Your Business Profitability KPIs on Five Fingers
Well let's get straight to it
Well let's get straight to it. There are only five ways to grow any business and business owners, as a minimum, should create Key Performance Indicators around these five components. The fabulous five are: Number of Leads - Get more customers coming through the doors Conversion Rate - Convert more enquiries into sales Transactions - Increase the frequency a customer purchases Average Sale Per Customer - Increase the average sale per customer Margin - Increase the profit margin per sale Number of Leads. The total number of potential buyers you contacted or that contacted you last year. Also known as prospects, enquiries or potentials. Most business people confuse responses, or the number of potential buyers, with results. Just because the phone is ringing doesn't mean the cash register is. What is even more amazing is very few businesses even know how many leads they get each week, let alone how many from each and every marketing campaign. It's great to get lots of leads, but then you've got to convert them to sales. Conversion Rate. The percentage of people who did buy, versus those who could have bought. For example, if you had 10 people walk through your store today and you sold to only three of them you'd have a conversion rate of 3/10, or 30%. Guessing your conversion rate is not acceptable, only the numbers will tell you the truth. When you ask the average business owner about their conversion rate, they take a stab in the dark, and tell you it is between 60 and 70%. By actually measuring it you will find it is more like 20 or 30%. Although this looks bad this creates a great opportunity, because if you're getting by at 20 or 30% conversion, imagine how the business would be at 60 or 70%. Remember, double your conversion rate and you have doubled your sales. So, number of leads x conversion rate = number of customers.... Number of customers: this is the total number of different customers you have dealt with. Remember, it's not about getting more customers; you can't change that number directly. It's about getting more leads and then improving your conversion rate. These are the variables that can lead to amazing results. Number of Transactions. Another of the five main variables. Some of your customers will buy from you weekly, others monthly, others on the odd occasion and others, just once in a lifetime. What you want to know is the average. Not your best not your worst, but the average number of times a customer buys from you in one year. This is a goldmine, as most businesses never collect a database of their past customers, let alone write to them, or call them and ask them to come back. Your Average Dollars Per Sale. Here's one variable at least some business owners do measure. Once again, some customers might spend $1000, some just $25, but the average is what you're after. Just a few dollars on each and every sale could be all it takes. Add up your total sales and divide by the number of sales to give you a rough guide. So, customers x transactions x average dollars per sale = turnover...... Turnover: another result. Most business owners know the answer to this one. Yet they most probably have no real idea as to how they got to it. Of course, you want more of it, but you can't get more turnover. What you can do is to get more transactions and a higher average dollar value from the total number of customers you deal with. Your Margins.Margin equals profit sell price..... This is the percentage of each and every sale profit. In other words, if you sold something for $100 and $25 was profit, then you've got a 25% margin. Remember, this is after all costs are taken out so, your turnover x margins = profit. Profit: another result that every business owner wants more of, not realizing that you can't get more profit; but what you can do is get greater margins on the revenue that you've got. And that's it. This business skeleton is the basic model that dictates the profit levels of every business on earth.
By simply breaking down your sales and marketing efforts into these five areas and understanding how each affects the other you're halfway there and, most definitely way ahead of 90% of businesses out there.
Your Business Profitability KPIs on Five Fingers
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