October 20, 2014

Column from Florida Trend's Business Coach

There are only four ways to increase revenue and profits

Ron Stein | 7/23/2012

Measuring business growth against a set of metrics is important. Yet, you can drive yourself crazy if you create too many factors to track, particularly if they’re the wrong metrics.

Ron Stein
Ron Stein

Of course, whatever you measure has to be revenue oriented. But, you can’t just say, “hey, let’s double our profits in the next six months” and simply chase that goal. Stressing only revenue generation and expense reduction won’t cut it.

It has to be more concrete than that and must be achievable. Or you’ll set your marketing and sales team up for a hit to their morale and disappointment for the company’s bottom-line. So, what are the best measuring sticks to focus on? And is it possible to double your profits in less than a year using bite-sized goals that are easily reached? Yes!

There are only four ways to increase revenue and profits. These are the only key areas of your business that count when it comes to exploding sales. Here’s the amazing part, If you’re on top of just these four factors, there will be a massive impact to your bottom-line.

It’s a blueprint for success that consist of (1) the number of sales leads, (2) the number of leads that convert to customers, (3) the revenue generated per customer, and (4) the profitability of each customer. Each of these builds on the other in a way that will multiply the results you’ll achieve.

If you were to improve every one of these areas by only 10% to 15% each, then you’d grow your company’s net income by 50% to 75%! Do just a few percentages better and you’ll double your bottom-line. Here’s how:

Increase the number of sales leads.The immediate goal is to grow leads through your marketing effort and programs. There are lots of ways to do this starting with sharpening your perfect prospect profile, refining your inbound and outbound efforts, and offering a strong call to action. The key here is to increase the number of ideal customer “touches” and then get them to raise their hand and say, “I want to know more.” Let’s say a marketing campaign drives 2,500 leads to a web-landing page with a special free offer. Not bad. Do you think that can be boosted by 10%? That’s another 250 people to follow-up with, a fairly modest improvement that will yield dramatic results, as you’ll see.

Increase the number of leads that convert to customers.You now need to close as many leads as you can. Better relationship building, marketing programs, and sales training will go a long way to helping. For the above example, normally 4% of the leads are converted to customers -- 100 people. But now there are 250 leads and we work to increase the closure rate by 10%. The new number of leads converted to customers is 121. That’s a 21% increase in new customers. This is starting to get interesting.

Increase the revenue generated per customer.There are many ways to do this. Fine-tune your marketing approach so that when a prospect is ready to purchase you suggest a logical add-on that brings them greater value -- and adds up to more sales per customer. Create a follow-up and retention program for existing customers, the revenue per purchaser is even higher. Back to the profit formula -- to continue our example, typically $9,700 is generated per customer. If we can improve that by 10%, the average sale is now $10,670, or almost $1.3 million in new topline revenue -- a 33% increase. Wow! But we’re not done yet.

Increase the profitability of each customer.There are some fundamental ways to improve profitability. One way is to fine-tune your offering for only what your ideal target prospects want -- then focus all of your attention there. You’ll reduce sales to less profitable, non-ideal customers. Also, a retention program focused on ideal customers is a lot less expensive than the acquisition costs for new customers. And of course, you can continually improve your unique value, which allows you to increase pricing -- making you the choice of quality, not the choice of price. Back to our example: the profit margin is currently 35% -- improving that by 10% leads to a new margin of 38.5%. Overall, that is just about a 50% improvement in net profits at more than $497,000!

Even though each of the four metrics were improved by just 10%, we were able to significantly improve the bottom-line profit. If you think a 10% across the board improvement is impressive, try increasing these by 15%, 20%, or more and see what happens!

The reason that results of this magnitude are possible is because it’s much easier to aim for incremental improvement. On top of that, these four critical factors feed off of each other in a way that gets multiplied at each step.

Track the numbers and measure -- the lead source, the type of offer and call to action, the profitability of each customer, and so on. When something isn’t pulling its weight, dump it.

Earlier columns from Florida Trend's business coach Ron Stein are here. Note: Articles older than 30 days require registration (it's quick and free).

 


Ron Stein is the founder and President of FastPath Marketing (www.marketing-strategies-guide.com). He has more than 20 years experience in sales, marketing, and business development, working positions ranging from salesman to vice president of sales and marketing to CEO of startups with industry leaders such as Motorola, VideoServer, Paradyne, and SercoNet. Ron is a member of the advisory team at the Tampa Bay Innovation Center, a nationally recognized entrepreneurial and startup accelerator for the state of Florida. He can be reached at 727-398-1855 or Ron@FastPathMarketing.com

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