If you Repair the Leaks Customers will come!
Most business owners believe that the single key to a successful and profitable small business is their ability to generate a substantial number of new leads for their business. “My business would be humming if I could just get some more people to come through the doors” Business Owner. And with this business owners set about investing time and money in marketing campaigns, signage, promotions, sponsorships etc etc. Whilst this strategy can make a business money, far too often it costs the business far more than it makes them.
Consider an example of a retail business owner who decides to run an advertising campaign to promote a 20% off everything sale in their store. Let’s assume the advertising campaign for 4 weeks cost $5,000, and the store normally turned over $20,000 per week in sales. This would mean that that store would need to make sales of $25,250 per week (or +26.25%) for the four weeks just to achieve the same profit (or recover the costs of advertising/ discounting) as they were getting in a normal week.
Your Business Bucket
I want you to think of your business as a Bucket. Imagine that the water within your bucket is the profit within your business. As I mentioned above too many business owners think that they just need to turn the ‘Marketing’ Tap on, in order to fill their Business Bucket with profits. Unfortunately we find that whilst the marketing tap will generate business profits, most business buckets actually have big holes in them and these holes mean that alot of the profit going into the business bucket is leaky out the sides and being lost forever. There are in fact Seven (7) Leaks or Profit Drivers in ALL Businesses.
So What are these 7 Profit Drivers?
- Conversion Rate
The rate at which your business leads are converted into actual sales. Many businesses believe that the sale will naturally occur if prospective customers come to them, however thousands of sales are lost due to businesses not having effective conversion strategies.
- Average Customer Investment (ACI)
The average amount customers spend (or invest) per transaction within your business. Very few businesses accurately measure ACI and as such they do not know which transactions make are losing them money. We also find that many businesses leave ACI to the customer and hence miss the opportunity to upsell or increase ACI and therefore profits.
How often your customers buy from your business. Again this is an area that is not measured by businesses and hence they do not realise how they can improve how often customers buy from them. This is an area of missed opportunity or lost profit.
How many customers your business loses each year through natural attrition (on average 13% – moving away/ dieing) or perceived indifference. Too many businesses fail to recognise the true value of existing customers and as such do not nurture them. As a result many customers may be leaving your business every year perceiving that your business is the same as your competitors.
The level of profit (Gross and net) being made by the business. Too many businesses do not truly understand the amount of profit that their business and it’s individual products/ services are making for them. This is critical information so you can understand your business breakeven points. Once you understand your margin levels you can explore ways to improve it (including increasing prices, reducing costs, and selling more higher margin products/ services)
The contribution the people (business owner and staff) are making to the success of the business. This area is by far the most important and often most forgotten by many business owners. The success of people depends on planning, leadership, empowerment, and strong support systems.
- Lead Generation
The Marketing Tap or the number of actual lead generated for the business. This is an area where many business owners either spend too much money, do not spend money wisely and fail to test and measure the results of their advertising. We find that many businesses can in fact develop low cost strategies to generate leads and often reduce costs of major advertising investments through better targeting of the right customer segments.
Whilst improving (or plugging up the leaks in) any one of this profit drivers will improve your business profits, it is in fact the combination of minor improvements in all 7 profit Drivers that can generate significant profit improvements. Below is an example of the impact these improvements may have.
Retail Business : $1,000,000 Turnover per annum
$ 100,000 Net Profit/Margin
2400 Leads per Annum
33% Conversion Rate
$60 Average Customer Investment
4.4 Times per annum Frequency
If this business was to improve each of the 7 Profit Drivers by just 5% the accumulative affect would improve the Net Profit of that business from $100,000 to over $200,000 per annum.
It is important to focus on many facets of your business in order to achieve significant profit improvements. This can only be achieved over a period of time (generally around 12 months) to enable different strategies to be tested, measured and implemented. ABC Business Coaching works with business owners who recognise the opportunity to work on the whole 7 profit drivers in order to make these significant improvements in profits as well as make more time for themselves.
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