I’m often confronted with business owners who are concerned about their profitability or the sustainability of their business. Small business owners in particular are bogged down with legal requirements, staff management and allocation of scarce resources that they find themselves becoming task mangers rather than being the visionary entrepreneurs that they set out to be when becoming a business owner.
Here are the figures that every business owners needs to know but the majority do not.
What is the lifetime value of my average client?
It’s amazing how this question can change the focus of an entrepreneur. Add up what an average client will spend with you in a day, a week, a year and multiply that by five years or ten years or even twenty years. Really? Is that what one client is worth to me if I can retain him for that period. Well the answer is NO. They are worth much more because you haven’t factored in to the equation the affects of inflation, new product lines, new technology solutions, new services that you may offer in future.
What does it cost me to get a new client?
This is a straight forward question that every businessperson can answer. Take the total cost of marketing including the cost to company of sales reps (Unless these reps only service existing clients), database management, PR efforts and dedicated time to customer acquisition and divide that cost by the number of new clients or customers. At The Online Marketer that cost is around R1000 for a website and at www.housecheck.co.za it was sitting at R525 per sale. So what is the figure for your business? very often the cost of acquiring a new customer exceeds the value of the first sales.
If you are one of the lucky few that don’t advertise and just wait for the people to phone you, then be grateful, but ask yourself if that is sustainable if someone else opens up in opposition to you?
The final contextual question you need to ask is...
What do my clients think of my products and service to them?
I’m not asking you to assume anything here. I want hard facts. Not a thumb suck. Do you ask customers for this feedback via a questionnaire or via a comments book. Are you asking them if they would like something different? Would they like anything in addition to the services you offer?
Armed with the information above you can play the numbers game. The Numbers game is just a focus on seven aspects of your business that can dramatically change the bottom line in your business. In fact if you can increase each of the seven factors by just ten percent you can almost double your gross profit.
The Numbers Game
There are certain numbers you need to follow in your business to ensure continued growth and additional profitability. It is within every business mans reach to do this. Following the numbers game will dramatically improve your bottom line.
Here are the seven numbers you should be watching:
- Foot traffic
- Opt ins
- Average item sale value
- No items in the basket
- No of times the customer returns
- Gross profit.
A 10% increase in foot traffic followed by a 10% increase in opt ins, followed by a 10% increase in conversions, followed by a 10% increase in the average sale value, followed by an extra 10% no items in the basket, followed by a 10% increase in the number of times your customers return, followed by a 10% increase in gross profit will result in a 97% increase in your profits. If this interests you then read on...
So what is a ten % increase in foot traffic?
Well if you have 10 clients walking in your door each day, then you need 11. If you have 100 clients walking in your door each day you need 110.
So what is a 10% increase in Opt-ins?
Well lets define an opt in first. An opt in is when a potential client takes a demonstrable action towards a sale. In a clothing store they may try on the shirt or jacket, In the service industry they may ask for a quote. In the restaurant trade they may ask for a menu or request a price or description of the item. In the online environment they may sign up for a free give away on your website. So if you have 20 people trying on an article of clothing each day, you need 22 to have affected a 10% increase. Not a big ask.
So what is a 10% increase in conversions?
Conversions are when the plastic hits the card machine, when the cash hits the till or when the deposit is made in your bank account. If out of the 20 people who opt in with you each day, ten normally result in a sale then your target is to get 11 to convert.
So what is a ten percent increase in average item sale value?
Lets take a mans belt as an example. You can get a cheap one for R50. However a genuine Levy belt will cost upwards of R400. Both hold your pants up. The perception of value is better with the Levi product. So within your business is there an opportunity to upset to a deluxe item, one with a perceived higher value. Your target is to get enough people to take the better option to increase your average item value by 10%. In the restaurant game that may be selling the 400g rump instead of the 200g sirloin.
So what is a 10% increase in number of items per sale?
What product or service can you add to the clients basket of goods he gets from you? Can you interest them in an add on service, a warranty, extra chips or a cool drink in addition. How often have you stood at a fast food outlet and being asked if you want to upsize your order, or would you like that with a jumbo coke or a side salad. A 10% increase is not difficult to achieve.
So what is a ten percent in the number of times a client comes to you business?
If he shops once a month then you need them to come twice in one month of the year. If he dines with you five times a month then you need to get him to dine with 11 times in two months. If he has coffee in your coffee shop every weekday then you have to entice him to come twice on Saturdays.
So what is a 10% increase in gross profit?
Gross profit is defined as your turnover divided by your cost of sales and is often expressed as a percentage. There are many ways to increase your gross profit. You can reduce shrinkage or stock losses due to damage or theft, you can negotiate better supplier prices or you can raise selected prices in your store. Most people can achieve this by using a combination of the three.
So, by watching the numbers and focussing on these areas of your business you can double your profit.
But by now you’re raising a hundred different reasons why this can’t be achieved. My answer to you is that you are wrong. The reason you don’t play the numbers game is that you don’t know the numbers.
But what if I can show you how to get these numbers, with very little effort and that you have the ability to turn your business around?
Pop me an email if you are interested.