The key points in growing your business include:

•  leverage and focusing on numbers is critical; do more, with less and see your ROI grow

•  improvements of more than 30 percent in net profit are possible; don’t believe the naysayers

•  there is no free lunch – put in the work, read, study, learn, get a coach; do what it takes to make your business a roaring success.

As business owners, we are in the “profit game”. We might all have our unique reasons and motivations, but to win we need to make profit – bottom line. If businesses make losses, they won’t be businesses for very long.

The most important formula in business is one that, if learnt and applied properly, can add massive profit to your bottom line.

Before we kick off, let me ask you: Do you see marketing as an expense in your business, or as an investment? Remembering that the goal of marketing is to create a niche, a uniqueness about your business so that you never have to compete on price, how do you approach it? The chances are your accountant will tell you it is an expense in your Profit & Loss statement.  Not wrong, but really not true in a business growth sense. Here’s why.

Marketing is an investment

Done well, marketing has a few elements to it. First, you need to measure everything. When a potential customer walks through your door (or a virtual door, nowadays) ask how they found you. Was it through the ad you placed, was it word-of-mouth from a previous customer, or a networking event or trade show you attended? You need to know the source of every lead so you can figure out which of your attraction strategies works best for you. By measuring you will know how many new leads the money you spent on the ad brought in and from there you can work out how many customers that converted into. Speaking of ads, design at least 10-12 and test each out. Eighty percent of marketing fails, so it’s imperative to have a wide set of strategies.

Acquisition cost vs lifetime value

By working out how many customers your strategies brought in you can calculate the acquisition cost of each one by simply dividing the amount of money you spent on those strategies by the number of customers. You want the lifetime value of the customer to be bigger than the acquisition cost. Lifetime value (how much each customer spends with you over the next several weeks, months or even years) can be hugely affected by how you engage them, so make sure you study ways to increase it. Read books, study sales techniques, get a coach – do whatever it takes in your environment to focus on delivering increased value so customers spend more and come back often, because repeat business is profitable business.

You are buying customers. If lifetime value is greater than acquisition cost, your return on investment is positive. If I promised to give you $2 for every $1 you gave me, the only question would be how many dollars you could give me, because you’d be making 100 percent every time. In fact, you’d probably start using the profit dollars to give those to me also! In exactly the same way, if every dollar invested in marketing gives you $2 back, then marketing is no longer an expense at all. 

Get into the details

We all want customers, revenue and profit, but they are actually results of the important parts, which are leads, conversion rate, average dollar sale (how much each customers spends each time), the number of transactions (how many times a customer buys from you) and margins (really, how well you manage your costs to deliver your product or service).

Know your numbers

Let’s assume the business has 4000 leads (per year), converts 1000 into customers (a rate of 25 percent) and each spends $100 on average twice each year. The formula is:
leads x conversion rate = customers, customers x average sale x number of transactions = revenue. Doing the maths, that’s revenue of $200,000. Assuming your margin is 25 percent, your profit will be $50,000.

Here’s where you take the power and control and ramp up your business. Can you improve your conversion rate by 10 percent in the next year? How about attracting 10  percent more leads and then increasing average sales and number of transactions by the same 10 percent? If you work really hard, could you find 10 percent in your costs, or raise prices to increase margins?

If you’re prepared to put in the learning, the effort and the time, the rewards can be huge.