Wednesday, January 20, 2010

Five ways to grow your business

Following are five ways to grow any business and business owners, as a minimum, should create Key Performance Indicators around these five components. The fabulous five are:

  • Number of Leads - Get more customers coming through the doors
  • Conversion Rate - Convert more enquiries into sales
  • Transactions - Increase the frequency a customer purchases
  • Average Sale Per Customer - Increase the average sale per customer
  • Margin - Increase the profit margin per sale

Number of Leads.

The total number of potential buyers you contacted or that contacted you last year. Also known as prospects, enquiries or "potentials". Most business people confuse responses, or the number of potential buyers, with results. Just because the phone is ringing doesn't mean the cash register is.

Conversion Rate.

The percentage of people who did buy, versus those who could have bought. For example, if you had 10 people walk through your store today and you sold to only three of them you'd have a conversion rate of 3/10, or 30%. Guessing your conversion rate is not acceptable, only the numbers will tell you the truth.

When you ask the average business owner about their conversion rate, they take a stab in the dark, and tell you it is between 60 and 70%. By actually measuring it you will find it is more like 20 or 30%.

Number of Transactions.

Another of the five main variables. Some of your customers will buy from you weekly, others monthly, others on the odd occasion and others, just once in a lifetime. What you want to know is the average. Not your best not your worst, but the average number of times a customer buys from you in one year. This is a goldmine, as most businesses never collect a database of their past customers, let alone write to them, or call them and ask them to come back.

Your Average Dollars Per Sale.

Here's one variable at least some business owners do measure. Once again, some customers might spend $1000, some just $25, but the average is what you're after. Just a few dollars on each and every sale could be all it takes. Add up your total sales and divide by the number of sales to give you a rough guide.

So, customers x transactions x average dollars per sale = turnover......

Your Margins.

Margin equals profit divided by the sell price.....

This is the percentage of each and every sale profit. In other words, if you sold something for $100 and $25 was profit, then you've got a 25% margin. Remember, this is after all costs are taken out so, your turnover x margins = profit.

Profit: another result that every business owner wants more of, not realizing that you can't get more profit; but what you can do is get greater margins on the revenue that you've got. And that's it. This business skeleton is the basic model that dictates the profit levels of every business on earth.