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The Business Growth Formula
I’ve been teaching a business growth formula for many years now. And put simply the business growth formula is leads multiplied by your conversion percentage equals the number of customers or quantity you have.
When you multiply that by your average spend per sale and multiply that by your frequency of transaction per customer, you’ll get your revenue. Then, when you multiply that by your net profit percentage, you’ll get your net profit. The other option is minus your expenses and that will give you net profit.
The key with this business growth formula is to understand what you can influence and what is actually a result of what you can influence.
Most people when they’re looking at KPIs, will look at revenue, they will look at profit, and they will look at their number of customers. These are what we call lagging measures. They’re after the fact and there’s nothing that you can do once you review them to influence or change the outcome.
The outcome is the outcome. They’re historical numbers.
Your leading measures are your leads, your conversion percentages, your average dollar per transaction and the frequency of your transaction. Because the activities that you choose to do will influence these metrics which will in turn, affect your results.
It’s critically important when you’re putting together your KPIs and creating your dashboard that you have a blend of leading and lagging metrics. You also need to be mindful when you’re looking at this business growth formula and setting up your dashboard, that you look at when you should review these figures.
Some figures should be looked at daily, some weekly, some monthly. I don’t think there’s many metrics that you wouldn’t look at, at least on a monthly basis when it comes to your business.
This information I’m sharing with you is timeless. It doesn’t change because of the economic climate. It doesn’t change when the markets are up or the markets are down. This is universal to all businesses and it’s economic proof.
So remember the five key metrics that you should look at.
- Your leads
- Your conversion
- Your average dollar per sale
- How often someone is purchasing from you
- Your margins.
These are key because you can influence those. They have a compounding effect when you improve them. They also have a compounding effect when they go into the negative. So ensure that you’re sitting all of your financial systems in your business and doing all of your strategic planning around these five key metrics.
I do have a little business growth formula template that I can send you to help with this. So if you’d like the template, just email firstname.lastname@example.org and say “template” and I will get it to you.