Whether you’ve been in business a few weeks or a few years, nearly everyone wants to grow their business. Even though many business owners consider ‘growth’ to mean increasing top-line revenues the first step should always be to get your gross margins and overhead costs under control. Otherwise you could end up driving more activity into a money-losing business and go bankrupt before you know it. So where do we start if we want to grow our business revenues? Well it helps to consider the fundamentals!
First we have to understand that all business revenue is achieved as a result of two things – marketing and sales. Marketing does its job by strategically promoting your product/service to generate leads (i.e. people that may be interested in your product). Leads can come from new customers (i.e. people who have never bought from you before) or they can come from past customers (people who previously bought something from you) or current customers. Your marketing strategy must address all three of these sources of new leads and not necessarily concentrate on just new customers (which are much more difficult and expensive to get). The critical marketing KPI (key performance indicator) is how many leads are generated for a specific marketing campaign and budget. The higher the better!
Once we have a pile of leads then the sales team takes over (or at least the business owner now changes hats and starts selling). In the sales world the number one KPI is conversion rate (CR) which is the percentage of leads that are converted to actual paying customers. Obviously the higher the better. In a restaurant the CR might be 99% because once a potential customer (or lead) walks in the door they usually buy something. The opposite situation might be a telemarketer who has a pile of leads but may only convert less than 10%.
The other critical sales KPI is average selling price (ASP) which is the approximate value of an average sales transaction. Higher revenues can always be achieved by ‘up selling’ or offering customers more value as an encouragement to buy more.
All business revenue strategies fundamentally come down to understanding this simple equation: REVENUE = LEADS x CR x ASP
Therefore to grow your business you might decide to …
- Improve your marketing effectiveness to get more leads from new customers.
- Define a marketing strategy to get business back from past customers.
- Develop promotional ideas to get current customers to buy more (or more often).
- Improve your selling skills so you convert more leads to customers.
- Train your staff to be better at sales and customer relationships.
- Offer new items that add to or complement your existing products.
- Work on bundling offers or qty discounts to get existing customers to buy more.
The bottom line is that revenue is the product of marketing and sales efforts. You can work on either one (or both) to grow revenue. If you double your LEADS then you can double revenue. If you double your CR then you double revenue. Work on the areas you are weakest in first and you’ll immediately start to see improvements in top-line revenues!
– Steve (www.SPMsolutions.NET)