This is where the serious business owners will separate themselves from the pack. Up to now, the race has been about positioning yourself for victory. But now we get down to the nuts and bolts of growing your business.
The five key components of the Business Chassis are Generating Leads, Conversion Rate, Number of Transactions, Average $ Sale and Profit Margin. These five components are called the Business Chassis because your entire business “runs” on these components. Below is the math equation:
Number of Leads Generated x Conversion Rate = Number of New Customers.
If you intend to add more customers, you must do one of two things or both. You must increase your number of new leads (those who are aware that your business exists) or increase your effectiveness in converting those leads into customers. Both can be done but both require specific strategies to make your efforts effective and productive.
The number of Customers x Number of Transactions (the frequency of purchase) x Average $ Sale (average ticket price) = Total Revenues.
Once you know your total number of customers, then you can multiply that number by their average purchase frequency to get the total number of transactions you should expect in a period. Then, multiplying that number by the average ticket price for a sale and you get the total revenues generated during that period.
Here’s Your Profit Tip of the Day
Here is your primary business equation: Leads Generated x Conversion Rate x Number of Transactions x Average $ Sale x Profit Margins = PROFITS
If you want to increase your revenues, you must either increase the frequency of purchase of your existing customers or get them to buy more each time they visit with you. Again, both are achievable but both will require different strategies to get the results you want.
Once you have your new Total Revenues, you can multiply that by your Profit Margin to get your total available margin or operating Profit. If you want to increase the profitability of your business, then you must find ways to improve your profit margins so that you make additional margin dollars on each and every transaction. Again, there are several strategies that will work to make this happen. You simply must decide what you are going to accomplish and implement the strategies in a focused manner.
Because this is a math equation, each component is multiplied by the others, even a small change in every component can result in a large change in the bottom line profit.
For example, a 10% increase in each of the 5 components of the Business Chassis will result in a 62% increase in the bottom line profits! Small improvements focused on each of these five areas will have a dramatic increase in your business.
This is a POWERFUL concept that most business owners overlook. In the upcoming stages, we will examine each of the five components in details and outline opportunities for improvements in your business. This week, get the concept clearly in your head. Try out the math on a piece of paper. Do some “what if’s” and prove to yourself that there is truly power in the Business Chassis. Then we’ll begin putting meat on the bones in Stages 19 thru 23 – what I call the Mountain Stages.
If you’re looking for more success and freedom from your business, join my FREE, private Facebook Group called The Peloton. It’s where business owners like you are learning, sharing and working together to get better every day! Here’s the link: https://www.facebook.com/groups/jointhepeloton/
Come on – join us! And remember, whatever you do, RIDE HARD!