It’s all about the numbers or lack of………
It never ceases to amazes me when I ask a Business Owner about how many clients they have and how often they do business with them – in most cases they stare at me blankly and start complaining about all the things that are going wrong within their business rather than focusing on the things that they can manage and make a difference.
All businesses have to have revenue drivers or Key Performance Indicators (KPI’s) and when it comes down to sales there are only three numbers that matter – the number of active customers, their average transaction value and frequency of transaction. By focusing on these three numbers and increasing them year on year a ‘healthy business’ should never suffer from lack of growth or profitability.
The problem with most Business Owners is that they completely under estimate what is possible within their business and focus on all the wrong things rather than the areas which will drive revenue, profitability and growth.
The majority of businesses spend more time and energy trying to get new customers than they do on their existing customers by retaining and increasing the number of transactions and their value resulting in costlier customer acquisition and churn. Fact: it is less expensive, a whole lot easier and much more effective to retain the existing customers than to acquire new ones.
Typically the type of sales drivers we look for within a business should include:
- Number of customers
- Their retention rate
- Number of potential leads
- Number of enquiries
- Conversion rate of enquiries to new customers
- Average number of transactions per customer per year
- Average transaction value
- Number of referrals from existing customers
Someone who simply buys off a company once cannot be called a customer until they have bought at least three times – the objective of the business is then to retain them as a customer so they buy over and over again, increase the frequency of their buying and increase the value of their purchase.
Imagine if you were able to increase the number of transactions from existing customers and the average transaction value by just 10% over the coming year. What difference would it make to the bottom line – I guarantee you would be shocked at the percentage improvement.