Yes, despite what so many people say there are only 4 ways to grow any business!
Four important questions which focus on the acquisition, maximization and retention of your customers. Don't get me wrong, there are a number of answers to each of the questions – a number of multiple strategies which you can implement in your business – however when you peel back the layers you'll always arrive at these 4 important questions.
#1 How do you increase the number of customers?
This is where most businesses tend to spend their time – in attracting new customers through the front door of their businesses. My question for you is this; What are the various strategies you're currently using in order to attract new customers to your business? And more importantly, are they working?
The first and number 1 low cost/ no cost strategy for increasing the number of customers is, of course, referrals. 86% of my business comes from referrals. Was it always the case? Of course not but, we've been focused on building a referral only business. Could you do the same? What percentage of your business comes through referrals today?
A second strategy to increase the number of new customers is by forming an alliance partnership or sometimes referred to as strategic alliances. Who has a target market of customers who fit the profile of customer you want to attract to your business? How can you form an alliance partnership together to cross refer business?
Now question 2 (along with question 3 of the 4 questions) focuses on how you can maximize the value from your existing customers.
#2 How do you increase their average order value?
One relatively simple strategy to implement, is to increase the number of products and services your customers buy from you and your business.
In my experience, (I've worked with tens of thousands of businesses across 27 countries) most people do not buy ALL the products and services they could from you, simply because they do not know about everything that you sell.
Could this be the case in your business? Do you have a systematized process to educate and up sell customers on your full complement of products and services available to them? If not, you should.
You've already invested time in acquiring the new customer – you've already invested the money - now is the time to capitalize on all your efforts to date. One effective strategy is to parcel or bundle products and services together.
Let's say that you have a product that sells for £100 and you can make it or buy it for £50, then the profit on a single sale of that product would be £50.
|Increase in Profit|
However, if there was a second product that you also normally sell at £100, which you buy at £50, then we could bundle these two products together to increase the average order value and, more importantly, the average order profit.
|Increase in Profit||40%|
As you can see you've bundled the products together and sold them at a combined price of £170 - a discount of £30 or 15% and yet the profit on this sale has increased from £50 to £70 -an increase of 40%.
Naturally, if you believe your customers would normally buy both products at normal price, this wouldn't be a strategy to employ. However ,if the discounted price prompts additional sales then an increase in 40% profit would be very welcome, I'm sure.
#3 How do you increase their average order frequency?
So, you've attracted new customers through the front door of your business and you've maximized their average order value at the front end. Now, it is the time to leverage the average order frequency – or, in other words, programme the customer to buy more and...more often!
To help with this ,we need to look at what the potential lifetime value of a customer is worth to your business – something I call the LTV.
So, let's make this real for a moment and take a simple example. Let's imagine you've always shopped at Sainsbury's. However, one of your friends is raving about Tesco and how good they are, so you decide to test them out yourself. You go along to your local Tesco with your list of 40 items and 30 minutes later you're at the checkout packing all the items into bags – all 40 items! And...you're now £100 lighter in the pocket.
The experience was great, you agree with your friend's raving endorsement and you're now a convert - Tesco's is defiantly for you.
Here's where the LTV (lifetime value) kicks in. How many times do you go to the supermarket in a year? Well, for a family with 2 children probably once a week. And how much do they spend? An average order value of £100. And taking out 2 weeks for their annual holidays the average order frequency is say 50 times per year.
Tesco's are delighted! New customer – average order value £100 – 50 times a year – That's £5,000.
So, let's spin this into a focused question, which can relate and apply to your business;
What is a customer worth to your business?
Not just in year one but over their lifetime? Their LTV? Not just the turnover figure, but what are they worth in terms of profitability? That's the real measure.
It's amazing when you calculate the REAL lifetime value of a customer, how it changes your focus within the business. You can then calculate what you're prepared to spend in marketing to attract new customers through the front door.
#4 How do you increase the retention of your customers?
Customer retention, or most importantly lack of it, is costing businesses millions in lost turnover and profits each year. The market place is bigger than ever and as the market grows, so does the competition.
Your customers are constantly under attack from rival organisations attempting to steal them from your business. In many businesses and organisations as fast as customers are persuaded in through the front door, others are silently slipping out the back.
You're going to lose some customers – FACT! But what if through increased focus, and a well thought out customer retention strategy, you could reduce the attrition rate of your customer base by a small percentage point?
Think of it like this, would you rather spend year after year bringing in new customers just to stand still or, put some focus on your existing customers to really drive your business to levels of growth that previously you'd only dreamed possible.
So, there you have it the 4 important questions of business growth. Are you asking these 4 questions in your business?
Royston Guest is a global authority on growing businesses and unlocking people potential. He is CEO of Pti-Worldwide, author of #1 best-selling business growth book, Built to Grow and founder of livingyourfuture™. Follow him on Facebook or Instagram. Connect with him on LinkedIn or check out his weekly blog at https://www.roystonguest.com/blog