By Tabitha Wellman, CEO, Innova Business
If you could increase each of the following areas by a mere 10% each year, your profitability would skyrocket!
1) Number of leads
Leads are the lifeblood for your business, so you need to measure the amount of people that contact your business, either by phone, fax, web or email, and know how they find out about your business. Once you know this, you can direct your marketing and advertising dollars into the right area.
The best way to do this is whenever someone rings into your business, you ask them how they found out about you and then record in into a database. Make sure your phone scripts ask this question so that everyone that answers the phone knows how to capture this information.
You can then use this information to best direct money into advertising and marketing that will derive the best results. For example, if you put an advertisement in the local paper for $400 and you receive 40 leads, then you have a cost per lead of $10. Compare that to a direct mail flyer where you spent $1000 and received 20 leads, with a cost per lead of $50. This means that you would want to keep advertising in the local paper and perhaps drop the direct mail campaigns.
2) Conversion rate
Now, all the leads in the world won’t help your business unless you can convert them into sales! This is the area that I always recommend clients focus on first. Often my clients already have a whole heap of leads, or people contacting them, but they don’t know how to convert them into sales.
Calculating your conversion rate is easy. If you have 10 people come into your store in one day, and 4 purchase something from you, then your conversion is 4 out of 10, or 40%. Business owners that I work with often miscalculate their conversion rate because they take a stab in the dark at it. Once again, test and measure. You can only improve what you can measure!
To improve your conversion rates, it usually comes back to defining your sales process, identifying what the decision points are, and training your staff to present your business in the best way possible. Work on what your differentiators are so that when people try to compare you to your competitors you can position yourself in the best light.
3) Number of Transactions per Customer
This comes back to the old adage that it’s easier to sell to existing customers, than to get a new one! Some of your customers will buy from you more frequently than others. What you want to determine is the average number of times that a customer buys from you and then determine what will get them buying more. This is where it’s important that your business is not a ‘promotion’ business. By this I mean that all you do is offer a one-off service, like a wedding video business. You need to work out ways in which you can have repeat clients.
4) Average dollar spend per customer
It’s important that you also know how much each customer, on average, spends with you. From there, you can determine ways in which you can encourage them to spend more with you. This includes things like training your staff to up-sell or cross-sell your products or service.
5) Margins (e.g. stop discounting)
This is the percentage of each sale that is profit. For example, if you sold something for $100 and $30 was profit, then your margin would be 30%. But just be careful here – you need to ensure that your margin is calculated after all your costs are taken out. The idea would be to focus on selling products and services that have a larger margin so look at ways you could introduce this into your business.
Now, if you focused on each of these areas in your business and aimed to increase each area by 10%, you would think that this would result in 10% more profit. But do the sums. It works out to be in excess of 50% growth in profits!
Try it out in this simple worksheet designed to help you increase your profits.
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