When you think about growing your business, your focus may be on getting more customers, selling more stuff and making more profit. But believe it or not, these are not the areas you should be focusing on. Why? Well, because you’re focusing on the end results, and not the factors that you can actually influence. I’ll explain below!
There are in fact 5 factors that a business can influence in order to grow its revenues and profits. These are:
1. Lead generation
This is the how you get more potential customers coming through the door or making enquiries. You get more leads through your marketing activities and materials. Now, if you don’t do any marketing, you need to start looking at it as an investment, not an expense. That means for every £1 that you invest, more than £1 should come in through increased sales. Note however that lead generation, or buying customers, is the most expensive of the 5 factors to growth, so I’d recommend that you concentrate on the other 4 factors first!
Top tips for increased lead generation are:
- Targeting your ideal customers,
- Having a clear “call to action” in your marketing materials,
- Asking for referrals,
- Making a special offer available to new customers.
2. Conversion rate
Your sales conversion rate is the percentage of the leads generated, who actually go on to buy from your business. For example, if 10 people responded to your advertisement, 3 of them bought from you and 7 did not, your conversion rate would be 30%. Improvement here is about getting a good sales process in place and training your staff. This is an area that, if you get it right, can make a significant impact on your sales figures. Therefore, this should be one of the first factors that you work on to grow your business.
Top tips to improve your conversion rate are:
- Measure, review and set targets for improvement,
- Give sales staff training on closing the deal,
- Develop a proper follow up process,
- Introduce a written guarantee.
3. Number of transactions
This is the number of times your customers buy from you during a period (e.g. a year), and this will obviously depend on the type of product or service you sell. Did you know that, on average, it is 6 times cheaper to sell to an existing customer than to a new one? This means that repeat business is an area that, if focused on, can really boost your business profits. You have already built up trust and delivered great service to your existing customers, so you just need to make sure that, when your customers want to buy again, they come to you first.
Top tips to increase the number of transactions are:
- Keep in contact with customers, e.g. via a newsletter,
- Introduce a customer loyalty scheme,
- Make buying from you a pleasurable experience,
- Give special offers to existing customers.
4. Average transaction value
This is the average amount that each customer spends, each time they buy from you. Again, it is easier to get existing customers to spend more with you than it is to get new customers to do so. You have already proved to your existing customers that they can trust and rely on you. A key thing to remember is that people buy based on perceived value, not on price. If you give good value, you can always charge more.
Top tips for increasing the average transaction value:
- Make sure your customers know your full product range,
- Offer deals on multiple purchases (e.g. buy 2, get one free),
- Give free gifts with high value purchases,
- Stop discounting prices.
5. Profit margins
Your profit margin is the difference between the cost to you of providing a product/service and the selling price, (i.e. the profit on that item), expressed as a percentage of the selling price. For example, if you could buy in a product for £75 and sell it for £100, your margin would be 25%. Keeping a close eye on your costs is paramount in any organisation. Knowing what products/services are profitable, keeping overheads to a minimum and testing and measuring will help you become a lean and profitable business. This is the easiest of the 5 ways to implement, and we recommend this as a starting point.
Top tips for maximising your margins are:
- Increase your prices,
- Negotiate discounts with your suppliers,
- Increase staff efficiency,
- Focus on selling higher margin goods/services.
Putting it into Action
The key to success is to be working on a few strategies in each of these areas at any one time – you can’t do everything at once, and anyway, the great thing is that small improvements in each area will have a massive impact on the bottom line profit figure!
Consider the example below:
|Baseline figures||5% improvement in each area||10% improvement in each area|
|x Conversion rate %||30%||31.5%||33%|
|= No. of customers||300||330||363|
|x No. of transactions||2||2.1||2.2|
|x Average £ sale||£1,000||£1,050||£1,100|
|= Revenue £||£600,000||£727,650||£878,460|
|Increase in revenue £||£127,650||£278,460|
|x Profit margin %||25%||26.25%||27.5%|
|= Profit £||£150,000||£191,008||£241,576|
|Increase in profit £||£41,008||£91,576|
|Increase in profit %||27%||61%|
As you can see, just a 10% increase in each of the 5 areas can give you a massive 61% increase in your profits! So now you recognise the potential impact of working on these 5 factors in your business, what are you waiting for? Take ACTION, and put those growth strategies into practice, and watch your profits multiply!
If you need any help with ideas or implementation, I’m always here to help – just call me!