Hello again. In this video I’m going to talk about the five ways that you can take your business to the stratosphere. Stay tuned.
Hi! Doug Barra with ActionCOACH business coaching and this is Business Success with Doug Barra.
In today’s video, we’re going to talk about the five ways to massive success in your business.
Now, the five ways starts with understanding that this is the chassis that your business runs on. Just like every kind of car has a chassis underneath it, every kind of business has a chassis underneath it and the same chassis can run many, many different businesses. I’ll tell you that for the chassis of business, it runs all businesses.
I don’t care whether you have a nice little family business that just takes care of your family or whether you’re trying to build a mega business that’s going to take over the world. They all run on the same chassis and this is what I’m going to talk to you about today.
The business success chassis looks like number of leads, conversion rate, number of customers, number of transactions, average sale, revenues, margins and profit.
Now, you might have just said to yourself, “Wait a minute, Doug. That wasn’t five things. That was eight things. I think your math is a little off.”
Well, five of those are the important ones. Not the three you think they are – not the number of customers, not the revenues and not the profits, because each one of them is actually a result of what comes before.
The number of customers is a result of the number of leads. The number of people who actually raise their hands – “I’m interested in finding out what you do” – times your conversion rate/ your effectiveness at creating a sale.
All right, now let’s just throw in some numbers…
So what if you had a theoretical business? OK, these numbers don’t mean anything other than they’re easy for me to remember.
And let’s say in that theoretical business you have 4000 leads so 4000 people have raised their hands and said, “I’m interested in finding out what you do.”
And of those 4000 people you’re an average salesperson. So you can convert 25 percent of them. So 25 percent of 4000 is 1000.
So we have 1000 customers.
Now let’s say those customers on average buy from us twice. So the number of transactions is two. All right. Now I understand that some of them might buy once and go away and some of them might buy hundreds of times. The average, I’m saying, is two.
And on average they pay one hundred dollars. That’s their average transaction.
So I have 1000 people buying from me twice for an average of one hundred dollars. Therefore, I have revenues of two hundred thousand dollars. OK. Makes sense right? A thousand customers times two: two thousand times one hundred. I now have two hundred thousand dollars in revenues.
Now let’s say my margins are 25 percent again because it’s very easy for me to work.
That means I have 50 thousand dollars in profit.
So I now understand what those numbers are. I’ve done the measuring.
So what does that do for me?
“OK. Great. You’ve got a nice autopsy of your business.”
Here’s the value of that. There are two ways that this is super valuable for you.
One way: Let’s start at the bottom and say, “You know what? I actually don’t want fifty thousand dollars in profit. I want one hundred thousand dollars in profit.”
OK great. I take that hundred thousand dollars. I say my margins are 25 percent. Therefore my revenues need to be instead of two hundred thousand dollars, they need to be four hundred thousand dollars.
And I just keep working my way back up until I get to how many people do I have to talk to on a regular basis to make those numbers.
But again, that’s not the super value of this.
The super value of this is understanding leverage. Leverage is what we call “divide-to-multiply.”
Divide-to-multiply says if I divide something up then I multiply my results, I get better results when I do increases in each one of those areas.
So, if I’m focused on my number of leads and let’s say I focus on it and I really work on it and I get 10 percent more leads. 10 percent more of four thousand is four thousand four hundred. So now I have four thousand four hundred leads.
Then I focus on my conversion rate. I do all kinds of sales training. I do lots of things to make sure that I can get more people to buy. I do sales training, I do scripts, I do testing and measuring. I learn how to do better. I have better offers. And let’s say I take my 25 percent conversion rate and I raise it by 10 percent. Now I’m at 27.5 percent conversion rate. All right 10 percent. Two and a half percent higher. 25 goes to 27.5 percent.
So now I have 4400 leads. 27.5 percent conversion rate. I multiply those two together and I get another 10 percent increase in my….! Oh wait a minute. Hold on. My customers didn’t go up by 10 percent.
They went up by 21 percent.
I have one thousand two hundred and ten customers now because I multiplied two 10 percents together to get 21 percent. This is the value of understanding that leverage and that divide-to-multiply.
Keep going down. I take my two transactions and I increase them by 10 percent. I have 2.2 transactions.
I take my hundred dollar average dollar sale and I change it to one hundred and ten dollars.
I now have twelve hundred and ten customers. 2.2 transactions. One hundred and ten dollars average sale. I multiply that out and now I have a 46 percent increase in my revenues. 46 percent.
One of the things I want to talk about there is well, how do I do that? OK. So number of transactions. This is all about getting people to come back. It’s our database. It’s making sure that we’re reaching out to people, touching people, making sure that people know what we do that have already bought from us so they come back. It’s a lot cheaper to go get them to come back than it is to go find a new one.
Average dollar sale. Plenty of ways we can increase our average dollar sale. Think about what it’s like when you go into McDonald’s. Would you like fries with that? Would you like a shake with that? Would you like dessert with that. All things that help to increase the average dollar sale. Maybe you just raise your prices by 10 percent. So anyway, we can get those 10 percent increases.
Now we go to margins. There’s a lot of ways we can increase margins as well. One of the ways you can increase margins was everything you did up top. Because the more we sell, the more our margins are going to go up. Because we have fixed costs. That percentage of those fixed costs to our sales is going to go down as we go up. Now, the percentage of our costs that’s related to our sales is not. But there is going to be a portion of those costs that are not going to increase.
So just because we raised our revenues our margins are going to go up. Let’s say we get 10 percent. Again we go from 25 to 27.5 percent.
Now we have a 61 percent increase in profit. 61 percent.
That’s a massive increase just from doing 10 percent in each one of those areas.
If you’d like to find out more, reach out to me. If you got value from this video please subscribe. I look forward to seeing you again.