There are 3 main ways you can grow your business.
First, get more customers.
Secondly, get customers to spend more.
And finally, get customers to buy more frequently.
This was covered in more detail in the Marketing a Growing Business module.
The module also looked at retention rates and how to keep customers for longer.
This is another contributor to business growth.
Have a look at the module to remind yourself.
Most businesses focus on just one of these areas at a time.
Let’s work through an example.
A business starts off with 100 customers.
These customers spend an average £100 per order and they order twice per year.
The total turnover for that business is £20,000.
Now if they increase the number of customers by 10%, they’ll have 110 customers.
So 110 customers spending £100 twice a year, increases the turnover from £20,000 to £22,000.
This gives the business linear growth of 10%.
The key to success is to work smarter and increase in all three areas at the same time.
This is called the multiplier effect and enables you to 1.
increase the number of customers, 2.
increase the average order value and 3.
increase the average order frequency.
This enables you to achieve growth of both turnover and profits.
Let’s work through the same example and increase each area by 10%
In this example, the business increases the number of customers by 10% - from 100 to 110.
They also increase the average order value by 10% so customers spend £110 instead of
£100.
They also increase the number of times a customer orders from them by 10% - from 2 to 2.2 times
per year.
Now if we multiply all the figures, we see the turnover has increased from £20,000 to
£26,620.
So 110 customers times £110 per order times 2.2 times per year = £26,620.
That’s an increase in turnover of a massive 33.1%.and is compound growth.
Linear growth happens when you increase just one area at a time.
Compound growth happens when all three areas are increased at the same time.
With compound growth, a small increase across several areas can make a big difference.
Work through the example online so that you fully understand the power of this concept.
So how do you achieve compound growth?
Follow these three steps: • List
• Ask • Analyse
First, list all your main sources of lead generation – what methods do you use to
generate enquiries?
Next, ask yourself what methods you used when you started the business and have now, perhaps,
stopped using.
Finally, analyse how many leads you get from each source or method and check out the conversion
rates.
I suggest you also revisit the ideas covered in the Marketing a Growing Business module.
Are there any new ideas you could use?
In any business it’s worth testing new ideas.
Test in a small way first, and if it produces results, roll it out on a larger scale.
Keep the multiplier effect in mind when you want to grow your business.
It can be very powerful.