In the beginning, with a good product and a savage work ethic, business growth can feel inevitable. But what do you do when that growth slows or plateaus? Or you’ve gotten the hang of delivering consistent quality and want to start dialing in business growth, make it more predictable, and pinpoint exactly where to direct your efforts for greater profits.
Wouldn’t it be great if there was a formula that helps with that?
The short answer is “yes, there is” and it’s been around for decades. I learnt it from Brad Sugars (Action Coach) and it’s called the 5 Ways to Grow a Business Formula. It’s quite literally the formula for business growth.
{Number of Leads} x {Conversion Rate} = {Number of Customers} x {Number of Transactions} x {Average Dollar Sale} = {Revenue} x {Profit Margins}
Just plug in the numbers and see how making small changes can produce extraordinary changes to your bottom line. The secret is to leverage the 5 factors that drive profit, not the results of the factors.
Focus on…
#1. Leads – A Lead is simply the total number of potential buyers a business has contacted – or that contacted the business – over the course of a year. Leads are also known as “potentials” or “prospects.”
#2. Conversion Rate – This is the percentage of people that actually bought. If 10 people walk through a store and three people buy, that store’s conversion rate of 3 out of 10, or 30%, for that day.
#3. Average Dollar Sale – This is the average dollar amount per sale – estimated over the course of a year.
#4. Average # of Transactions – This is the number of purchases the average customer will make over the course of a year.
#5. Profit Margin – This is the profit percentage of each and every sale. Simply put, if a business sells something for $100, and the profit was $25, the profit margin is 25%.
Anyway, it’s best if you watch the video to learn how it all works.
Timestamps:
0:03 – Ode to Brad Sugars.
1:00 – The ‘Five Ways to Grow your Business’ equation.
2:10 – The five most important numbers.
3:15 – How to leverage these numbers to impact your business.
5:29 – The effect of leverage.
