Below is an excerpt from my book, “Tenets of Enrichment.” It’s available for free download here.
Do you currently have any established joint venture (JV) partnerships? JVs involve two or more businesses who decide to form a partnership to share markets or endorse a specific product or service to their customer base, usually under a revenue share arrangement. The key to creating successful joint ventures is to find partners who service the exact same type of clients that need or want what you sell.
As an example, think of a florist. One of the most financially lucrative product lines for a florist is providing flowers for weddings. The average floral bill for a wedding often exceeds $3,000. What we discovered about florists is they fall into what we refer to as an “event chain.”
An event chain simply refers to a series of businesses that customers purchase from in a specific sequence. For example, a wedding never takes place until an engagement ring is purchased from a jeweler. So jewelers are at the forefront of every wedding chain. Once the proposal is accepted, this event chain begins. First, most brides know exactly where they want to get married, so number one on their agenda is to book the location: church/chapel/synagogue/winery where they want the ceremony held. Second on the list is to line up a wedding planner. Next up, secure the venue for the reception. Most venues book out months in advance, so locking in that venue is high on the priority list. After that comes the wedding attire, so the search for the perfect dress/tuxedo at an affordable price begins.
Next is the florist. The bride-to-be will want to begin selecting floral arrangements for both the wedding and the reception. Following the florist comes the wedding cake, the printer for the invitations and thank you cards, the centerpieces, the photographer, the videographer, the limo, wedding party gifts, catering, and on and on.
You can find an event chain in many industries. And for the florist, it specifically identifies a multitude of potential and very lucrative JV partners. But here’s why this becomes so important: Every business above the florist has the potential to endorse and send prospects to the florist. Unfortunately, the florist has no control over that flow of prospects. Every business above the florist controls the JV relationship, so it’s critical the florist creates such a compelling offer and relationship with these businesses that they feel obligated to send prospects their way.
However, the florist controls the prospect flow to all the businesses below it in the chain, and by establishing specific processes and procedures to make sure its customers use those businesses, the florist can negotiate compelling offers with those business owners as well.
Consider these numbers
Let’s say this florist cultivates a JV relationship with at least one of each business throughout this entire chain. Staying ultra-conservative with our estimates, since they have no control over the flow of prospects from higher businesses in the event chain, is it likely they could obtain at least one referral each month from just one of the businesses above them?
If so, would you agree that since the florist controls the flow of prospects to the businesses below them, that they could easily send at least one referral to each one of them every month? Keep in mind these are very conservative estimates we’re using here.
Since the average floral bill for a wedding is $3,000, then just one referral per month from those businesses above the florist increases their annual revenue by $36,000. Now let’s consider the businesses below the florist where the florist controls the referrals. Let’s start with the wedding cake maker.
The average sales price for a wedding cake is also $3,000, and the florist could easily negotiate a 10% referral fee. A single referral per month produces an additional annual increase of $3,600 for the florist. Now consider the printer. The average sales price for printing can be up to $1,000, and the florist again could receive a 10% referral fee, so that single referral per month produces an additional annual increase of $1,200.
If we stop there, this florist has just increased their annual revenue by more than $40,000. Imagine if you continued to add up the revenue produced by all the additional referral fees the florist would earn from all the other vendors in this event chain.
This same process holds true for businesses that aren’t in a chain. But just like the florist, they simply identify partners who service the exact same type of clients that need or want what they sell. Now I realize this looks easy, but it’s not.
You not only have to properly identify who would make an excellent joint venture partner for your business, but you also must determine: the order to approach each one, how to approach them, and when to approach them.
It’s critical you do this properly or you wind up burning through all of your potential JV partners and come out with nothing in return. How many potential JV partners would you estimate might be a fit for what you sell?
Would you believe that I could identify more than a dozen for your profession? So conservatively, how many referrals would you estimate might be possible if a dozen other businesses were compelled to refer their customers to you for additional purchases?
Conservatively, let’s say you only get 3 referrals every month that buy from you. That’s less than one per week. How much additional revenue would that add monthly? Now multiply that by 12 to see your annual revenue increase. Remember earlier we discussed the critical importance of creating a highly compelling informational offer that would promise so much value to prospects that they would knock your door down to get it?
Suppose the florist offered this informational offer in their marketing, “5 Things Every Bride Should Know to Avoid Disaster on Their Wedding Day.” This offer would place tons of prospects into their drip campaign and result in a tremendous increase in sales. Those new sales can then be referred to their new JV partners and they collect multiple referral fees every month.
This would absolutely dwarf the revenue we just uncovered for the florist in this example. What I find really exciting about JVs is this is a strategy I help my clients implement immediately. It begins generating instant cash flow for them right out of the gate!
In a recent case study I conducted, I found $75,000 in additional annual revenue just using the JV strategy. Again, that’s revenue that the business will generate year after year after year. $75,000 in additional annual revenue increases the valuation of that business somewhere in the range of $225,000-$300,000.