What does the term “growth” mean to you and your business? Do you understand growth as an increase in revenue, profit, number of customers, or maybe all of the above? Regardless of your growth focus, you won’t see an increase in your bottom line without clear measurable actions to get you there. Luckily, the key to growth and profit can be found in one simple formula.
To achieve overall business growth, you have to first understand what factors in your organization lead to profit. By understanding the “5 Ways,” you will be able to identify and implement small, actionable steps to long-term growth.
The key to success and growth is a simple, ‘secret’ formula defined by ActionCOACH as the “5 Ways to Massive Profits:”
Leads x Conversion Rate = Customers
Customers x Average Dollar Sale x Number of Transactions = Revenue
Revenue x Margin = Profit
Breaking down the factors in this formula, you will be able to see how an increase in one denomination can positively impact your profit overall:
- Leads: The total number of people who have expressed interest in doing business with you over the course of a year.
- Conversion Rate: The percentage of leads who become customers. For example, if 10 people walk through your store and three people buy something, your conversion rate is three out of 10, or 30% for that day.
- Average Dollar Sale: The average invoice/sale worth, estimated over the course of the year. The average can range from $5 or $10 (for a discount retailer) up to tens of thousands of dollars (for a business such as a car dealership).
- Number of Transactions: The number of purchases the average customer makes over the course of a year.
- Margin: The percentage of each and every sale that is profit, after all expenses are taken out. If a business sell something for $100, and the profit was $25, your profit margin is 25%.
With this formula, it is easy to implement a strong growth strategy. However, you first must understand the current state of your business, and how your current numbers add up in this equation as a starting point for future growth. Once you have your baseline, you must identify actions to implement that will improve your current state. Continue to measure progress and make improvements.
To understand your current state, start testing and measuring the “5 Ways.” Start simple by identifying one or two of the “5 Ways” and start recording. In a daily or weekly period of time, how many leads did you gain? Leads can be measured through calls, walk-ins, 1-on-1 conversations, etc. When tracking leads, also track where they found you! By tracking leads, it is easy to then note who they are and if they followed through with a purchase (your conversion rate).
Your average dollar sale, number of transactions and profit margin can be captured from your financial statements or your point of sale system. You can use data you’ve collected in the past as a starting point to build your strategy on.
Once you have your current state established, work with your numbers to brainstorm ways to increase leads, get more customers coming back, increase the amount they buy and raise your profit greatly. By honing in your “5 Ways,” you will be miles ahead of your competition and most other businesses. You may also be surprised at how easy the “5 Ways” are to implement, and how small changes can make a big impact!
This month, I am offering a complimentary growth assessment to help you learn and improve upon your “5 Ways.” Contact me to learn how to grow your numbers and your profits.