Transaction Leverage vs Lifetime Value Leverage

This podcast/blog post was inspired by a recent discussion in the IMA eCommerce group forum.  Take a look if you’re in eCommerce and enjoy learning from your peers.

Let’s focus on business leverage today.  Leverage is business.  We’re leveraging our knowledge, our time, our experiences and drive to build wealth. We’re leverage money to make more money.  We’re leveraging resources to generate value. Leverage is the life-blood of any business.  Especially an eCommerce business.

However, I believer there are TWO TYPES OF LEVERAGE and one of them is far more powerful than the other.  The purpose of this article is to help eCommerce sellers understand the difference and focus their energy on the more powerful one whenever possible.

I wish to warn you in advance! This is not the type of material you’ll find in an MBA textbook because I made this stuff up.  Today’s wisdom is simply me sharing how I view building and growing an eCommerce business and I use terms I make up to help explain them so you the reader can better understand what I’m trying to say.  To be honest with you, this is how it’s done all the time.  Someone has an idea and they create a way to name the idea so they can better explain it to others.  Michael Porter’s 5 Forces, one of my all time favorite business models is a classic example.  He made it up the first time.

I explained leverage above, It’s the taking of resource and building value or wealth from it.  In the simplest form.

However, let’s dive deeper and explore the two types of leverage and better understand why you should be focused as best you can on one over the other.

The first type of leverage is Transaction Leverage.  This is leverage that is more transaction in nature, hence the name.  So this should be easy for you to remember.

I consider borrowing money from a bank to be the classic example for transactional leverage.  You borrow the money, put it to use and you pay it back.  If you wish to borrow more money, you’ll have to begin the cycle all over again.

Another popular example of transaction leverage is leveraging employees.  Hiring people to work for you so you can leverage their time, effort and know-how.  Sometimes this is required to grow your business.  I’d say there is some form of lifetime value leverage (which I’ll explain in a moment) with hiring employees but this process is primarily transactional.  You’ll be required to manage the employees (unless you’re Zappos) and you need to give them a place to work, you need to give them guidance, review their work and if you don’t pay them over and over again every two weeks, they leave.

Other types of transaction leverage that’s more “eCommerce Related” might be marketplace leverage and payment processing leverage.  In these examples, you’re leveraging the marketplace to find you customers, process the transaction and make it easier to sell online.  A very transactional process.

Let’s talk about Lifetime Value Leverage because this is the more powerful form of leverage.

The most obvious form of lifetime value leverage I can think of is writing a book.  You invest your time to share your knowledge and the book sells over and over and over again for years without you needing to lift another finger…unless your publisher requires book signing events of course.

Automating your eCommerce  business is a form of lifetime value leverage.  Sure you may need to upgrade the code, fix issues from time to time so I consider this one a hybrid but nothing in life is Black and White and automation has more lifetime value leverage in its DNA than transactional.

The one single most valuable task that most eCommerce sellers wrongly view as transaction leverage and therefore HATE DOING is creating content.  I’m here to argue that content creation when done correctly is one of the more powerful forms of lifetime value leverage you can…well…leverage.  It’s no different than writing a book and having it cash in time and time again over the years.  You have to do this step correctly but when you do, it can become a very powerful tool in your arsenal.  I know you’ve heard it over and over and over like a broken record, content is king.  What’s your content strategy?  Good eCommerce sellers have great content!  It’s simple.  It’s because of the lifetime value leverage.  Maybe they don’t call it that, but I do.  You can too.

In my podcast I talk about how I created a blog post over a year ago for a product feature I don’t even sell and how it’s cashed in for me multiple times over the past year as well as drives new fresh valuable traffic to my website each and every day.  This blog post took me 20-30 minutes to write over a year ago and I’ve done nothing else (that’s the leverage part) with this content since writing it besides watch it produce for me over and over again.

In the podcast I talk about more examples of lifetime value leverage and I’ll save them for the podcast.  Take a listen.

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I hope this helps shed light on leverage and motivates you to spend more of your time producing lifetime value leverage whenever possible.  Ask yourself every day before you jump into your daily routine.  What am I going to build today that will work for me tomorrow, the next day and the next?  Sometimes it only takes 20-30 minutes of your day.  For example…this blog post and podcast will be attracting visitors to my website a year from now.  Some of them will become clients, and others will fall back into their same normal routine day after day after day…

Cheers to selling smarter!
Brandon

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