To create business growth strategies that work, we have to narrow our focus. One reason, many business owners fail in creating strategies that work is that they try to handle too many factors with one strategy. This is a recipe for failure.
Let’s first look at the numbers. When we’re looking at the numbers in our business, we want to look at what we call the five ways. These are the five ways that you can grow your business. This is the chassis of business. It’s the basis for how all businesses run. And you may think, “Oh, but my business is different”. No, they’re all run the same way.
So let me go through this. You can understand it and then we’ll get into it so that you can see how it works.
So the five ways that you can grow your business starts with a number of leads. This is the number of people that you speak to, or you interact with, or that actually raise their hand and say, “I’m interested in what you have to offer”.
You multiply that times your conversion rate. This is the percentage of the people that you talk to, that you turn into customers, and that gives you your number of customers.
So as a quick example, let’s say I talked to 4,000 people and the 4,000 people said, “I’m interested in my product” And let’s say, I’m basically an average sales person. So I have a 25% conversion rate that would mean that of those 4,000 people, 1000 will become customers.
The next number that we need to understand is the number of transactions. So the number of transactions is how often does that customer come back to buy from you again?
The number of transactions in my business, let’s say that’s 2. On average, people come back twice. Some might only come once. Some might come dozens of times, but the average works out to 2. Those customers are going to spend an average amount with us. Now we call that the average dollar sale.
I understand that some customers spend a little, some customers spend a lot. You might even have different product lines that have different averages and such, but to make it simple, your business has an average dollar sale.
That means every sale you make on average will hit some number. And let’s just say for this business that we’re talking about, this mythical business, that number is $100. Some spend a dollar, some spend a few cents, some spend thousands of dollars, but the average is $100. So if I have 1,000 customers that are spending on average $100 dollars and on average 2 transactions, so they’re spending that $100 dollars twice.
Then my revenues will be $200,000. Makes sense? Good.
Now the next number we have to understand is our margins. Now, our margins are the percentage that we keep of the revenue that we brought in. So let’s say we have a 25% margin that would mean the 200k that we brought in. We would keep as profit, 25% or 50k.
Now when we’re talking about strategies, we want to use strategies for each one of these at different areas. This is the best way to find the strategies that will work for your business.
Let’s go back to the top of the list, because if we want to talk about the best strategies or how to create those business growth strategies, we need to be looking at each one of those five areas individually. Now, when we’re looking at those five areas, there’s a certain order that we want to look at them, and that order is not necessarily the way I listed them out.
You’re not going to start with a number of leads. As a matter of fact, number of leads is one of the last strategies that you want to attack because it’s one of the most expensive strategies, and many people will tell you that margins is the first strategy that you want to look at, but that’s actually shortsighted because that’s saying we’re going to start with cutting costs. However cutting costs is not the best place to start. It never is.
You want to start with making sure that more of the customers you talked to become clients and that you sell them more in average dollar sales. So if you can raise your conversion rate and raise your average dollar sale, those would be the first two that I would start with.
Well, it depends on how big, how good your business is doing right now. If you’ve got customers and you’ve got a good sales flow going, I would start with an average dollar sale because it’s really easy to actually raise prices or sell more.
If I’m struggling with getting the customers in, I would focus on conversion rate because the more I can get people to say yes, the higher the number of customers will be from the number of leads that I’m getting, and remember, we’re going to focus on leads last.
Now, why is it important that we split this up like this?
Well, because if you look at the growth, let’s say we focus on each one of these areas and we grow each one of these areas 10%. So remember we said leads in my little mythical business were 4,000 leads, and if I grow my 4,000 leads by 10%, 10% of 4,000 is 400.
So that would mean I would have 4,400 leads. If I grow my conversion rate, by 10%, I have a 25% conversion rate. That means I would raise it by 2 1/2 %. That’s 10% of 25. Therefore I would have a 27 1/2% conversion rate. Now, if you think about raising your customers by 10%, that would be a thousand customers would be 100 extra customers.
So we’d have 1100. However, when I multiply 4,400 times 27 1/2%, I actually get 1,210 or a 21% increase in my number of customers. This is why it’s so important to break these down and focus on each one. Not only does it make our strategies more effective, but the strategies then combine in a way that makes the result more effective.
Our 2 transactions would become 2.2 transactions. If we then focus on average dollar sale, we take our average dollar sale up by 10%, that hundred dollars would become $110. And then our revenues would go, not again 10% larger, that would be from 200 to 220,000, but they would actually go to 293K that’s a 46% increase in revenues. All of this will already take up our margins.
So we’re almost guaranteed to get a two and a half percent increase in margins just by what we did up top. Our 25% margins will go up to 27 1/2%, and our 50k in profits will actually go to 81,000 in profits for 61% increase. That’s massive, a 61% increase in profits.
This is the value of focusing your strategies properly and making sure that you are focused on the right strategies at the right time. And then we have to think about the other areas of the business, the systems in the business, when we’re looking at the systems in our business and how to grow the systems in our business and make sure that our systems are done properly, and in the right order, we want to think about the steps to growing our business.
So, the first step in growing our business is what we call the foundation step. This is the step to build your solid foundation and make sure that foundation is solid for business growth.
Once we have a solid foundation in place, then we can move up to niche. Niche is about putting in the marketing so that we can have consistent marketing that works, and we understand how to bring cash into the business.
After that, we start to focus on systems. Now, I did say that we use systems in foundation, and remember, we want to make sure that we have certain systems in place at the foundation level, because those systems are critical to making sure that we have the consistency that will allow us to have that stable foundation.
But at the systems level, we’re looking at systemizing all aspects of the business. This is where we put in all the rest of the systems that are required to take our business to that next level, and this is where we want to really put those strategies in for the systems that will take us to that next level, which is team.
And that next level of team is where we really focus on taking our team to be a team that can run the business as well as, if not better than we can.
And this takes our business into the growth stage. At the growth stage, we have a team that can run the business. We have systems that they use that are making them very efficient. We have marketing that we understand, and we know how to make sure that it is effective and continues to grow. And we know how to scale it up. And we have a solid foundation to build on.
So we can start to turn up the volume, which will take us automatically into our final stage, where we have the results out of the business that we’re looking for, that we went into business for in the first place. Everything in your business starts with your foundation. That’s why I want you to get a head start on building a solid foundation for your business.
To help you along that path, I created the Insider’s Guide to Success in Business. You can get your copy at insidersguidetosuccessinbusiness.com. There is also a link below this video, click that now to get your copy and begin your journey to a successful business.
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I’m Doug Barra, and now it’s your turn, put this information to work in your business and take it to the next level.
I’ll see you in our next video.