Whether you are just starting up or an established business, every business has room for improvement. The market is constantly changing if you are not planning to improve and grow your business; you are just stagnating and risking sustainability.
This is why the stock market value of companies crash when they announce lower than predicted sales growth. Growth is a good sign; it doesn’t have to be sales, an increase in customers, web traffic, or users is also a positive sign.
I cannot stress enough the importance of growing the key metrics in your business.
Growing sales is different from increasing profitability. If you maintain year on year sales if you reduce your costs by ten per cent you are still doing pretty well.
To 10x your business, you need to find a way of increasing sales while keeping costs controllable and in correlation with your sales growth.
There are four main ways to improve sales in your business.
- More customers
- Improve Conversion Rates
- Increasing Average Transaction Value
- Increasing Number Of Transactions
To increase profitability, you need to
- Manage Fixed Costs
- Ensure variable cost growth correlate with sales growth
For example, have a look at the sample company metrics below:
Now have a look at the same company’s metrics with some minor improvements.
Improving the six metrics by just 5% resulted in a 66% increase in profits.
Imagine what could be possible if you could find a way to improve them by 10%, 20% or even more.
In this blog, we will explore each of these methods, using seven easy to implement methods of increasing profitability quickly.
1. More Leads
Before a customer becomes a customer, they will usually become a lead beforehand. Understanding how much you pay for a lead are an essential part of running and growing your business.
A Lead – Is someone in your target demographic and in your target market, who have expressed a need and is open to learning more about the solutions you offer.
You need to understand how much new leads and prospects are worth to your business. A simple calculation to find out how much you pay for leads is by dividing your monthly marketing spend by the number of new leads you get each month.
Simple ways to improve your cost per lead is to ensure all marketing channels are measurable. Cut out any areas that do not result in tangible results. Test and find out what works for you and amplify any areas that are producing results.
If your sales process is working the more leads you get, the more you will convert into customers.
2. Improve Conversion Rates
Conversion rates are “the success” rate where you get a person to complete your desired action. An example of this is pay per click (PPC) campaign where you want them to buy a product.
To improve conversion rates, you have to analyse why people are not doing what you want them to do on your website and make changes. Sometimes small changes make the difference, but to make significant improvements, you need to be prepared to make drastic changes.
3. Increase Transaction Value
“55% of customers would pay extra to guarantee a better service,” – Defaqto research.
Most customers buy based on value, not price.
If you are doing a great job of providing value for your existing customers, it would be wise to quantify precisely what your goods or services are worth to them.
You may find out that even if you raised the price by 10%, your customer would still consider it value for money.
Try to find a “biting point” for your price increase where it doesn’t affect volumes.
Even if it affects volumes, you will make more of a profit on each unit.
4. Increase Number Of Transactions
“The probability of selling to an existing customer is 60 – 70%. The probability of selling to a new prospect is 5-20%” – Marketing Metrics.
Your best customers are your existing customers. Find new ways to deepen your relationship with existing customers to improve their experience further.
Offer them a total solution to their problem.
If this means you have to cross-sell additional related products or form a partnership with another company, then do so.
5. Variable Costs
Variable costs are costs you only incur when you make a product or sell one.
They are based on your consumption.
Many costs have fixed and variable cost components.
Examples of variable costs are:
Some staffing costs
When trying to keep down costs, you need to work out which variable costs make the most impact.
Strip out anything that does not add value to the business.
6. Fixed Costs
Fixed costs are costs that are fixed every month or year, like rent or insurance.
Fixed costs should be kept to a minimum, make your business cost base agile, giving you the flexibility to increase or decrease expenditure depending on when you are busy.
Start by reviewing all of your long-term fixed contracts and agree on flexible contracts as soon as you can.
Challenge your fixed costs. Do you need what you are buying?
Remember your aim should be to provide as much value to your customers as possible. Anything that doesn’t add to their experience has the potential to be eliminated.
Treat staff as a variable cost, not a fixed cost where possible.
Every company has permanent employees that do not contribute as much as they could.
To eliminate the problem of not getting value for money by employing staff on a fixed-term contract of 6 months to 2 years.
Business Growth Mistakes To Avoid
There are five common mistakes business owners make when trying to grow their business.
1. They Do Not Have A Business Development Plan
Your business plan should be the key driver in all of your growth planning. It contains your revenue expectations, marketing plan and sales plan.
Your business plan should help you understand exactly what you need to do operationally to grow. Targets will be set for your marketing campaigns, sales conversions and spending. It is also very important to set targets for specific metrics that will help you understand your business and measure the success of your growth plans.
Below are some of the key performance indicators KPIs you should set targets for in your business plan then review performance against.
- Customer Acquisition Cost (CAC)
- Average Customer Spend
- Customer Retention %
- Attrition Rate %
- Referral Rate
- Sales Revenue
- Gross Margin%
- Net Margin %
- Overhead to Revenue %
- Variable Cost %
2. They Do Not Understand Their Business Enough To Grow
Some business owners do not understand their business and how it is performing to grow successfully. You cannot grow a business sustainably unless your business model is sound and your operations efficient. For example, if your customer growth rate is 10%, but you have a customer attrition rate of 20%.
To grow, you need to find why you are losing so many customers and solve this problem first. Once this issue has been rectified it; you can then try to grow your customers.
3. They Lack Funding
Sometimes all a business requires to grow is a cash injection to purchase extra stock or pay for a specific marketing campaign.
Here, you need to find the best funding source for your business.
If you have an excellent trading history, a bank loan or overdraft facility is a good option. Banks are more likely to lend to you if you are established and know specifically what you want to do with the money.
If you do not, then you will have to find an alternative source of funding. Your main options for funding are discussed here.
4. They Don’t Have The Expertise Internally
This is very important; firstly, you need the correct staff to enable you to identify the opportunities for growth. This could mean you need to employ someone with a specific skillset; alternatively, you can employ someone you can delegate your day-to-day activities to while you handle the strategic planning of the business.
5. Chosen the wrong growth strategy
There are 3 ways to grow your business.
- Getting more customers
- Increasing the number of transactions per customer
- Increasing the value of each transaction
Choosing the correct growth strategy is crucial to your actual plan. You have to be sure what type of growth you are looking for.
There are many available to business; the important thing is to choose one that fits your business and is sustainable.
The most popular growth strategies businesses choose are:
- Open up a new location.
- Entry into a new market
- New sales channels
- Developing new products/services
- Amplification of marketing
- Price changes
- Partnerships & Strategic Alliances
- Mergers & Acquisitions
- Franchising their business model
- Licencing your product / increasing sales channels
Growing a business sustainably is difficult. The key to success is business analysis, planning and performance management. The first step is to understand your business, target market and competitors.
Using this knowledge find a suitable growth strategy that matches your business competencies, ambition and funding. Review performance against your growth plan regularly and do not be too stubborn to pivot and change the direction of the business.
Engine optimisation is a fundamental part of running your business. Mapping out how you can improve every part of your business is your responsibility as a business owner.
The market, so you need to take time out each month to review how your business will overcome the challenges that lay ahead and take advantage of the opportunities you have.
Seven steps to profitability provide you with some quick ways to improve your bottom line, but improvements will be short-lived unless they are integrated into an engine optimisation program.
Make Your Business A Success
The key to a successful business can be found in our Business Success Formula. If you structure your business using the Business Success Formula as your blueprint, you will decrease your chance of failure significantly.
We assess your business and implement our business success formula in our business assessment service The Business 360. It provides you with all the information to 10x your business in a matter of weeks. You can check it out here.