Do you know how many ways are there to grow your business? A hundred ways? Two hundred? In terms of tactics, there are thousands of ways, and new ones are invented each day. But fundamentally speaking, there are only four ways to grow your business:
- Increase the number of clients.
- Increase the average sales value per transaction.
- Increase the buying frequency per client.
- Improve the sales and marketing related systems and processes.
That’s it, only four ways. Once you know this, it becomes less daunting, as you know where to keep your focus. Since I do not know you or what your business does, I will try to keep this as generic as possible. Let’s look into them individually:
Increase the number of clients:
Everyone wants to have more clients for their business because it’s not rocket science to know that the more clients you have, the more you sell, and therefore, the more you earn. Easier said than done! Today, unless you’re an established business, it’s not easy to get new clients on a consistent basis. Advertising has become quite expensive. So before you embark on your goal to acquire clients, you first need to know the….
Life Time Value (LTV) of your customers.
Life time value is the total profit generated from an average client over the lifetime of his spending for your products and services, after subtracting all expenses related to advertising, marketing and product fulfillment. Each business owner needs to find this out. Without knowing this, how will you know how much your clients are worth and how much can you afford to spend, to acquire new clients? For example, you sell widgets for $50 each. The average customer buys two widgets each time he makes a purchase, for approximately four times a year. On average, a customer sticks around for three years (retention rate). This means that the customer spends $1200 with you over his lifetime.
50 * 2 * 4 * 3 = 1200
If your margin is 100% after expenses, you earn $600 per customer. This is the lifetime value. This also means that theoretically, you can afford to spend up to $600 to acquire a customer, which is the breakeven point. At times, some business owners spend more than the LTV to acquire a customer. You’re probably wondering how is it possible to survive if they make a loss. This is generally observed with highly aggressive business owners with deep pockets who want to eat up their competitors. Their calculations are extremely advanced and they even consider the referral sales. So if a customer refers two new customers in their lifetime, they consider the LTV as $1800.
Client referrals: The best and cheapest technique to increase the number of clients is to have a good referral system in place. The client is already happy with your products or services and should have no issues in referring other clients to you. You should always encourage your clients to refer their friends, family members, and business associates to you at various communication levels. This includes follow ups after a sale to check their satisfaction, re-order or renewal times, new product launch invitations, etc. You can even consider some type of reward in cash or kind for further encouragement.
Increase the average sales value per transaction:
You have already won the trust of your client and got the order, so why not make the transaction more profitable? Once the client has decided to make a purchase, he is in the buying mindset and it is your duty to ensure that he gets the most value. Following are some ideas to increase the sales value:
Up-selling: Your clients may not be aware about the higher, bigger or better versions of the products or services that you may be selling, which you need to tell them. It is your job to educate and give suggestions for the upgrade options. If you don’t do this, not only are you missing out on extra income opportunities, but you are actually doing a disservice to your client. For example, you are a car salesman and your client is a businessman who is serving corporate clients. He is looking out for an economy car which can seat four family members. Based on the discussion with him, you may arrive at a conclusion that he needs a bigger and better car due to his expanding family and his need to maintain a particular status for his clients. If you do not help him see this need and just give him what he wants, your client may be upset with you once he realizes this. It would cost him much more to upgrade later, than what he would have spent initially.
Cross-selling: Your client has made the decision to buy (let’s continue with the example of a car). It is your duty to offer him additional products or services that makes his initial purchase more pleasurable, helpful or advantageous (and profitable to you). You can offer to sell accessories, upgraded warranties, insurance, car club memberships, etc. Why let him buy these things elsewhere if you can provide the same yourself? You don’t necessarily need to have an official business for the cross-sell items, you can simply refer them to such business owners and make a commission from it.
Increase the buying frequency per client:
Some business owners focus only on the one time sale to a client, they fail to have clients make a recurring buying commitment from them. While in some businesses the recurring is quite obvious like a web hosting service, it is not so obvious in other businesses and you need to think and strategize how you can implement a system and encourage your clients to sign a re-billing contract. In the lawn mowing business, most folks call the mower when the lawn is in a mess and requires lot of seeding, weeding, mowing clipping, etc. But there are many folks who would prefer to have a sensational lawn at all times, without requiring to call up the lawn-care fellow each time it is in a mess. You can have a yearly contract where you get the job done at a fixed time interval as well as in emergencies. In the car example, you can have a contract with your client for routine oil check and change, full service, etc.
Improve the sales and marketing related systems and processes:
Businesses will have their cash flow in check and sales growth improved if they take care to ensure that their systems and processes are running at the highest efficiency. You need to constantly focus on improving conversions, replace obsolete and out dated systems, check and monitor effectiveness of marketing and advertising procedures, and check ageing of any physical assets if they need repairs or replacement.
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