Cheatsheet - The 3 Levers to Grow Your Business

Understanding the 3 Levers to grow a business will allow you to establish a mindset and plan for scaling your business with purpose and intent.

The Business Growth Formula

The Business Growth Formula involves THE MOST IMPORTANT metrics that impact on the performance of your business. Understanding this formula; tracking the metrics; and using the learnings from tracking the metrics to inform strategy, you’ll be able to predictably grow your business.

There are 3 specific Levers to grow a business, all of which are in the formula. They are:

·     Number of clients

·     Average transaction value

·     Frequency of purchase from you

For example:

# Clients X Avg Transaction Value X Frequency of Purchase = Sales

1,000 X 100 X 2 = $200K       

Simple so far, right. Ok, now stick with me here because it’s going to get a little more complicated next, but here is where it also gets exciting.  As I have said before, I know the numbers can be daunting to some of you, but it’s vital you start to get comfortable with them as soon as possible because you will never run your business effectively until you do.

Back to business.  The real power in the Business Growth Formula is its compounding effect. If we metric by just 10%, we don’t get just a 10% overall increase.  We get an overall increase in sales by a compounded 33%.

For example:

# Clients X Avg Transaction Value X Frequency of Purchase = Sales

1,000 X 100 X 2 = $200K

10% inc X 10% inc X 10%  = 33%

1,100 X 110 X 2.2 = $266,200

Now, each of these metrics - number of clients, transaction value and purchase frequency – all have several things going on to achieve them.  This means that there are a number small incremental improvements that can be made to each of these to tweak them to achieve compound growth - growing your business is highly achievable?

For example, if you increase your number of leads and / or your conversion rate, you get more clients. i.e.:

# of Clients = # of Leads x Conversion Rate

Let’s now expand the formula:

# of Leads    x  Conversion Rate    x   Avg Transaction Value    x     Freq of Purchase  = Sales                                   

The beauty of the Business Growth Formula lies in its simplicity. Sometimes in business we operate at too high a level, e.g. mulling over how to increase revenue this year instead of breaking it down into its components and working out how to improve each.  Doing this makes the task far less daunting and allows you to formulate an incremental strategy for each element, or at least as many as is possible and feasible. Grandma was right when she used to say, “take care of the pennies and the pounds take care of themselves”.  

The Business Growth Formula demonstrates that we should instead be asking questions such as “what’s one effective strategy we can implement this month to increase lead/improve lead conversion/consistently increase transaction value/frequency?” 

Throughout my Scaling Up for Small to Medium Businesses Program, I will share strategies on how to positively impact each of the Business Growth Formula metrics and thus grow your business.  In the mean time, here are some ideas to get you started.

Growing Your Client Base

There are 3 ways to grow your client base:

1.    Increase lead generation

2.    Increase conversion from enquiries

3.    Improve client retention rates

To increase your lead generation:

·     Add and/or improve advertising/ marketing systems

·     Use loss-leader marketing – break-even upfront and profit off the backend

·     Introduce referral programs

·     Make affiliate deals

·     Introduce guarantees – reverse the risk

·     Deliver special events – workshops, webinars, etc

·     Buy, swap, rent, trade, acquire targeted lists

·     Introduce telemarketing / direct sales

·     Use PR

·     Introduce / adapt / ramp up social media strategies

·     Publish, blog and educate

To increase conversion from enquiry to sale:

·     Upskill your sales team

·     Use Social Proof strategies

·     Implement Scarcity techniques

·     Use loss-leader marketing – break even upfront and profit off the backend

·     Use guarantees – reverse the risk

To improve client retention rates:

·     Communicate more frequently with clients

·     Overtly communicate the value you deliver to clients (sell the invisible)

·     Deliver better than expected service levels (under promise and over deliver)

·     Increasing Average Transaction Value

To increase the value of your average transaction:

·     Introduce backend products and services

·     Bundle complimentary products & services

·     Use point-of-sale promotions

·     Increase prices

·     Introduce “gold standard” or “premium” versions

·     Reduce or remove discounting

·     Offer greater / larger units of purchase

·     Introduce a membership program

·     Bootstrap products and services to leverage development of new saleable products

·     Sell other people’s products (until you have your own)

·     Sell an ongoing maintenance / service contract

·     Increasing transaction frequency

To increase your transaction frequency:

·     Communicate frequently and personally to build relationship

·     Price induce for purchase frequency

·     Offer “closed door” or “preferred customer” buying programs

·     Introduce backend products and services

·     Introduce a membership program

·     Bootstrap products and services to leverage development of new saleable products

·     Sell an ongoing maintenance / service contract

·     Bonus

Can you adjust 3 of these levers in your next 90 day planning cycle to grow your business?

As always, feel free to reach out to me should you have any questions.

Wishing you much success

Angela