When thinking about how to grow a business, most business owners will focus on increasing the number of customers, selling more products or services and making more profits. Unfortunately, if they do this they are destined to fail, because they are concentrating on the end result, and not on the factors that they can actually have an effect on.
There are in fact 5 factors (which we call the 5 Ways) that a business can influence in order to grow its revenues and profits. These are:
1. Lead generation
This is the process by which you increase the number of potential customers that you contact, or who contact you, and you do this via your marketing strategies and materials. Remember, marketing should be viewed as an investment, not an expense – for every £1 that you invest, more than £1 should come in through increased sales. Lead generation, or buying customers, is the most expensive of the 5 ways to implement, so we would normally recommend that you concentrate on the other 4 ways first.
Top tips for increased lead generation are:
- Properly targeting your marketing,
- Having a clear “call to action” in your marketing materials,
- Asking for referrals,
- Making a special offer available to new customers.
2. Conversion rate
This 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%. You may have invested hundreds, if not thousands of pounds in getting people interested in your product or service, and not then converting them into customers is a waste of that investment. Increasing the conversion rate is a potential goldmine in every business, and it is something that is totally within your control. This area should be one of the first that you work on.
Top tips to improve your conversion rate are:
- Measure, review and set targets for improvement,
- Give sales staff training on closing the deal,
- Have 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. When you consider that, on average, it is 6 times cheaper to sell to an existing customer than to a new one, you’ll recognise that this 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 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, as 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 of 5 ways
|10% improvement in
each of 5 ways
|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 Ways can give you a massive 61% increase in your profits! So now you recognise the potential impact of working on the 5 Ways in your business, what are you waiting for? Take ACTION, and put those growth strategies into practice, and watch your profits multiply! And if you need any help with ideas or implementation, we’re always here – just call the office and ask to speak Kevin or Colin!