Introduction
In order to become more profitable as a company, we need to start by looking for ways to either increase revenues or decrease expenses. Proactive growth strategies are always best, however cutting costs should also be made a part of your overall business plan with the caveat that they do not negatively impact your ability to increase revenues or sales. If you can implement a strategy that reduces expenses by making your business more efficient and at the same time gives you the ability to increase revenues, you have just found a plan of action.
The Three Ways to Grow Your Business
"Nothing happens until someone sells something".
It is common wisdom that there are only three basic ways to grow your business. Because I believe that increasing revenues should always be your first choice, this is where we will start.
- Increase the number of customers
- Increase the average transaction value
- Increase the number of transactions per customer
Don't make the mistake of only focusing on the first item in the list. If you do, you will miss out on the exponential value of combining all three. The formula we are looking for here is Number of Customers * Average Transaction Value * Number of Transactions Per Customer = Total Revenue. Increasing all three will turbo-charge your growth.
Let me give you an example. Let's assume that your business has 1,000 customers and on average each customer’s purchase was $100 and each of these 100 customers, on average, purchased from you twice a year. In this hypothetical example your annual sales volume would be:
1,000 * $100 * 2 = $200,000
If you increase any one of the variables in the formula by 10%, you will see a 10% growth in Total Revenue. Let's see what would happen if you work on all three. Assume you could increase your active customer base from the 1,000 in the initial example to 1,300 (this increase of 300 represents only about one new customer per day). Also assume you could increase the average sales transaction from $100 to $125. Finally, you work on increasing the average transactions per customer from two times per year to three times per year. Here are the results:
1,300 * $125 * 3 = $487,500
So by adding one new active customer per day, enticing them to purchase an extra $25 on average each time they bought from you, and getting them to purchase from you just one extra time per year you’ve increased your annual sales volume almost 250%.
Increasing the Number of Customers
This can be the most expensive of the three, yet this option has virtually unlimited possibilities since the world is literally your market.
There are three basic categories of prospects that are candidates for your products or services. These are:
- The prospect who should be using your products or services, but is not now;
- The prospect that has just come to realize the he or she has a need for your product or service;
- The prospect that is now purchasing your product or service but is buying from someone else.
There are also three basic ways to acquire more customers. These are:
- Improve customer retention. For every customer you lose to a competitor, you must replace them with a new customer. Why not see what you can do to retain them? A customer saved is a customer gained.
- Improve conversion rates. Work on improving the ability of your sales staff to follow-up with potential customers and deliver what they need.
- Attract more leads. Do more advertising or more effective advertising. Always strive to increase your sources of leads.
Increasing the Average Transaction Value
What additional products or services do you offer that might complement a purchase from your customer? What additional products or services can you add. It has been said that about 30% of customers will take advantage of this type of offer. Here are some examples:
- Increasing your prices. Price is not always the determining factor in a purchase. Are you sure this is the case in your instance?
- Up-selling. Would your customer be better served and derive more satisfaction or utility through purchasing a higher end version of your basic product?
- Cross-Selling. The process of selling additional merchandise or services to the customer at the time of transaction.
Increasing the Number of Transactions Per Customer
Many times a company will make a sale and then sit back and wait for the customer to come to them for another purchase or reorder. Here are a few ways for you to be proactive:
- Communicate with your customer on a regular basis;
- Give deals or incentives for frequent purchases;
- Keep records of when your customer might be needing a refill, replacement, or addition.
