks.  Let’s take Facebook as an example.  You create a Facebook page about your business and you fill it with regularly updated, engaging content (information, photos, news, updates etc) such that customers have a good reason to visit it regularly.  If your content is good enough, they might interact with you by leaving comments or adding messages.  With the click of a mouse button, they might also share your content with their social network friends, many of whom will live nearby.  Think of it as a turbocharged website for your business, which is much easier for you to maintain and much easier for your customers to interact with than a normal website.

There are two things to note about this scenario.  Firstly, your customers are interacting with you in their spare time! Secondly, they are sharing their enthusiasm with their friends, not just one or two but potentially hundreds, all with a simple click of the mouse button.  The speed at which word of mouth can grow online, and particularly through social networks, is the reason why this type of marketing is often referred to as ‘viral’.

Your main challenge is not about learning how to use the social networks.  This is easy to learn – you just need to get stuck in.  The key to your success is to make your content engaging and update it regularly enough to provide your customers with an incentive to visit regularly, share it with their friends and grow your business in their spare time.

To get your creative juices flowing, here are some of the most popular Facebook pages in the world today:

www.facebook.com/Starbucks
www.facebook.com/skittles
www.facebook.com/pages/Nutella/24932281961
www.facebook.com/michaeljackson

Notice that these questions are all about the status quo.  Now, for each question, ask yourself what, in an ideal world, you would like the answer to be.  You may be surprised to find that, for at least one of these questions, you can change your business to achieve close to the ideal answer.  And if you can do that, you may be surprised about the difference it makes to your bank balance.

Levy flight has been observed in nature and is used by scientists to explain or predict behaviour.  Here is how Seth describes it:  “An animal that forages will hang out in a small area, looking for nuts or berries, then will realize it has used up all the likely sources in this spot. It will then head off in a random direction, walk many paces, and start foraging again.”

If, like me, you have wondered why some customers move on and what you can do to prevent them, this is a useful concept.  It tells you that, to some extent, there is nothing you can do to prevent customers moving on.  They will become regulars at your bar or coffee shop for a period of time, but they will soon feel the need for novelty or ‘newness’. This is a part of human nature, so the argument goes.

Every rule has exceptions but, for the most part, I think this is an accurate description of consumer behaviour.  The question you must ask yourself as a business owner is, what can I do to keep customers loyal to my business for as long as possible?  How can I keep things fresh and interesting?  How can I prevent boredom setting in?  You can also ask, what can I do to entice people back after they have left? Although it is always harder to bring people back once they have moved on.

It is also worth remembering that, for as long as you consistently attract new customers faster than you shed existing ones, you will be in good shape.

A good product or service is necessary to ensure people return, but it is not sufficient.  Why?  There are two main reasons.  First, you have competitors, some of whom also have a good product or service.  In other words, your customers have a choice and you need to give them a reason to choose you.  Second, life is busy.  Most people have a lot going on.  They have lots of different things competing for their attention every day.  Combine this scarcity of attention with the fact that you have competition, and it becomes critical that your product or service is memorable.

Of course your product needs to be good.  Without that, you have no business.  But you must also find inventive ways to remind customers about you and entice them back.  And you can’t do that unless you have their contact details.  Who ever heard of a fan club where all the fans are anonymous?

However, all of this changes if you are exceptional. If you are outstanding, the rules are different.  If your service is truly remarkable and stands out from the crowd, your customers won’t need to be enticed back. There are very few such businesses and if you are one of them, you have a terrific marketing strategy and won’t need to work so hard to be memorable.  Otherwise, get to work on building that fan club!